Many Nigerians failed to appreciate the level of sophistication that Former Minister of Finance, Mrs Ngozi Okonjo-Iweala and her team of economic reformers including Professor Chukwuma Soludo, Nasir el rufai, Oby Ezekwesili etc had introduced into Nigeria’s economy since 2004.
The reforms brought into Nigeria’s economy by these individuals – coupled with the rebasing that made ours Africa’s largest economy – positioned Nigeria to function as a part of the global economy and an investment hub, rather than a sub-saharan outsider. With it’s 170 million people, it has the largest population in Africa and is rich in resources, oil and timber being the main exports. Crude sales accounted for about two-thirds of government revenue in 2014 and about 90 percent of the nation’s foreign currency earnings.
Their reform was so successful that in 2013, Nigeria had one of the fastest growing stock markets in the world over the previous past two years.
Even the falling oil price was then described as bringing “momentum to reform and wealth dispersion” and it’s booming financial sector as a source of benefit as more Nigerians are lifted out of poverty and require bank cards and mortgages.
The Nigerian stock market – or NSE – was becoming more liquid as more global investors looked outside emerging markets for profit opportunities. Other funds then backing Nigeria include Charlemagne Magna New Frontiers, Neptune Africa and JM Finn Africa.
Which was why President Muhammadu Buhari’s greatest mistake was not to hit the ground running from May 29 2015. His failure to appoint Ministers, aides, and a competent economic team brought uncertainty to an economy already buffeted from all fronts by falling oil prices and dwindling foreign reserves.
While Africa’s biggest oil producer had been hit by a 40 percent fall in petroleum prices in the past year that has slowed economic growth and weakened the currency, Buhari, 72, delayed naming a cabinet until September. As the momentum of being the first opposition candidate to win power at the ballot box faded, critics began mocking him as a sluggish elderly man, or “Baba Go Slow.”
“Every week that Nigeria goes without a cabinet increases the chance that it will face a dangerous shock — whether a revenue collapse or a currency crisis,” Bloomberg said then. “Leaving the federation without a finance minister would be a questionable choice at the best of times; doing so during a period of economic instability is difficult to explain.”
It was this uncertainty more than anything else that set up a chain reaction that led to today’s Capitulation market – The point when a flurry of panic selling induces a final collapse – and ultimately a bottoming out – of prices. As we all know, the financial market hates uncertainty!
When eventually he started his appointments, Buhari appointed incompetent friends whose sole qualification was their loyalty and long-term friendship with the President.
By the time competent professionals like Petroleum Minister of State, Ibe Kachikwu arrived the scene, the damage was already done, and even then Buhari compounded the problems by rebuffing their professional advice on how to restructure the petroleum industry – the chief foreign exchange earner.
Till date, while Buhari made haste to appoint Media aides, he has failed to appoint official Economic advisers – nor has he put together a competent team of technocrats – to advise him on the economy.
Buhari’s constant refrain and only economic knowledge was; I will not devalue the Naira, I will fight corruption and eliminate Boko Haram. The president gives the impression – in all his interviews even before his election that he believes in the gospel of fight ye the twin evils of corruption and insurgency and all other things will be added unto you.
Buhari failed to appreciate the world has moved on since 1984; while his first coming knew Trade By Barter, and Debt Swap, This is the 21st century with the world now a global village with new lexicons like; Bailouts, Base rate, Bear Market, Bull Market, Euro Bond, Capital adequacy ratio, Capitulation (market), Collateralised debt obligation, Credit Crunch, Credit default swap etc.
All strange words to PMB!
Former President Olusegun Obasanjo warned in 2011 that while Buhari will make a good leader, he Feared that Buhari will STUBBORNLY mismanage the economy. We see that ‘stubborn mismanagement today in Buhari’s insistence on Currency peg – A commitment by a government to maintain its currency at a fixed value in relation to another currency.
Sometimes pegs are used to keep a currency strong, in order to help reduce inflation. In this case, a central bank may have to sell its reserves of foreign currency and buy up domestic currency in order to defend the peg, but could Nigeria afford to do this at the moment? If the central bank runs out of foreign currency reserves, then the peg will collapse.
Which is what are seeing today as the naira extended its fall to a record low on the black market as demand for the U.S. currency increased amid a plunge in crude oil prices and foreign exchange restrictions by the Central Bank of Nigeria.
The local unit fell to 390 per dollar in Lagos, the commercial capital, from 375 on Wednesday and then to 400 per dollar by Friday.
As the currency drops in value, more people engage in panic buying. There are importers looking for dollars at all costs to keep their businesses going.
Nigeria’s central bank stopped selling foreign exchange to money changers last month, the latest in a series of controls aimed at supporting the naira at a fixed peg of 197-199 per dollar on the official interbank market since March last year amid plunging oil prices.
Africa’s biggest oil producer has restricted foreign currency trading at banks, causing a shortage of dollars in an economy that imports most of its manufactured goods, sending the unofficial rate soaring.