LBS EXECUTIVE BREAKFAST SESSION – FEBRUARY 2024 (Re: Is it lights out for the Naira or a new beginning?)

Dear Subscriber,

Is it lights out for the Naira or a new beginning?

The naira flew into a storm and has been battered by market forces, speculation, greed, fear and trepidation.

The new administration had hoped that a simple announcement in May 2023 of an intention to merge exchange rates and de-segment the forex market was a magic wand. In reality, the outcome was the farthest from smooth sailing. It became a flight into a financial storm that left all arms of the Nigerian market, investors, government, policymakers and regulators alike in total confusion. The spread between the official and the parallel market converged before falling apart. The CBN has returned to the drawing board and is taking steps.

The Presidency had consumed most of its political capital and honeymoon. What was supposed to be a dream come true is becoming a macroeconomic nightmare.

But there is a flicker at the end of the tunnel. History is replete with attempts to stabilize currencies, which have gone sour. Remember the Malaysian experience and the battle to stabilize the Malaysian Bath and defend it from a vicious attack by financial vulture George Soros, who had earlier devoured the British pound and took along with it Mrs Thatcher’s political career.

We believe that a few steps in the right direction will start the salvage mission of the naira, which has been bloodied in the last year. Bloomberg had earlier classified it as one of the worst-performing currencies.

What must be done?

  •   The spike in the 90-day T/bill rates from 5.0%p.a to 17.24%p.a should give the naira a major lift: it will shred the Nigerian stock market in the next few days and deflate the bubble at the NGX.
  •   A true and fair view of Nigeria’s net external reserves must be disclosed. In other words, Nigeria must come clean!
  •   The need to have a forex market auction as a transparent mechanism for price discovery must commence immediately. The CBN will intervene in the auction to maintain stability.
  •   Nigeria must request additional dollar flows by seeking to refinance its Eurobond without any technical default.
  •   Overhaul the crude oil supply architecture and security network. Use the services of the best international intelligence system to stop crude oil theft and increase the supply.
  •   More than anything else, the CBN must not go into panic mode. We implore the team to learn from these quotes.

“Never cut a tree down in the wintertime. Never make a negative decision in the low time. Never make your most important decision when you are in your worst mood. Wait! Be patient, the storm will pass. The spring will come!” – Robert Schuller

“A positive attitude can turn a storm into a sprinkle”- Robert Hensel

“Stop trying to calm the storm, calm yourself, the storm will pass” – Anonymous

In the meantime, Bismarck Rewane and the FDC Think Tank have analyzed the latest policy changes in Nigeria amid global and regional developments, providing insights into their implications on your business and investment decisions.

Enjoy your read!