WILL NAIRA RATE IMPROVE
BY: LES LEBA


An industrialist and also avid reader of this column recently asked me if he should believe the assurances by the Governor of the Central Bank; and the just inaugurated Presidential Economic Team that naira rate of exchange will improve favourably below its current lowly official rate of about N150/$1. My answer would help the industrialist make his decision whether or not to commit to his pending import order for raw materials to feed his factory. Thus, if the price of the naira falls below the current N150 to say, N160 or N170/$, then it would make sense to immediately buy foreign exchange and place order for imported raw materials, as this would ultimately save him some naira, even if the gain was only short-term, as his temporary gain may be completely wiped out when it will become necessary to once again replace his raw material stocks within the year, if the naira continues to lose value!

Conversely, if he commits to his order today at the current rate of about N150/$1, he could end up a loser, if the naira strengthens to N140 or 130/$1 in the months ahead, and our industrialist may find that his products arrive in the market at higher prices than those of his competitors, who bought their naira at the cheaper rate, and this could also lead to lower customer patronage for his wares in the face of cheaper alternatives.

I knew that my answer was crucial and I could be guilty of the collapse of the gentleman's business, if I gave the wrong advice, consequently, I chose to couch my recommendation on a rational foundation! I responded by asking this industrialist what he indentifies as the hallmark of his friends and acquaintances in whom he had absolute faith with regard to their inclination to deliver on their promises! The response of this businessman was immediate, and he confirmed that he would normally believe in the promises of those friends and business partners who have a track record of delivering on earlier promises and undertakings. "Good" I responded "then make your own decision on whether or not the naira rate will improve by recognizing the track record and antecedents of those who are giving assurances of a stronger naira this year!"

"Well, Soludo delivered on the promise of bigger banks" our friend countered, "but, I cannot recall any other promise on which he has delivered" he added. "Oh, that's not true!" he corrected himself. "He also managed to reduce the difference between official and black market rates of exchange; at least, until December last year!" he concluded.

"There's your answer then". I chipped in. "He delivered on the promise of bigger banks as he promised; so, I suppose you can trust his promise on the improvement on the value of the naira", I suggested. "No!" exclaimed my inquisitor. "That is only one, but I know that he failed to deliver on a host of other promises!" He said. "Like which ones;" I asked "Oh!" he responded "you know, the banks were supposed to be bigger and safer, and give superior customer services, and they were also expected to have enough funds to support small and medium enterprises; which would, in turn, mop up unemployment in the labour market! But it is patently evident that the banks have failed in all of the above; indeed, two government agencies which should know recently claim that only one or two banks can be described as safe, and the dwindling stock of Small & Medium Enterprises is a testimony to the failure of banks in this regard".

"Furthermore, thousands of Nigerians who had their monies trapped in failed banks were promised relief within six months, but again, this is not so!" he continued. "But, surprisingly, the banks have been very profitable; they keep declaring huge profits annually!" I cut in. "You know, that has always bothered me" he answered "where do they get their profits from, if they are not derived from the real sector. The paltry dividends paid also suggest to me that these are paper profits and maybe an indication of cooked accounts. Besides, I was surprised when the CBN Governor discarded the move towards common-yearend accounting for the banks; this arrangement would have given us a good opportunity to know the true strength of each bank, as it would have made it difficult to cover their backside through interbank borrowings".

"Mmm" I murmured "I wonder why Soludo did that!" "You know" my inquisitor continued, as if he didn't hear me "it was odd the way that CBN Governor dilly dallied and changed policy guidelines within days with regard to his approval for bank loans for the purpose of buying shares! Some analysts even maintain that the abracadabra of this arrangement is now responsible for the crash on the Nigerian Stock Exchange and the CBN has been largely blamed for failure in its function as the regulator of the banking system!"

Before I could add a word, my inquisitor continued, now more alert than before "But you know, when you think of it, the CBN Governor didn't do well on the issue of redenomination, I mean how could he spend so much of public money to design, produce and promote those new currencies and coins and assure us of a stronger currency profile only to turn around barely six months after to say all the effort and the heavy expenses should be shoved into the dustbin as part of his master strategy to redenominate or print or mint another set of new notes and coins. That was strange! In focused economies, the man would resign and possibly also face criminal charges", our industrialist reckoned! "Well, you know." I started to add an opinion, but our man was not finished yet "you see, I am not an economist" he continued "but I am exposed enough to know that the performance of a government's economic team, including the Central Bank Governors and the Ministers of Finance are adjudged o!

The maintenance of favourable interest rate levels, usually single digit, and low level of inflation, usually below 5% to stimulate industrial growth and improve employment; but as far as I know, as an industrialist, it is almost suicidal to borrow at 20% and above and operate in an environment of double digit inflation, and also provide your own infrastructure. Meanwhile, it beats my imagination that the same international institutions and media which would not tolerate such poor performances in their backyards continue to praise the moderators of our own failed system with accolades and awards! Something seems fishy about the whole thing!"

"Well, you know." I started to add, but my man wouldn't let me finish; "Take the NEEDS programme, it was launched with so much promise, but again, it failed to impact positively on our people; but we are constantly assured of its success!" "But." I began to say "You know it worries me," our industrialist cut me short, ". that the CBN is returning the foreign exchange market to the earlier discarded and failed Retail Dutch Auction System;, why are we readopting a failed system, and why did the CBN leave so much room for round-tripping and speculators in the market before now; It seems like closing the barn door after the horse has bolted! Besides, if the CBN wanted a stronger naira, why did it deliberately devalue the naira by over 30% without minding its effect on inflation and its inflationary target of about 90% in the 2009 budget; Soludo even assured us, just over four weeks ago, that Nigeria was insulated from the global recession; but today,!
Yar'Adua is singing a different song, indicating that we are in deep trouble!

"Well, they have a new team" I finally asserted ". and..." "Come, come, Les," my friend again cut it "many ad hoc teams have been constituted in this country, how many have delivered on their promises; Look, its late, I have to go home, but you have not said anything!" my inquisitor cut in as he rose to leave. "Good night, sir!" I finally managed a complete sentence!

SAVE THE NAIRA, SAVE NIGERIANS!