By Emeka Chiakwelu
The floated Nigeria’s naira that has been pegged at 197-199
to a dollar lost over 40 percent of its value on the first day of trading. Unofficial reordered statistics on first day
of naira outing revealed that naira was traded
as low as 265 to a dollar and at one point nosedived to 288 to a dollar as
naira continued to devalue and losing its purchasing power. The Central Bank of Nigeria (CBN) has not
released the official statistics of the currency trading.
So far, CBN has auctioned S4 billion on the first day of
floating naira, proceeding with $100 million sold in the interbank liquidity
market. The real value of naira has not been determined as naira continues to plummet.
The devaluation of naira will make Nigerians poorer especially wealthy individuals
and companies because their wealth was determined by the discarded pegged
naira.
Bloomberg stated that “the central bank started auctioning
dollars in the spot and forwards markets around midday to try and clear a
backlog of orders for hard currency, according to a person with knowledge of
the transactions who asked not to be identified as the information isn’t public.
While the size of the auction wasn’t disclosed, the backlog is around $3
billion to $4 billion, according to analysts at Lagos-based investment bank
Chapel Hill Securities Ltd.”
The mechanics of naira floating as stipulated by CBN was not
wholly based on the forces of the market as otherwise conveyed to the public by
CBN.
There are certain exceptions and regulations that undermined
the integrity of the determinant forces of market as oppose to the law of
demand and supply.
The CBN has the power to intervene in the trading when it
deem necessary. The CBN may choose to shut the trading or delayed the process
when it anticipates abnormalities of over pricing, imposing clutches as it
began to run out of dollars.
CBN has selective dealers mostly banks who can participate
in the bidding, thereby shutting out the general public from direct
participation.
The CBN has restricted or out rightly banned 41 products
from not getting allocation for their importation. These restricted materials
including toothpicks, milk, tomatoes, airplane, rice and other essential
materials that are expected to be made in Nigeria. In some cases, the
restricting of allocation for purchase of airplane is logical but some
essential food products like rice and tomato paste should be reconsidered.
Many Nigerian businesses and industries will not gain any
advantage from the naira devaluation because they hardly export their products
abroad. Moreover, they purchase finish and raw materials from outside the
country. One thing for sure, devaluation will discourage importation, even
though that the indigenous industries are incapable of producing those
materials that the local consumers needed. The price of energy, undeveloped infrastructures
and poor industrial policy hammered modern day industrialization in Nigeria.
“The devaluation is a boon for MTN, Africa's largest
telecommunications company, which this month negotiated a deal to pay a fine of
330 billion naira, now effectively discounted by about 30 percent. Among losers
are companies with billions of naira trapped in Nigeria that they were not allowed
to repatriate. Analysts said the devaluation could exacerbate bad debts already
standing at 10 percent of bank loans. Bankers will adjust loans made in dollars
to the new value of the naira, including more than $10 billion loaned to
Nigerian companies to buy assets from oil multinationals in recent years,” as
noted by Associated Press.
Wall Street Journal analysts forecasted the long-time fate
of naira: “Based on the naira’s exchange rate in black-market trading, it might
continue falling until it loses as much as 70% of its value against the dollar,
traders say.”
CBN have been quoted that the back orders for dollar demand
has been Cleared. But the starved market for hard currency in Nigeria maybe Insatiable.
The auction of dollar on market demand may not be sustainable due to low price
of oil and lower quantity of crude oil export.
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