Naira Slide

In the wake of this year, I described the things that we’ll find happening in the economic terrain in 2009. I described a story where the first sign in war led famine, was things becoming expensive. Well, we are not so far gone in the year and it’s happening already. I’m not merely writing a report of the state the nation, I’m writing to give you an idea of my analysis of what is happening, and to give you some guidance into what you can do to make the most of this time. I will offer guidance, no absolutes. Let’s say I’m learning not to put myself in the position where people hand me responsibility for their choices. 

First, when you hear anything is happening, the first thing you ought to do is understand why. If it get’s resolved without your understanding why, if it happens again, you are in a fix. Let’s say for example you are trying to run a particular software, the software stops on a particular page and refuses to go forward. The average person begins to pound on different keys and “Wala!” the computer begins to work again. If it happens again, he’ll possibly waste a lot of time again, banging the keys without knowing which of the key combinations unlocked the page. He might even end up destroying the computer. We will never be able to accurately and efficiently solve our problems if we don’t take time to understand the root causes. So, why is the Naira sliding, where will the slide stop, how does it affect you and I? What can we do?

All we were hearing from the authoritative sources towards the close of last year, was first that there was nothing to fear that we will not be affected by the global economic meltdown, then after a while we heard that our currency will not be affected, then we finally heard, that it would be, and there were no clear solutions in sight. There have been many theories about why the Naira has suddenly moved from N117  to a $1 to N153 to $1 in less than 2 months. Those rates ate the decent ones that the bank uses, on the streets of Lagos, as at yesterday evening, $1 was being exchanged for N170. What’s all these about Naira and dollar, after all most of us don’t do any business that involves foreign currency, right? Well think again, the electronics shops have already started pricing up, manufactured products are following suit, our economy is mostly an import economy and that means the value of the Naira affects all of us. Think about it, look around you, how much of what surrounds you was made in Nigeria, with Nigeria made raw materials? Whatever it is that you saw around you, 80% of them was made outside our shores. Now imagine that their prices increased by 30%. That’s where we are now!

Why?

There are many reasons why the exchange rate of the Naira to the dollar is deteriorating so fast. Here are a few of them.

1. For the 9 years of Obasanjo’s administration, the country had been able to have good foreign reserves as a fall out of a booming oil market and very good prices for crude. The government had then ensured with the alignment of the CBN to ensure that the exchange rates were kept at a particular level by augmenting the supply of foreign exchange with our reserves. This worked well and served us in the past because we had good reserves. Today, our reserves are dwindling and are not being replenished because the price  of oil is down, this limits the ability of the CBN to support supply. With supply down to what we can get, and demand as high as ever, the dollar as become a commodity and it’s  price is being driven by the normal market forces of demand and supply.

2. There is a huge backlog of corporate demand with CBN for foreign currency. This is not being met due to short supply by the CBN.

3. A deliberate effort by the FG (Federal Government) to devalue the Naira. While I feel the argument is flawed,  the argument for this outside of economic jargons is to devalue the Naira to a point where our cost price for our crude is small enough to make it competitive in dollars hence get us more demand and more sales, and more money for the government. Since exporting crude oil accounts for about 90% of our foreign earnings. In doing this however, the converse is that we are as individuals in this country import dependent, this means that we would be disadvantaged by the devaluation. Even something as common as exercise books and clothes are made outside Nigeria. 

4. With the free fall of the stocks on the Nigerian Stock Exchange (NSE) and the collapse of oil prices that has led to many debtors and over N350 Billion exposure for the banking sector, Nigerian’s are looking for alternative investment vehicles. Today, many of our banks are no longer giving mortgages, the business dailies have started prophesying doom for the upper class property market. With so many of the conventional investment outlets closed, many of our top business people with ears closer to the ground have since December begun to buy currency as another source of investment, imagine, the dollar bought in December has appreciated by over 30% already now. People are also getting involved in a number of multi-level marketing programs that require dollars. I joined one international travel club for example at N30,000 and today because of the exchange rate it’s over N45,000. Because the word is out that the dollar and of course pounds prices are going up, and the CBN has not demonstrated their ability to apply any pegs, people are panic buying and investment buying it for the days it will go higher. 

Where will the slide stop?

I’m hearing rumors that the CBN wants to peg it at N150. I also heard that we might witness a rise to N205 to $1 and then experience a quick down swing. The question I have however been turning around in my head is for how long can the $53Billion reserve last, and can the CBN actually peg it? If CBN Pegs it, will people panic sell? Does the country have enough to dictate the direction of the market. This is so exciting for me, because this is Forex Trading without a platform, and I only started doing it actively for myself late last year.

How does it affect you and I?

It affects us in a lot of ways. The prices of a lot of things will soon start reflecting it. The cost of replacement of goods bought will send some business men back to their villages, if they don’t adjust their prices immediately. As the value of the Naira needed to get a dollar rises, our buying power reduces, and the same salaries will not be able to get the same things anymore.

What can we do?

For many of us who dabbled into one investment or the other last year, particularly in the stock market, you have learnt one major thing, you have learnt to earn and also to lose.  We have come to the point where though we are more careful not to put all our eggs in one basket, but we have also become stronger risk takers. I mean if you can watch millions disappear and not commit suicide what problems will a few hundred thousands pose? 

For one, this is a good time to do work that gives you compensation in dollars. These opportunities are available and there are many people I know taking advantage of them. There are a number of freelance opportunities for writing, for web development e.t.c. This is an opportunity for you to no longer be local, but international – get a domain name and get a website. You can also participate in a credible international network marketing business – there are currently about 5 I’ve heard of recently, but I’m only marketing one product – Look well before you leap. You can also learn to trade Forex, I have learnt several times, interestingly late last year was the only time I actually got a strong sensing that the time had come, and it’s going so well. You can also get involved in export, and any business that gets you an opportunity to earn foreign currency directly and not be totally local. If you also work out of Nigeria and usually send money home, these are the times when your family will pray for you deeply…lol

In the event that you don’t understand anything in particular, my email is deolu@newnigeriaclub.net , feel free to give me a buzz so you can schedule a meeting. Or if you can gather yourselves in good numbers, you can book an event with me on the icon by the side bar – Deolu Speaks.

These periods of economic crisis is the best time to be a light and get a voice, I’ll be writing about strategies for being sought after in one of my next posts.