The $3 Billion Loan and the Power of SUPPLY in Shifting Equilibrium Points

I wrote on August 14, 2023 with a clear message: “Do Not Bet Against The Naira; I Expect Nigerian Government To Reverse Some Policies”. In that post, I challenged the government to go pragmatic, and move away from the liturgical purity of campaign promises and manifestos, to a framework based on governing realities. Across all indicators in Nigeria, it was clearly evident that the government would introduce a fudge factor to shift the Naira/USD equilibrium point, by pushing the supply of US dollars towards parity with demand.

That was done with the special loan from Afreximbank: “The NNPC Ltd. and @afreximbank  have jointly signed a commitment letter and Termsheet for an emergency $3billion crude oil repayment loan. The signing, which took place … at the bank’s headquarters in Cairo, Egypt, will provide some immediate disbursement that will enable the NNPC Ltd. to support the Federal Government in its ongoing fiscal and monetary policy reforms aimed at stabilizing the exchange rate market.”

Good People, Nigeria has tools which can bring FX below N500/$ in the short-term because the nation is asset-heavy and can create many special purpose vehicles for the global fund managers. Of course, nobody wants that, since if we do not solve the root cause of the problem, sooner or later, we will have to deal with the evolving paralysis. The root cause remains improving innovation and productivity.

(You can add reducing Nigeria’s legendary public sector corruption.)

And Economics 101 continues to play out: if supply rises, keeping demand constant, expect price to drop, for most common products within the elastic band. Winning the FX battle by Naira will follow that path. Today, it is borrowing on crude oil because oil will flow; tomorrow, we hope it is something sustainable. Indeed, SUPPLY, not verbal attacks on AbokiFX, speculators or any person, will deliver results. No need begging speculators; teach them a lesson by making them lose tons of money.

Comment on Feed

Comment 1: Let’s laud the government for providing a short term succour to the pains caused by a dollar driven economy, but just as you mentioned in one of your articles some months ago that the price of Dollars should be controlled by output from local Factories and not in offices, that remains our long term fix.

Kudos Prof. Ndubuisi Ekekwe

Comment 2: Teach them a lesson? I am very surprised at such statement! I believe if you look at history the one who needs to be taught a lesson is the cbn and the fg policy makers and not the speculators!

If you are conversant with price action you would agree that this may just be a price retracement for a much stronger Bulish run!

Let’s leave the speculators alone and let the fg and cbn tackle the problem from the root

Speculation has never been illegal! That’s why we have smart investors and traders who watch the economic indices of a nation and make moves!

Comment 3: As much as this move seems laudable at least in the short term, the fundamental problem remains especially for a corruption heavy political leadership like ours, question is for how long are we going to be making this kind of move, when we all know the nagging issue of obscene corruption (without consequences to serve as deterrent) remains? – for me that remains the major worry.

Register for Tekedia Mini-MBA (Feb 10 - May 3, 2025), and join Prof Ndubuisi Ekekwe and our global faculty; click here.