George Asonumaka Wakama
Previously I essentially stated why deregulation is not working and why naira devaluation had defeated the price sensitivity to the vagaries of international oil price movements. When oil prices move up, we will pay more for petroleum products imports. When oil prices crash, we may not pay less correspondingly to petroleum products prices and I clearly stated that the reason is that our FX incomes seem to match our FX spends that finance our import bills.
I gave some solutions and I clearly said that to change the tide, our financial services providers and the CBN must be up and doing. The Govt can’t solve this problem alone. The failure is both that of the Public and Private sector, especially the private sector. I have been engaged by several persons who have contrary opinions. They all seem to blame the government alone, whereas whenever I want to talk about the Economy or economics /finance/banking, my partisan inclinations gives way to professional opinions.
Granted the Government’s ineptitude and goofing is a factor, my question is, is the financial services sector which is supposed to be the lifeblood and the lubricant of our economy also not an inept service provider contributing to the mess we are in? The answer is absolutely obvious. Our CBN and banks are culpable as their ignorance too adds to our suffering. I will give my position on this in this post and the subsequent article. I want to keep it short and crisps.
I said previously that we will not enjoy the benefits of the price sensitivity that comes with deregulation because we are an import-dependent economy that is putting its forex reserves under pressure with our high import bills with a consequential devaluation of the currency. I advocated for the subsidy or whatever fancy names they call it to be removed – so that NNPC will stop carrying the needless load it is carrying in addition to the challenges it is facing as a loss-making corporate entity; Let subsidy be removed and the burden inflicted will be for a while but the situation will change eventually. And we will have fewer and more serious players in the field of petroleum products marketing.
Right now, they are fond of roundtripping their products in West Africa elsewhere and we are not truly enjoying whatever benefits we ought to enjoy with the so-called subsidy – it’s best they remove it. Let the real suffering and sense with a brain reset start, it will only be for several seasons before it changes for the better and rent-seeking billionaire oil marketers are eliminated for more serious market operators that know what to do.
Let me focus on why deregulation isn’t working and how CBN and Banks are not playing their roles due to their lack of understanding of modern economics banking and finance tools in developing and developing financial products that will generate FX revenues that will complement the traditional – means of earning Fx revenues. But before I go ahead to explain how CBN and the Banks are failing us woefully and what they need to do, I need to address the issues raised by some respondents who claimed that Nigeria should ramp up its production capacity in order to have an export-driven economy as a means of countering the downward pull of our huge import finance bill that is depleting our FX reserves with a corresponding depreciation of our currency.
At our current level, this is looking like asking a blind and crippled man to challenge Usain Bolt to a 200 metres sprint. It can’t work and he won’t win by any stroke of a miracle. For us to grow, we must seek ways and means in the short-medium and long term to ensure that our FX earnings surpass our Import bills at least 10x because we really need the capital to catalyse growth and development as well as peace in the land (the root causes of our security challenges is also Poverty). Mind you, I said FX earnings and not export earnings which is merely a subset of FX earnings.
Please note that increased FX earnings require capacity. Increased exports earnings require capacity. To build capacity requires capital. Capital ( cash & knowledge ) is what you need in order to develop and enhance all the building blocks for capacity building that would lead to increased FX and Export earnings. There is no alternative to this. The traditional ways we have deployed to earn FX Incomes, I can summarize into 6 bullet points.
They are namely;
1. Foreign Portfolio Investments FPI inflows
2. Foreign Direct Investment FDI & Loans
3. Non-oil exports
4. Diaspora remittances
5. Oil Exports Proceeds
6. Dividends /returns of Offshore investments by public & private sector
We can see that these 6 traditional means of earning FX which is a combination of trade and investment have NOT solved our problem and depending on them to solve the problem is like reducing the advancing age of Buhari yearly or as I earlier said, pitching a blind and crippled man to challenge a Usain bolt to a 200metres race which we all know is an impossibility. This is the point where the deployment of modern finance/Banking and economic tools comes to play to complement the traditional FX income-generating modules which are encapsulated in a trade and investment model.
Let me proceed to state how the combination of Economics Banking and Finance can solve our FX depletion challenge due to our high import finance bills with a corresponding naira devaluation.
Economics: These are activities related to upscaling Human capital which will ramp up productivity and in turn increase exports quantity at a rate faster than the rate of price increment of imported goods satisfying an economic principle ( laws of economics) that will ultimately stem the depreciation of the value of the naira. this is a long term goal. The short and medium-term requires the deployment of Banking & Finance products and services products. Example of such products are;
1. Securitization of Assets and Securitization of Remittance inflows
A) In-ground Asset Securitization to be traded in international securities markets and platforms
B) Diaspora Inflows – securitization to be traded in the International securities markets and platform
2. Liabilities management of FX denominated debts
3. Forfaiting
4. Import Invoice mediation
5. International FX trades
Let summarise these enumerated
A) In-ground Asset Securitization to be traded in international securities markets and platforms
For now, if my memory serves me, Nigeria has crude Oil reserve estimates of 40billion barrels and Gas reserves estimates of 187trillion cubic feet and this is growing as my finds are added. Nothing stops a smart CBN governor who is vast in finance and international capital markets from arranging a meeting with all Marginal field allocation owners and undertake to fund their seismic activities with a view of acquiring 3D-4D seismic data vested and acquired by the CBN, then these databases ( which is money on its own if properly converted ) are deposited at various international depositories to obtain Certificates of deposits as the underlying assets that are underwritten and securitized which will then be traded as asset-backed Dollar-denominated financial instrument in the international financial market.
Imagine a scenario where the almost 40 marginal field operators owners have combined proven reserves of 900million barrels of crude valued @ $40/barrel and 2 trillion cubic feet of Natural gas priced at $15/Mcf. Whereafter 3D -4D seismic have been undertaken by the global credential players that are competent in that field, deposited at International depositories to obtain Certificate of Deposits “CDs”
Where the “CDs” are underwritten and Securitizing these will instantaneously give $360Billion for crude Oil and $300billion for Gas totalling $660billion dollar-denominated. Asset-backed Financial Instruments, namely MTNs and bank financial Instruments like BGs/SBLCs
trading these fx backed financial instruments at the various International capital trade platforms will with a guaranteed return of 15% monthly on a compounding scale – generate an estimated $4.5 trillion cash returns to the CBN within a year and provide the needed funding for the owners of the assets to undertake field development work programs aimed at moving from exploration to production within 3 years. By this, money has already been made in excess AND REINVESTED before crude oil and gas is extracted and sold.
For instance, Nigeria loses $45billion yearly to illegal mining of solid minerals whereas our gold has one of the purest assay quality unrefined from nuggets and sands ranging from the purity of 77%-93%. just like our Bonny Light crude Oil which is premium grade and better than the global benchmark Brent crude. It’s a fact that every high demand and valuable natural resource we have been blessed with are about the best grade in quality globally. Imagine a scenario where our Gold & Uranium reserves are known. We have Gold all the way from Sokoto to Ibadan ( Zamfara, Niger, Osun have awesome deposits) We have Uranium at various locations – Mainly at Sokoto. At the Enugu basin, it’s way below the coal deposits seams and also off the coast of the Atlantic within our international waters. Lets for the purposes of this write up say our CBN and Banks finances and access to 3D-4D seismic data which is vested as acquired by the CBN /banks. Then also deposited at various depositories to obtain Certificates of deposits as the underlying assets that are underwritten and securitized by JP Morgan and other notable international issuing houses in Switzerland who underwrites and issues them for trade as tradable securities at select international capital markets and global interbank and treasury notes trades on behalf of our banks utilizing their various corresponding banking relations of an asset valued at $70billion, we will make estimated annual returns of $240billion on this alone. It will increase the rating of our banks which incidentally none are rated globally. At least from the unrated status, they might just enter the rating classification which means more money coming into these banks as credit lines and willingness to do business with our banks by the bigger global players.
From the foregoing, on In-ground asset securitization alone, we are looking at estimated Fx earnings of $5trillion yearly whereas presently we earn about $40billion yearly. Obviously, $5trillion/year potential earning can’t measure by any scale to the present $40billion /year average earnings we have been bedevilled with.
Please which such financial inflows are readily available to surpass this? When next we talk about the daftness of our CBN and Banks
We will talk about
B) Diaspora Inflows securitization to be traded in the International securities markets and platform
2) Liabilities management of FX denominated debts
3) Forfaiting
4) Import Invoice mediation
5) International FX trades
And more if necessary
