Lucky Fiakpa
5 January 2009
Nigerians are deeply religious people and with the economic meltdown hitting hard on the people, there could be no better time to seek divine intervention as the new Finance Minister now calls for prayers to stir the economic ship successfully, Lucky Fiakpa writes
Dr. Mansur Muhtar, former Director General of the Debt Management Office, DMO, and new Finance Minister, no doubt has a rich credential. A renowned Economist who is coming to the ministerial job from Africa Development Bank (ADB), Muhtar is well equipped for the job. Before coming to DMO, he was a Senior Economist with the African Region of the World Bank. At DMO, he was first Director of Portfolio Management and Strategy. As DG DMO when Prof. Ngozi Okonjo-Iweala held the saddle as Finance Minister, Muhtar was generally managing Nigeria's debt portfolio and played a major role in the negotiations that led to Nigeria's exit from Paris and London Clubs of creditors.
Of course during that period Nigeria had so much money to play with. That was when international oil price hovered in the neighbourhood of $100 per barrel. Things were much easier then and Muhtar seems to realize this.
At a reception in his honour by the people of Dambatta, held at the palace of the District Head of Dambatta, Sarkin Dan Kano, Dr Mukhtar Adnan, Muhtar admitted that his appointment is a challenge in view of the current world economic meltdown, and called on Nigerians to put all hands on deck to improve the country's economy. He also called on Nigerians to assist with prayers towards curbing the economic meltdown.
Surely, the Finance Minister would need a whole load of prayers to manage the economy successfully. He is coming in at a time the economy is at its lowest ebb in more than a decade. The 2009 budget benchmarked at crude oil price of $45 per barrel is already wobbling with oil prices below the benchmark price. There are fears it could stay in the $30 pb neighbourhood for a good part of this year, which could spell untold hardship for the Nigerian economy.
The excess crude oil account created to serve as a buffer for period such as this had since been depleted. This therefore leaves the various tiers of government at the mercy of the harsh economic realities of the day.
Oil prices remained near three-year lows as the slowdown in United States and Chinese economies continues to hurt demand for crude, especially in the U.S. which serves as the major oil market for Nigeria.
Muhtar is also assuming office to manage a budget many have written off as dead on arrival given the poor performance of crude oil in the international market. The budget also has a huge deficit component the source of its financing looks blurred. The deficit announced in the budget leaves considerable room for uncertainty. While the government announced a recall of $200 million from the Nigeria Trust Fund Account of the African Development Bank (ADB) and a bond issue of a Naira denominated $500 million, other aspects of the deficits are quite unclear, raising speculations as to the extent of borrowing.
The revenue expected from signature bonuses and proceeds from privatization are not clear and were not stated. As the government may have made projections based on certain parameters, it is likely that borrowing will be greater than expected if the projections are not met. So as government deficits grow, so also do the growth risks in the economy.
Again, Muhtar is coming into office at a time the naira, the nation's currency is heading for the canvass and at a dashing speed. The greatest force against the strength of the naira is the uncertainty of how low oil price could go and the implications it would have on balance of trade and the level of foreign reserves. It is thought that the greatest pressure on the naira will emanate from continuous worsening of the terms of trade and the threat to macroeconomic growth through debt and inflation.
The foreign exchange market, which for almost a year now has been stable, suddenly lost ground against major traded currency last month and has not been able to recover since then. The CBN effort to stem the market failed to achieve set objective as the naira continued its downwards plunge against the United States dollar and other traded currencies. The naira closed at N135.5 per dollar, down from N132.3 the previous week as banks and other authorised dealers scrambled for the greenback to meet customer obligations in an increasingly tight market.
Depreciation of the Naira
After some tight lips as to the reason behind the falling value of the naira, the CBN governor, Prof. Chukwuma Soludo, finally admitted that the depreciation was at the instance of the government. He said the devaluation of the naira is a deliberate and strategic move to shore up the nation's economy and slow down the depletion of the nation's foreign reserve put at $57 billion last month, amid falling crude oil prices.
The CBN strategy is to enable Nigeria to maintain a healthy balance of payment position through a constriction of imports, though some analysts have said that the devaluation is to allow government pay its bills. This further drove the naira value aground as it hit an exchange rate of N140 to the dollar at the parallel market.
Apparently unable to sustain the huge demand for forex amidst dwindling supply of dollar occasioned as a result of depleting reserves caused by poor oil revenues, the government on Monday, December 22, 2008 announced the closure of the foreign exchange market and it is expected to open today January 5, 2009.
In a circular, announcing the closure and sent to authorised dealers last month, the CBN's Acting Director, Trade and Exchange, Mr. B Musa, said the foreign exchange auction market, otherwise known as Wholesale Dutch Auction System, would be closed "in consideration of the Christmas and New Year holidays."
The closure of the official foreign exchange, which many considered to be an unusual move, highlighted the scarcity of forex following the rationalisation of banks' offshore credit lines and the refusal of the Central Bank of Nigeria to fill the gap.
However, the new Minister of Finance believes the Federal Government is in a position to tackle the present global economic trend, and called on everybody to support the government's drive to find solution to the problem. He said the Federal Government will collaborate with the 36 governors to transform the country's economy in a way that it would improve the standards of living of the people, as they are closer to the grassroots.
He expressed appreciation to President Umaru Musa Yar'Adua for giving him the opportunity to serve, and assured of his total commitment to promoting the economy.
Not a few sector of the economy will celebrate if the government could find solution to the economic meltdown, except that the indices hardly support an administration on the path of fixing the economy.
Burden of Manufacturers
The manufacturing sector already burdened with huge stock of unplanned inventory is now facing rising lending rates. From an average of 17 per cent for a better part of last year, the rates hit an average of 25 per cent in the last quarter of 2008.
Alhaji Bashir Borodo, the President of the Manufacturing Association of Nigeria, MAN, would want the CBN to do something to firm the downwards movement of the naira fast in other to save manufacturers another round of agonising moment. He believes the current operating environment is bad enough and a further fall in the value of the naira, could spell disaster for the sector.
In a chat with Financial Vanguard, the MAN President said the decline in the value of the Nigerian currency against the dollar in the foreign exchange market will have an adverse effect on the cost of production in two ways. First, he said, cost of imported raw materials will rise which will further hike cost of production and of course, lead to increase in general price level across the country.
He also believes the falling value of the naira if not arrested could also lead to increase in interest rates. Put differently, as more naira is generated to buy dollar in the foreign exchange market, what would be left for lending for businesses would be less, which will in turn push up the lending rates by banks.
Speaking on behalf of other manufacturers, he says, "We believe the Central Bank should intervene effectively to preserve the value of the naira and protect the macro-economic gains achieved in the last four years. Otherwise, we will be repeating our experiences of four years ago".
Some other manufacturers even believe the problem is worse than that. A source close to the Lagos Chambers of Commerce and Industries, LCCI, told Financial Vanguard that it will take divine intervention for businesses to survive this year if the naira continues to fall. He said there are certain businesses that take goods from manufacturers abroad, sell and return money at the end of sales. "Mind you, these contracts were entered into and the goods sold when the naira was stronger. At the current position, it means the agent in Nigeria may have to look for additional money to be able to pay the foreign manufacturer the agreed sum," he said.
Apart from that, he said that some manufacturers had opened letters of credit for imports when the naira was strong. With the fallen value of the currency now, the importer may have to source for more funds to be able to finance the same equipment or materials. "He will be lucky if he can pass on the additional cost to the consumers if not he may have to bear the cost all alone with attendant consequences on the cost of operation. This could result in drop in profit margins and there would be the temptation to lay off workers," he says.
Business plans hitherto considered to be sound may now have to be redrawn in the light of the falling value of the naira. This may well spell doom for many of them as banks may now be reluctant to finance such projects. Even the unstable value of the naira could make planning pretty difficult for manufacturers this year.
Bola Olayinka, the managing director of DN Meyers Plc and Chairman, Manufacturers Association of Nigeria, Paint Group, painted a gloomier picture. "As if the situation is not bad enough for manufacturers, right now, the banks are not even willing to open letters of credit for anyone. The situation is so uncertain and only God can save the manufacturing sector from the way things are going at the moment," he said.
Fall of the Naira
Although the depreciation of the naira was officially cknowledged last month as government induced, it would look like the naira has been having a steady decline against the dollar long before it came to the open.
The N3.1 billion of foreign exchange (forex) sold in the month of November represents 1,529.3 percent rise over the $383.3 million sold in the corresponding month of 2007.
Statistics made available by the Money Market Association of Nigeria (MMAN) shows that N1.27 billion was sold by the Central Bank of Nigeria (CBN) through its Trade and Exchange Department at the Wholesale Dutch Auction System (WDAS) market in August this year, another N290 million in September, N3.4 billion in October, and N3.1 billion in November, total N8.06 billion in four months.
Once again, the experienced increase in volume of forex sold in the month was hinged on the recalled of funds by the offshore corresponding banks in their efforts to minimise the impact of the global financial crisis on their balance sheet size.
The stability enjoyed by naira at the CBN exchange rate market in the month of October was sustained in the first three weeks of the month, before the dip in value last month. It opened at an average of N115.57 to the dollar and N116.57 to the dollar for Bid and Offer; and closed at an average of N115.60 to the dollar and N116.60 to the dollar in the month.
Meanwhile, the parallel market as captured by Bureau de Change posited forex trading activities at a relative average of N119.50 to the dollar and N120.00 to the dollar for Bid and Offer. The relationship posited a premium of 3.37 percent at CBN exchange rate market and 0.70 percent at the Inter-Bank Foreign Exchange Market.
In all of the above, the premium when compared with the forex rates obtainable in the parallel market with that of CBN exchange rate market and inter-bank forex market, was less than 5.00 percent IMF standard and so, no incentive for sharp practices.
Read comments. Write your own.
Copyright © 2009 Vanguard. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
The business of corruption is not the most crucial problems confronting Nigeria. The issue must be focused on national leadership not on "Nuhu and his boys". Nigeria and Africa must enact a "national patriotic act empowering the mass population through propaganda, indoctrination, uniform cultural education geared towards the collective benefits of a utopia society". A Nigerian with his own peoples popular mandate to lead them in their dreams and aspirations for decent life, short changes his own people when millions of Naira $$ came missing under his watch, while children dies of malaria or cholera because of lack of simple $2 vaccine. As much as this Nigerian knows how to win an election he is not intellectually or culturally indoctrinated or marinated enough to lead. "A thief does not rob his own home" If most African politicians where community leaders they will find more interest in the emancipation of it subjects and be dynamic to take a global stake in the world's economic and technogical prosperity rather than suits cases full of his own peoples money on transit to hide it in the bush or some obscure foreign land. Nuhu Ribadu is not any different from the opportunistic nigerians who narrowly believe that life is about crime and punishment, losers and winners, rich or poor. Nuhu and his cohorts seized the opportunity to capitalize on Nigerians problems while making a name for themselves. The par capital income in America is $45,000, in Japan $55,000, in London home of stolen Nigerian money, par capital income in England is $39,000. Par capital income in Nigerian is less than $200. One of the poorest nations in the global economy. If you are a true son of the soil Mr. Ribadu you should lend your expertise to eradicating poverty in this part of the world, so posterity would not enditt you as a mear hunter of men you disagree with. "No hard feelings, just simple cold truth". Joe Ukonga
It is very appalling to see that even the leaders of this country do not think about the future of the people that voted them in the government seat of power, are Nigerian leaders not aware that making every citizen feel like someone is more humane and making Nigeria and it's environment condusive in a way of infrastructure and other social amenities not only in the urban areas but also in the rural areas is more profitable .
Infact I think some at the seat of power are vampires our time.
For every loving Nigeria I wish to encourage you to revist Fela undoubtable mighty track [International Thief Thief(ITT's)]he has said it all. Thus, what comments do we make of all commentors on our finacial stand as a country?
How dandy!!! I guess we should all give up & attempt to resurrect Fela from the grave to come sing the song again to Emperor Yar. Wouldn't that be a beautiful music in the ears of the currupt elites that have already dared Nigerians to do its worst. Yet we sitdon & look, silently, expecting God to come down from heaven to come rescue us from our own inaction and aparthy.
Then why is sol being kept as a NIGERAN 'bank contractor messing us, is he the only guru we have in Nigeria? The American's citizens are havesting...past years presidential|*|+|-%=BAIL OUT. Which is now being proved a capable hands must be on-deck to save America. So what is the Nigeria House of Assembly doing?
Praying may help. However, credit crunch crisis, economic meltdown, recession or slump (call it what you will) has created some interesting challenges – but also new opportunities. There are no short-cuts for sustainable long-term success and prosperity. Businesses need bespoke survival strategies to reduce losses, improve efficiency, increase revenue, gain sustainable competitive advantage and outperform market competition… http://www.FixyaExperts.com
The Nigerian government through it's central Bank need to check and monitor the allocation of her scarce foreign exchange. Disburstment of her foreign exchange most be properly collated and the data should be submitted to Central Bank before the next allocation. The Central Bank most keep the data of usage by all the allottees, the track record submitted weekly most be properly be studied to eliminate abuse.The supply of forign exchange will alway fall shot of demand, and we know what happans whenever the supply is less than the damand. The government of Nigeria should focus on how to manage her avaliable limited resourse , since they do not have control over how much her crude oil export generates.