Asonumaka George Wakama
For the umpteenth time Naira depreciation is not because we are basically import dependent, thus we have to ration imports ( import less). If you try that you will start a trade war that will destroy you totally.
It’s not the fault of others that there is a huge trade imbalance between you and them. They never stopped you from exporting as much as you can so far as you meet their quality standards so up your game don’t cramp theirs .
The Naira depreciation is strictly a function of demand and supply of naira. If you want naira to appreciate, you have to increase the demand for naira. If you want the demand for naira to increase, you need to increase economic activities that will increase production consumption, which means creating employment that correspondingly leads to increased demand for goods and services …this is the first condition
The second condition is that the rate of increase of your exports QUANTITY must match and surpass the rate of change in PRICE of imported goods. If these two conditions are meet, naira will appreciate. These are the economic laws that supports the value of currency.
Also government as a trade policy can decide to devalue currency in order to increase it’s market share ( increased quantity of exports) of its exports in the international market by making it cheaper thus making imports more expensive.
You can see that it’s about rate of quantity of exports increase vs rate of price increase of imported goods and never about reducing imports and increasing exports — if you get liver try that the rest of the world will show you shege!!
Another way you can increase the value of your currency is the price your exports in Naira. That comes with some measure of market monopoly – A good example is the shege Russia is doing EU selling them its gas and oil in Roubles thus increasing the demand for Roubles. The good thing is that imports to Russia becomes cheaper whilst exports become more expensive
But it is just for a while because the buyers of Russian gas oil will look for other alternative producers in the long run and the market will adjust, then the leverage will be lost and the demand for Roubles will shrink. If by then Rouble isn’t a major currency in the
Global currency basket that is in high demand, it will go back and find it real value and level.
You can see that it’s always about demand and supply not about import rationing /export expansion persé. Our Naira is down because it is not obeying the fundamental laws of Economics. Then there is a small matter of the “buzu” . at CBN which has made two major uneconomic unsustainable actions
Firstly, he created room for a huge arbitrage opportunities by the multiple exchange rates we operate here, thus banks and every economic rent seeker has perfected ingenious ways to play the market by round tripping FX, Over-invoicing bids and fake import bills to have extra FX to sell at a huge profits (most of the profits of our banks is from round tripping I suspect 75-80% of their profits come from that source)
Secondly, he decided to print excess unbacked naira by ways and means pathway to lend to the cash strapped government. The consequences of this is that it will negatively impact on the value of the Naira. I hope I have explained this as simply as I can?
Remember, it’s not about shrinking imports and expanding exports but based on two solutions which are trade related
The third & fourth solutions are FX generating solutions. That is where investment banking tools converge with Economics and Banking.
