NIGERIA AND THE DWINDLING ECONOMY
The financial impasse in the country has reached unprecedented level. Within 6 month, Naira to Dollar has gone up by more than 250% in the parallel market.
When pound to naira was selling at N200 in June 2016, people expressed concern little did we know that life then was a bed of roses.
Pounds and Dollars today are not as strong as they were a year ago due to problems of their owner-countries’ making and understandably market forces reacting to political revolutions (as you may like to call it). Still naira cannot gain nor bridge the gap in the foreign exchange.
I read on Bloomberg this morning that FG is to introduce Eurobonds as part of the funding model for the 2017 budget and also get a loan from World Bank.
Let me explain Eurobond with my self-syle jargon-buster. Eurobond is basically a loan notes (Just like shares) issued by the Nigeria Government that needs the fund, interested parties that want to borrow us money will buy the loans for the period the bonds are for and there will be yield on it based on the performance of Nigeria. If you want to know more about this, visit investopedia.com – that’s my go-to site as well.
For starters, the country sought $4.5 billion last year in loan but only managed to get $600 million (ADB) as investors were sceptical that the Naira was over-valued. This led to the devaluation of Naira by the central bank mid-2016 when the CBN Governor announced that they want market forces to determine the value of Naira. From this, there was obvious sign that we are dealing with plodders – who have no genuine strategic plan to arrest the rapidly falling currency. Also with their frequent moratoriums on the capital transactions such as: domiciliary accounts, spending limit on genuine transactions that keep fluctuating to mention a few, these already show indications of the myopic approach and short-termism as far as the currency valuation management is concerned.
The budget deficit of the 2017 budget is put at about $7.5billion. i.e. we need to borrow $7.5 billion to fund the budget. While I will not be filibursting the 2017 budget on this occasion, it is important to put some things in perspective:
- We expect to spend N7.298 trillion and N1.66 trillion ($4.7billion) of that is to pay debt. Let that sink in for a moment, we want to borrow $7.5 billion more than half of it is to pay monies we have borrowed before. [Side talk: the maturing loans is no fault of the current administration as they were in place before they took the reins]
- Industry, Trade and Investment get only N81 billion ($265million) that is only 5% of our capital expenditure. When our GDP has shrunk by at least 1.5 percent in 2016, marking the first full-year recession in nearly 15 years, according to the International Monetary Fund.
- Recurrent expenditure on education is only 1%. Meaning salaries and overheads spent on our nation think-tank where ideas are formed and forged into greatness is N1billion naira how much of motivation can be there to challenge our bright minds to think critically of how to get us out of this fiscal malaise. I am not saying throw money at the undeserving but I am just saying ‘Pay for quality to get quality’
I guess the economic team missed the words of Jacqueline Novogratz (2009):
“When systems are broken, it’s an opportunity for invention and innovation.”
We don’t have to keep moaning about foreign direct investment we can give our economy a boost by investing in our own trades.
At the moment, Nigeria is caustic for foreign investment. Only our policies can make it appeal to investors.
The government need to invest in Naira, before asking Nigerians to buy Naira to grow naira.
You plant to grow! you don’t buy to grow!!