I am about to wail and wail really loud. My wailing is about the exchange rate. 354 Naira to the dollar.

This is terrible and has never happened with this speed ever before in this country. And the single reason for this terrible exchange rate uncertainty is Buhari's insistence that the CBN should not officially devalue the currency just to score cheap political goals.

I want to use this simple narrative to explain whats happening with our currency..and how Buhari's insistence is dealing deadly blows to the economy.The purported official exchange rate is 197 Naira to the dollar. The market rate as at yesterday was 354 Naira to the dollar.

Scenario 1
Now lets assume you are a company importing say industrial goods. So you want to restock and you need $10 million. So you apply for that amount to CBN (say in January) and you pay 1.97 billion Naira at the official exchange rate. CBN delays your approval by about a month(February), but no worries, you now have your $10 million. Typically, you would transfer your money to your supplier say in South Korea and say it takes another month to produce your order(March) and 2 months for shipping to Nigeria(May). Lets say it takes maybe 3 months to sell out your entire stock(August). Lets assume you usually mark up profits on your products by 20% after taxes et al.
So on an investment of $10 million, you would make a profit of say $2 million from January to August. At the official exchange rate that is approx 400 Million Naira in 8 months. Good money it seems yeah?

Scenario 2
You are still a company importing industrial goods. So you want to restock and you need $10 million. So you follow the same process starting in January. Apply, pay 1.97 billion Naira, you get your $10 million in February. You decide not to transfer it. Dollar is exchanging at 320 Naira in the black market. So you take $5 Million from that money and sell it to BDCs at 300 Naira. You are given 1.5 billion Naira cash instantly. In one day, you've made a whooping 500 million Naira in profits. You hoard the rest of the $5 Million overseas on the speculation that dollar would exchange for 500 Naira in the next 3 months. And when that happens, your $5 million would give you N2.5 billion cash. So in total by May/June, you would have earned 1.5 Billion +2.5 Billion= 4 billion Naira from your 1.97 billion Naira investment.

That is 2 Billion Naira returns in 5 months vs N400 million in 8 Months. And you can even make more iff you keep round tripping with the CBN.

The first and direct consequence on this is the the continual rise in the exchange rate. Now that's a problem in itself but maybe not too big of a problem because a weak Naira can actually help your products sell well overseas.

The bigger problem however in the scenario for instance, is the sudden conversion from an industrial goods importer to a Forex Trader. Imagine what would suddenly happen to all those companies who depended on the industrial goods this trader was importing to keep thier factories running. Suddenly, they start laying off staff because they can't produce and then the whole economy suffers the ripple effect.

With Buhari, our economy is in real trouble. The bigger danger is that he doesn't even appear to understand the implications of his action and the near irreversibility of a badly battered economy.

I am not here to insult the President. I don't believe in that. He is the President, so the office should at least be respected.
But something is not right and every patriotic Nigerian would do well to speak.I think we have not just an unintelligent President, but a stubborn one that completely lacks an understanding of basic economic principles and refuses to listen to even the best of his aides.
I say this because I know the likes of Fashola who understands the rudiments of basic economics would have the same understanding of the scenarios painted and the long term implications they would have on this country.

Pat Utomi has spoken. Emir Sanusi has spoken. Many others are dying to speak. I beg, if you love this country, its imperative Buhari must be told to remove his hands from monetary policy and leave it for the professionals at CBN.

PapaBrowne:
I am about to wail and wail really loud. My wailing is about the exchange rate. 354 Naira to the dollar.

This is terrible and has never happened with this speed ever before in this country. And the single reason for this terrible exchange rate uncertainty is Buhari's insistence that the CBN should not officially devalue the currency just to score cheap political goals.


I want to use this simple narrative to explain whats happening with our currency..and how Buhari's insistence is dealing deadly blows to the economy.
The purported official exchange rate is 197 Naira to the dollar. The market rate as at yesterday was 354 Naira to the dollar.

Scenario 1
Now lets assume you are a company importing say industrial goods. So you want to restock and you need $10 million. So you apply for that amount to CBN (say in January) and you pay 1.97 billion Naira at the official exchange rate. CBN delays your approval by about a month(February), but no worries, you now have your $10 million. Typically, you would transfer your money to your supplier say in South Korea and say it takes another month to produce your order(March) and 2 months for shipping to Nigeria(May). Lets say it takes maybe 3 months to sell out your entire stock(August). Lets assume you usually mark up profits on your products by 20% after taxes et al.
So on an investment of $10 million, you would make a profit of say $2 million from January to August. At the official exchange rate that is approx 400 Million Naira in 8 months. Good money it seems yeah?

Scenario 2
You are still a company importing industrial goods. So you want to restock and you need $10 million. So you follow the same process starting in January. Apply, pay 1.97 billion Naira, you get your $10 million in February. You decide not to transfer it. Dollar is exchanging at 320 Naira in the black market. So you take $5 Million from that money and sell it to BDCs at 300 Naira. You are given 1.5 billion Naira cash instantly. In one day, you've made a whooping 500 million Naira in profits. You hoard the rest of the $5 Million overseas on the speculation that dollar would exchange for 500 Naira in the next 3 months. And when that happens, your $5 million would give you N2.5 billion cash. So in total by May/June, you would have earned 1.5 Billion +2.5 Billion= 4 billion Naira from your 1.97 billion Naira investment.

That is 2 Billion Naira returns in 5 months vs N400 million in 8 Months. And you can even make more iff you keep round tripping with the CBN.

The first and direct consequence on this is the the continual rise in the exchange rate. Now that's a problem in itself but maybe not too big of a problem because a weak Naira can actually help your products sell well overseas.

The bigger problem however in the scenario for instance, is the sudden conversion from an industrial goods importer to a Forex Trader. Imagine what would suddenly happen to all those companies who depended on the industrial goods this trader was importing to keep thier factories running. Suddenly, they start laying off staff because they can't produce and then the whole economy suffers the ripple effect.

With Buhari, our economy is in real trouble. The bigger danger is that he doesn't even appear to understand the implications of his action and the near irreversibility of a badly battered economy.

I am not here to insult the President. I don't believe in that. He is the President, so the office should at least be respected.
But something is not right and every patriotic Nigerian would do well to speak.I think we have not just an unintelligent President, but a stubborn one that completely lacks an understanding of basic economic principles and refuses to listen to even the best of his aides.
I say this because I know the likes of Fashola who understands the rudiments of basic economics would have the same understanding of the scenarios painted and the long term implications they would have on this country.

Pat Utomi has spoken. Emir Sanusi has spoken. Many others are dying to speak. I beg, if you love this country, its imperative Buhari must be told to remove his hands from monetary policy and leave it for the professionals at CBN.

so would you prefer JONATHAN?

tripplephi:


so would you prefer JONATHAN?

Jonathan is past. Buhari is your president today. If you are wise, you would speak up so he doesn't destroy this country. Our preferences don't matter now until elections. What matters is the terrible irreversible consequences today's actions are having on our economy. The Naira should be allowed to flow along with the market realities.

tripplephi:


so would you prefer JONATHAN?

Jonathan is past. Buhari is your president today. If you are wise, you would speak up so he doesn't destroy this country. Our preferences don't matter now. What matters is the terrible irreversible consequences today's actions are having on our economy. The Naira should be allowed to flow along with the market realities.

I think we have not just an unintelligent President, but a stubborn one that completely lacks an understanding of basic economic principles and refuses to listen to even the best of his aides

Pat Utomi has spoken. Emir Sanusi has spoken. Many others are dying to speak. I beg, if you love this country, its imperative Buhari must be told to remove his hands from monetary policy and leave it for the professionals at CBN.

At this critical point of our economy capable and experienced hands are required to proffer policies that'll stimulate needed growth.

Aside the scenarios painted the banks are making a lot of money via roundtrips. It's a case of trying to stop a crime whilst opening doors for other criminals.

tripplephi:


so would you prefer JONATHAN?

what class are you?

People like you are the major problem of Nigeria. I dont understand why people follow their leaders sheepishly. if Buhari ask you to jump into the lagoon without life-jacket, will u do so?

even if he devalues the naira, it wouldn't solve the problem.
(1)because Nigeria is still import dependent
(2)the price of oil is still crashing
until this two major issues are dealt with it will be a viscous cycle.
even after the devaluation, the naira will still depreciate against the dollar until the right micro economic policies are put in place

godoluwa:
what class are you?

People like you are the major problem of Nigeria. I dont understand why people follow their leaders sheepishly. if Buhari ask you to jump into the lagoon without life-jacket, will u do so?

IT IS NOT WISE TO CURSE THE DARKNESS IF YOU CAN NOT TURN THE LIGHT ON..... i am for none of both presidents, i just hate it when peeps focus on bad rather than get busy to make it good.

[s]

PapaBrowne:
I am about to wail and wail really loud. My wailing is about the exchange rate. 354 Naira to the dollar.

This is terrible and has never happened with this speed ever before in this country. And the single reason for this terrible exchange rate uncertainty is Buhari's insistence that the CBN should not officially devalue the currency just to score cheap political goals.

I want to use this simple narrative to explain whats happening with our currency..and how Buhari's insistence is dealing deadly blows to the economy.The purported official exchange rate is 197 Naira to the dollar. The market rate as at yesterday was 354 Naira to the dollar.

Scenario 1
Now lets assume you are a company importing say industrial goods. So you want to restock and you need $10 million. So you apply for that amount to CBN (say in January) and you pay 1.97 billion Naira at the official exchange rate. CBN delays your approval by about a month(February), but no worries, you now have your $10 million. Typically, you would transfer your money to your supplier say in South Korea and say it takes another month to produce your order(March) and 2 months for shipping to Nigeria(May). Lets say it takes maybe 3 months to sell out your entire stock(August). Lets assume you usually mark up profits on your products by 20% after taxes et al.
So on an investment of $10 million, you would make a profit of say $2 million from January to August. At the official exchange rate that is approx 400 Million Naira in 8 months. Good money it seems yeah?

Scenario 2
You are still a company importing industrial goods. So you want to restock and you need $10 million. So you follow the same process starting in January. Apply, pay 1.97 billion Naira, you get your $10 million in February. You decide not to transfer it. Dollar is exchanging at 320 Naira in the black market. So you take $5 Million from that money and sell it to BDCs at 300 Naira. You are given 1.5 billion Naira cash instantly. In one day, you've made a whooping 500 million Naira in profits. You hoard the rest of the $5 Million overseas on the speculation that dollar would exchange for 500 Naira in the next 3 months. And when that happens, your $5 million would give you N2.5 billion cash. So in total by May/June, you would have earned 1.5 Billion +2.5 Billion= 4 billion Naira from your 1.97 billion Naira investment.

That is 2 Billion Naira returns in 5 months vs N400 million in 8 Months. And you can even make more iff you keep round tripping with the CBN.

The first and direct consequence on this is the the continual rise in the exchange rate. Now that's a problem in itself but maybe not too big of a problem because a weak Naira can actually help your products sell well overseas.

The bigger problem however in the scenario for instance, is the sudden conversion from an industrial goods importer to a Forex Trader. Imagine what would suddenly happen to all those companies who depended on the industrial goods this trader was importing to keep thier factories running. Suddenly, they start laying off staff because they can't produce and then the whole economy suffers the ripple effect.

With Buhari, our economy is in real trouble. The bigger danger is that he doesn't even appear to understand the implications of his action and the near irreversibility of a badly battered economy.

I am not here to insult the President. I don't believe in that. He is the President, so the office should at least be respected.
But something is not right and every patriotic Nigerian would do well to speak.I think we have not just an unintelligent President, but a stubborn one that completely lacks an understanding of basic economic principles and refuses to listen to even the best of his aides.
I say this because I know the likes of Fashola who understands the rudiments of basic economics would have the same understanding of the scenarios painted and the long term implications they would have on this country.

Pat Utomi has spoken. Emir Sanusi has spoken. Many others are dying to speak. I beg, if you love this country, its imperative Buhari must be told to remove his hands from monetary policy and leave it for the professionals at CBN.

[/s]


Nigerians voted for the president to manage our affairs and he's doing it the best way he can, but if you don't like what he's doing, wait till 2019 and vote him out.


For now, stop bothering us with your cries and moans..

There is a new class multi millionaire emerging from the forex crises. I think rather than complain, one should try to get his foot into this exclusive door to effortless cash.

The mega bucks that criminal businessmen and bankers are making from this round-tripping deals is completely frustrating every effort by the CBN to manage the value of the naira. I think the best/only option now may just be to devalue and let the currency float seeing that there's basically no way in which these criminal elements can be checkmated. A very bitter pill to swallow though.

[quote author=PapaBrowne post=43001529][b][size=12pt]I am about to wail and wail really loud. My wailing is about the exchange rate.
Though all that u wrot is true about d dullllllaarrdinho but admission into the wailers association is closed for the month. We only take not more than 50,000 new members every month and we have exceeded that for this february. Try again in march but u have to pick up the forms earlier bcus d daura dullllardinhos actions have made the wailers members to increase rapidly. Welcome in advance

Only wen d rnd trip is affected, u will see narrative essay.
Wat if d imported product is tootpick or petrol?

Your scenario says the problem is round tripping should we be thinking of solving the issue of round tripping?

No devaluation of Naira will bring about reduction in the rate at the parallel market.

Dollar is scarce because there is restriction to access, there is restriction to access because we are low in foreign reserves, 27 billion usd (almost 12 years low). Nigeria can not afford to run out of foreign reserves.


If cbn devalues naira from 197 to 260-270, parallel market rate will speedily climb to 400.

The mid term solution is access restriction for now, or else we run out of foreign reserves, long term solution is to think export apart from crude oil in large quantities to earn foreign exchange.

There should be control measures by CBN to prevent round tripping by those with access to dollar at official rate of 198

chinchum:


There should be control measures by CBN to prevent round tripping by those with access to dollar at official rate of 198

Did you know it is mainly cbn execs behind round-tripping ? When a fox is in charge of a hen house, that's what you get.

stevecantrell:


Did you know it is mainly cbn execs behind round-tripping ? When a fox is in charge of a hen house, that's what you get.

That is a hefty allegation, i dont know how you are privy to that. Is it simply on suspicion or gut feeling?

AZeD1:
Your scenario says the problem is round tripping should we be thinking of solving the issue of round tripping?

You cannot solve the problem of round tripping when you have created the best market opportunity for round tripping to thrive by pegging the rate.

It's simple, if a house is on fire and the source is electrical, the first thing you do is to cut the supply.

The source of the hoarding is speculation which is a result of the guaranteed downward trend of the Naira. The source of the round tripping is the variance between the parallel market rates and the CBN rates

aresa:
[s][/s]


Nigerians voted for the president to manage our affairs and he's doing it the best way he can, but if you don't like what he's doing, wait till 2019 and vote him out.


For now, stop bothering us with your cries and moans..

if I reply you the way I want, I will surely get a ban as it has been the custom in this section.

What sort nonsense are you talking or do you think you are the only supporter of buhari?

stevecantrell:


Did you know it is mainly cbn execs behind round-tripping ? When a fox is in charge of a hen house, that's what you get.

And how would you know that? Asides why not, when there's money to be made from it. Plus it's not exactly illegal. But it's terrible.

chinchum:


That is a hefty allegation, i dont know how you are privy to that. Is it simply on suspicion or gut feeling?

Pleading the 5th.

PapaBrowne:


You cannot solve the problem of round tripping when you have created the best market opportunity for round tripping to thrive by pegging the rate.

It's simple, if a house is on fire and the source is electrical, the first thing you do is to cut the supply.

The source of the hoarding is speculation which is a result of the guaranteed downward trend of the Naira. The source of the round tripping is the variance between the parallel market rates and the CBN rates

On a scale of 1 -10 how would devaluation reduce round tripping?

chinchum:
No devaluation of Naira will bring about reduction in the rate at the parallel market.

Dollar is scarce because there is restriction to access, there is restriction to access because we are low in foreign reserves, 27 billion usd (almost 12 years low). Nigeria can not afford to run out of foreign reserves.


If cbn devalues naira from 197 to 260-270, parallel market rate will speedily climb to 400.

The mid term solution is access restriction for now, or else we run out of foreign reserves, long term solution is to think export apart from crude oil in large quantities to earn foreign exchange.

There should be control measures by CBN to prevent round tripping by those with access to dollar at official rate of 198

Trust me, the bigger source of the scarcity is hoarding and not importation. Warehouses are empty. Activities at the ports are Down. Importation has nosedived terribly. The demand for forex is more about speculation than its about importation.
Devaluing the currency, or better still allowing the markets to determine the rates albeit in a controlled fashion would do a lot to reduce the factor of speculation.

You think about this: Oil imports are our largest forex drainer. Probably more than 30%. Since the price of oil is down radically, shouldn't the demand for forex by importers of crude go down radically as well.

stevecantrell:
There is a new class multi millionaire emerging from the forex crises. I think rather than complain, one should try to get his foot into this exclusive door to effortless cash.

This is the best comment I have seen so far, only those who were truly beneficiaries of the looting of the past are the ones actually complaining, I also feel for the employees of organisations and companies that have been profiting from the looting of our treasury in the last 16 years and importation based organisations too.

Its time for everyone to begin to look out for opportunities which abound as a result of the present economic crisis, this is time companies like Innoson and other indigenous manufacturing companies who produce the necessary needs of Nigerians will make cool cash. This is the time to get into online businesses to rake in lots of foreign exchange that will turn one's life around.

Those complaining are not helping themselves as some fellows are raking in lots of cash in this period, I know someone who has raked in 17,000 euros within this period. Its time for a paradigm shift, we need to be more dynamic as Nigerians.

aresa:
[s][/s]


Nigerians voted for the president to manage our affairs and he's doing it the best way he can, but if you don't like what he's doing, wait till 2019 and vote him out.


For now, stop bothering us with your cries and moans..

You are not the only person supporting Buhari. I am too; likewise my friends, families and many more.

Buhari seems to be very stubborn and lack basic economic skills. He seems to be someone stubborn and believes he knows better than anyone. With the way exchange rate is going, you should expect $1-550 by May 1st. There are thousands of companies who buy raw materials from overseas. When those companies have no access to foreign exchange market, their business will shut down and millions of Nigeria will lose their jobs.

Tell me what happens when millions of Nigerians lose their jobs.

Anarchy looms in Nigeria very soon.

PapaBrowne,

Thank you for taking the time to carefully explain how the current currency policies only create opportunities for arbitrage by the well-connected. Unfortunately, I doubt it will do much good: the state of Nigerian education is so poor that most respondents will just keep insisting that a "strong" Naira must be good, no matter how powerful your arguments to the contrary, or how weighty your evidence.

The folk belief in Nigeria seems to be that it's within a government's power to give the populace a level of purchasing power greater than what their productivity would actually merit. Right next to that in popularity is the fallacy that imports are by definition bad, and that simply restricting imports to "essentials" will magically make everybody more prosperous ...

it might be a joke to many sha.. but when I started my PhD in 2013, I paid 4Mnaira.. tomorrow I am going to pay 7.3Mnaira... we can be playing politics here and there... but d Middle class will soon feel the heat.. because this isnt funny..

stevecantrell:
There is a new class multi millionaire emerging from the forex crises. I think rather than complain, one should try to get his foot into this exclusive door to effortless cash.

are you willing to tell me how? I got 200k to start with. If you would, am I permitted to send you PM?

I am aware of the opportunity but no one seem to tell anything. Everyone guiding the info like mother hen to he chicks

2sex:
are you willing to tell me how? I got 200k to start with. If you would, am I permitted to send you PM?

I am aware of the opportunity but no one seem to tell anything. Everyone guiding the info like mother hen to he chicks

All you have to do is make friends with an Abuja politician or a highly-ranked civil servant in the CBN! That's what was left out: the only people who benefit from round-tripping are the same highly placed crooks who have always benefited from corruption in Nigeria.

Goke7:


This is the best comment I have seen so far, only those who were truly beneficiaries of the looting of the past are the ones actually complaining, I also feel for the employees of organisations and companies that have been profiting from the looting of our treasury in the last 16 years and importation based organisations too.

Its time for everyone to begin to look out for opportunities which abound as a result of the present economic crisis, this is time companies like Innoson and other indigenous manufacturing companies who produce the necessary needs of Nigerians will make cool cash. This is the time to get into online businesses to rake in lots of foreign exchange that will turn one's life around.

Those complaining are not helping themselves as some fellows are raking in lots of cash in this period, I know someone who has raked in 17,000 euros within this period. Its time for a paradigm shift, we need to be more dynamic as Nigerians.

all this one you dey yarn na story. You know someone. Did the person tell you how they do it? I have been watching it from sideline and no ONE wants to tell HOW they do it.

If you know it, please send me a PM or permit me to send you a PM RIGHT NOW.

adeomolisabi:
PapaBrowne,

Thank you for taking the time to carefully explain how the current currency policies only create opportunities for arbitrage by the well-connected. Unfortunately, I doubt it will do much good: the state of Nigerian education is so poor that most respondents will just keep insisting that a "strong" Naira must be good, no matter how powerful your arguments to the contrary, or how weighty your evidence.

The folk belief in Nigeria seems to be that it's within a government's power to give the populace a level of purchasing power greater than what their productivity would actually merit. Right next to that in popularity is the fallacy that imports are by definition bad, and that simply restricting imports to "essentials" will magically make everybody more prosperous ...

Best comment in a while. You have a clear picture of the challenges many of which are stemming from faulty understanding of the basics.
A devalued currency would even help our productivity as the price competitiveness of our goods become quite impressive.
I like using Chivita fruit juice as an example. At N200 per juice wholesale, it would have sold in say Saudi for $1 last year at an exchange rate of N200/$. At an exchange rate of N400/$, that same juice would sell for 50 cents, making Chivita juice more competitive in Saudi vs other juice manufacturers. This is the direction I would have expected the government to push encouraging the best of our goods to be shipped out.

PapaBrowne:


Trust me, the bigger source of the scarcity is hoarding and not importation. Warehouses are empty. Activities at the ports are Down. Importation has nosedived terribly. The demand for forex is more about speculation than its about importation.
Devaluing the currency, or better still allowing the markets to determine the rates albeit in a controlled fashion would do a lot to reduce the factor of speculation.

You think about this: Oil imports are our largest forex drainer. Probably more than 30%. Since the price of oil is down radically, shouldn't the demand for forex by importers of crude go down radically as well.

If the main problem is hoarding like you said, you must realise people hoard what is scarce, and there need to be stiffer controls by CBN to monitor those who have access to dollar @ official rate.

As to your other assertion, Yes crude oil accounts for roughly 35% of our import , consequently 35% forex demand, but forex reserves is export value minus import value. Our export value has dropped considerably also due to low crude oil price, in actual fact, we lost more from export value, than we lost at the import value from the differential of crude oil export and refined oil import.

The biggest impact to our declining forex reserves would be functional refineries that meet our local demand, and if we can get surplus, we start exporting refined product (foreign exchange earner), the current refineries are virtually moribund, we need new ones possibly on old sites, but new refineries is a LONG term plan, we hope DANGOTE refinery will save us before 2018, the FG is yet to give an official statement after the dec, 2015 deadline to assess the 4 refineries.