History was made yesterday in Nigeria: “In a surprising turn of events on Tuesday, the foreign exchange market experienced an unusual occurrence as the naira reached N1,482/$1 on the Nigerian Autonomous Foreign Exchange Market (NAFEM). This marked a significant increase compared to the parallel market rate, which remained anchored at N1,460/$1, maintaining the rate from the previous day.”
Yes, the official rate rose above the black market rate. So, if the official rate is ahead of the black market, we can all agree that some asymmetric endogenous factors are deeply at play here. Simply, the official demand was so high that the supply side crashed, moving price to a new equilibrium point in the supply-demand curve of Naira/USD. I think a state of emergency is due right now to save Naira.
(I suspect that Dangote Refinery is mopping all available USD to import crude oil since it cannot rely on Nigeria now, creating more pressure on the Naira. That is a reverse osmosis which could be sustained since you cannot shut down the refinery now that it is firing. The firm possibly went to the official market to buy at all costs.)
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If indeed it is true that Dangote Refinery is sourcing crude oil from outside Nigeria, it would be a major own-goal for Nigeria: “Dangote Refinery, Africa’s largest refinery, is set to begin crude oil import from the United States in February…According to reports from Bloomberg, Trafigura Group has brokered a deal to supply Dangote Refinery with 2 million barrels of WTI Midland crude expected to be delivered by the end of next month, marking the first instance of the refinery purchasing non-Nigerian crude.”
Good People, it may be time for the president to address the nation on what is going on because basic economics does not work in Nigeria anymore. As that happens, I commend the central bank for the new policy on foreign currency exposure by banks (see directive). That call is necessary because USD, Euro and GBP are making banks have great parties, even as those same currencies could destroy them if there is a flip. So, making sure they stay within 20% of net open position (NOP) is a nice call by the apex bank.
History was made yesterday in Nigeria: “In a surprising turn of events on Tuesday, the foreign exchange market experienced an unusual occurrence as the naira reached N1,482/$1 on the Nigerian Autonomous Foreign Exchange Market (NAFEM). This marked a significant increase compared… pic.twitter.com/8h2M6eRWoN
— Ndubuisi Ekekwe (@ndekekwe) January 31, 2024
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The equilibrium point has since shifted at the parallel, even as at yesterday, it breached the N1500/$ mark. Today the prevailing rate was hovering around N1533/$. These are not theories, but what you get if you have naira for initiating dollar payment instantly.
Whatever that will reverse the fall will require pragmatic moves, focusing on the critical areas. You are not going to save the naira by trying to pump in more dollars, because the dollar you are pumping in will always be too small to reverse the trajectory, so it will keep swallowing it.
The matter has gone beyond speaking English, it requires folks wearing suits and agbada in Abuja to leave Abuja and visit locations where the actual things keeping the economy going are happening. Once you get there, they will help you with the answers you might be looking for…
We are just very unfortunate to keep having people who don’t think the right way running our affairs, yet they keep grandstanding.