Why JP Morgan’s Call on High N600s per US$ Stable State for Naira May Not Happen

This is the stable state according to JP Morgan: high N600s per USD. Yes, the bank thinks the value of Naira to US dollars will shoot up and then settle around high 600s per $. What do you think of this call?

My perspective: I think JP Morgan may need to review. Whether you float, swim or fly Naira, Naira can only survive if the economy is productive with capacity to produce things (digital, physical, service, etc) to reposition the nation’s balance of payment and trade. So, unless I see the industrialization playbook from the apex bank which will be stimulated through its policy, it is all financial engineering which rarely delivers sustained results. We have been doing financial engineering since 1985 and Naira keeps fading.

If CBN says tomorrow, we will support within six months to have six cities in six geopolitical zones in Nigeria with 24/7 electricity, I will vote that the Naira will appreciate to N400/$. Otherwise, N800 is possible.

Pick Aba, Ibadan, Kano, Jos, Maiduguri and Uyo, and promise that CBN will guarantee that these cities will have 24/7 electricity in 6 months, forget everything because Naira will have help. At least you know where to open an office or factory to produce at a better cost model.

A statement by the institution said: “While it will take a few days for USD/NGN spot to settle, we fully expect an initial overshoot towards the parallel market rate of -750 or higher, after which, we expect USD/NGN to settle in the high 600s over [the] coming months.

“We remain long USD/NGN via non-deliverable forwards (NDFs) as well as OW emerging markets bond index global diversified (EMBIGD) index as we expect further positive catalysts to materialize in the near-term.

“We believe there is room for incremental positive surprises with respect to reform depth and execution speed. We had high expectations for the new administration’s reform agenda, however, the speed of execution has proven to be a positive surprise.”

While the government’s decision to float the naira has been widely applauded as the right step to boost foreign and portfolio direct investments, concerns have been raised about the inevitable rise in petrol prices the decision will force.

Comment on Feed

Comment 1: Only a reduced appetite for the Dollar can lift the Naira. And the appetite for dollars is fueled fundamentally by imports, foreign education, and medical tourism.

So government’s solution should include policies that directly address these issues.

As you have rightly mentioned, stable electricity will significantly improve local manufacturing.

I might also add, raising the budget on education, working with the federal universities to establish robust alumni participation, and providing tax breaks and national recognitions to private sector organizations that invest in government schools, and hospitals.

Comment 2: I was having this conversation with someone yesterday. As much as this idea may be perceived as a step in the right direction, nevertheless, it doesn’t decide the stability of the Naira in the market.

The floating rate is usually determined by the open market through supply and demand. Therefore, if the demand for the currency is high, the value will increase. If demand is low, this will drive that currency price lower. We all know how this playbook augurs with respect to the Naira!

Manufacturing needs to be revisited. More needs to be done in terms of local productions and exports. Hopefully, there would be “Naira-currency” inclusion when Dangote Refinery comes to play.

To reiterate your idea on the importance of making Electricity production and availability paramount, The new dispensation needs to understand this: An economy deficient in power supply cannot make any headway.I commend the recent decentralisation allowing states to venture into generation, distribution and transmission. However, FG needs to show more commitments. Whatever happened to the Siemens Contract? Again, that has to be revisited. Nigeria’s energy per capita is in a sorry state. When we get that right, I believe most other sectors could “fall in place.”

Comment 3: Prof you have just nailed it. Power for Production should be No1 priority, I would think the Energy Act signed by the President should have a roadmap not just a Pen on Paper policy that has bottlenecks.

The Act 2023 replaces the Electricity and Power sector reform act 2005. The act provides for states to issue licenses to private investors who can operate mini-grids and power plants within the state, however, it precludes interstate and transnational electricity distribution.

For me many Individuals and Companies already operate this model of power Generation, transmission and distribution. A typical example is “I Pass my Neighbour Gen” does that mean for me to own build and transmit power as social impact I would need a license from the LG or States.

At what cost and why must I pay when Govt can’t provide this Basic Need. It automatically means soon we might pay for Air we breathe IN.

Instead of License I would have thought such companies will be offered intensives e.g Tax waiver.

It should only be at commercial model when such individual and company needs to charge customers. Meaning Real Estate Developer will have to get license to build and operate Power stations

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