Post by omohayek on Feb 18, 2016 8:51:20 GMT
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From a report today on Bloomberg:
This is what you get when you have an economically illiterate ex-general as President: all the advice in the world, from any number of experienced people inside and outside of the country, and Buhari still clings to the conviction that he knows better how to manage the currency policy better than everyone else.
Emefiele's role in this farce is even more shameful, as on paper he actually has the independence to completely ignore Buhari's wishes and simply devalue, but Emefiele refuses to do so either out of a selfish desire to obtain Buhari's support another term, or, even worse, because Emefiele truly is as economically clueless as the man from Daura.
From a report today on Bloomberg:
When Nigerian President Muhammadu Buhari came to power in May vowing to mend the economy, fight terrorism and end corruption, Kola Karim was upbeat. Oil prices had sunk, but Buhari’s arrival made him believe his company still had a chance to prosper in Africa’s biggest crude producer.
Shoreline Group, the third-biggest Nigerian oil and gas producer, decided to forge ahead with a $500 million Eurobond to expand drilling operations. Then prices fell below $50 per barrel last year. The bond sale was suspended.
One hope was to rely on income from Shoreline’s construction and power-generation businesses. Except that the central bank’s refusal to devalue the currency meant Nigeria was starved of foreign exchange, crimping business operations. Now, with prices hovering around $30 a barrel, Shoreline plans to cut 35 percent of its nearly 2,000 staff.
“It’s a double whammy,” Karim, 47, said in his Lagos office, where two enormous bronze reliefs by artist Bruce Onobrakpeya leaned against the wall. “Getting dollars to bring in raw materials is very tough. If Nigeria was earning enough from its oil revenue, we wouldn’t have that.”
Karim’s struggle mirrors that of the wider Nigerian economy, Africa’s largest. And his difficulties show the challenges faced by Buhari, a 73-year-old former general who ruled Nigeria as a military strongman from 1983 to 1985. His task when he came to office was to push Nigeria to reform. Now he must help it survive.
The government, which in 2014 relied on oil for two-thirds of revenue, can’t pay many teachers or finance infrastructure projects. With the economy growing at barely half 2014’s 6.3 percent, a recession can’t be ruled out this year, according to Morgan Stanley. Nigerian stocks have fallen 16 percent since the end of December, the most in sub-Saharan Africa.
Buhari and central bank Governor Godwin Emefiele have imposed currency controls that encouraged capital flight and suffocated businesses dependent on imported supplies. Emefiele, with Buhari’s backing, has pegged the naira for almost a year at 197-199 per dollar, even as major producers from Russia to Mexico and Canada have let their currencies slide. Dangote Group, Nigeria’s largest company, has called the foreign-exchange situation “extremely tight.”
This week, the black-market rate fell to a record 350 per dollar, 76 percent weaker than the official rate. Former central-bank governor Muhammadu Sanusi II in October told business leaders that Buhari and Emefiele were “in denial” over the currency.
The president says critics will have to “work much harder” to convince him ordinary Nigerians will gain anything from a devaluation that foreign investors from Ashmore Group Plc to Investec Asset Management Ltd. think is inevitable. The central bank says a weaker currency would only accelerate inflation already at a three-year high of 9.6 percent.
“People were expecting the Buhari dividend and that never really materialized because of the policy inertia,” said Ronak Gopaldas, a Johannesburg-based analyst at Rand Merchant Bank. “There’s still the perception that currency has to be devalued. But you’re getting this stubborn resistance at the top.”
Shoreline Group, the third-biggest Nigerian oil and gas producer, decided to forge ahead with a $500 million Eurobond to expand drilling operations. Then prices fell below $50 per barrel last year. The bond sale was suspended.
One hope was to rely on income from Shoreline’s construction and power-generation businesses. Except that the central bank’s refusal to devalue the currency meant Nigeria was starved of foreign exchange, crimping business operations. Now, with prices hovering around $30 a barrel, Shoreline plans to cut 35 percent of its nearly 2,000 staff.
“It’s a double whammy,” Karim, 47, said in his Lagos office, where two enormous bronze reliefs by artist Bruce Onobrakpeya leaned against the wall. “Getting dollars to bring in raw materials is very tough. If Nigeria was earning enough from its oil revenue, we wouldn’t have that.”
Karim’s struggle mirrors that of the wider Nigerian economy, Africa’s largest. And his difficulties show the challenges faced by Buhari, a 73-year-old former general who ruled Nigeria as a military strongman from 1983 to 1985. His task when he came to office was to push Nigeria to reform. Now he must help it survive.
The government, which in 2014 relied on oil for two-thirds of revenue, can’t pay many teachers or finance infrastructure projects. With the economy growing at barely half 2014’s 6.3 percent, a recession can’t be ruled out this year, according to Morgan Stanley. Nigerian stocks have fallen 16 percent since the end of December, the most in sub-Saharan Africa.
Buhari and central bank Governor Godwin Emefiele have imposed currency controls that encouraged capital flight and suffocated businesses dependent on imported supplies. Emefiele, with Buhari’s backing, has pegged the naira for almost a year at 197-199 per dollar, even as major producers from Russia to Mexico and Canada have let their currencies slide. Dangote Group, Nigeria’s largest company, has called the foreign-exchange situation “extremely tight.”
This week, the black-market rate fell to a record 350 per dollar, 76 percent weaker than the official rate. Former central-bank governor Muhammadu Sanusi II in October told business leaders that Buhari and Emefiele were “in denial” over the currency.
The president says critics will have to “work much harder” to convince him ordinary Nigerians will gain anything from a devaluation that foreign investors from Ashmore Group Plc to Investec Asset Management Ltd. think is inevitable. The central bank says a weaker currency would only accelerate inflation already at a three-year high of 9.6 percent.
“People were expecting the Buhari dividend and that never really materialized because of the policy inertia,” said Ronak Gopaldas, a Johannesburg-based analyst at Rand Merchant Bank. “There’s still the perception that currency has to be devalued. But you’re getting this stubborn resistance at the top.”
Emefiele's role in this farce is even more shameful, as on paper he actually has the independence to completely ignore Buhari's wishes and simply devalue, but Emefiele refuses to do so either out of a selfish desire to obtain Buhari's support another term, or, even worse, because Emefiele truly is as economically clueless as the man from Daura.
