Former Central Bank of Nigeria (CBN) Governor, now Emir of Kano, Sanusi Lamido Sanusi, has said the country does not have enough resources to save the naira from shaving off value from speculative attack and other deleterious effects.
Sanusi, who spoke at the weekend in Washington, explained that the major reason for the bleak prospect is the failure of government to save for a rainy day and by relying too much on oil revenue, thereby leaving the economy vulnerable to oil price shocks.
“If you didn’t save during the years of plenty, when the drought comes, you die,” Sanusi said. “And that’s basically what’s happened. We had high oil prices, we did not save.”
He added: “Now prices are down, the Central Bank does not have the ammunition to protect the currency and, therefore, there is no alternative to devaluation, no alternative to a collapse in the stock market, no alternative to higher inflation until hopefully the price of oil goes back up.”
Nigeria, like other oil exporters, has seen a 50 percent drop in prices since last year’s peak in June. Beyond the downside of the oil cycle, which is considered exogenous, other value eroding factors include poor handling of monetary controls, fears that the Boko Haram sect would further cause damage to the social system and what is generally perceived as a bungling of the electoral process as government pushes national votes from February 14 to March 28.
As a consequence of the mix of economic eroding factors, there was a herd effect as foreign portfolio managers headed for the borders last January in a move that saw a cumulative outflow of N793.17 billion. It was the first time in three years that Foreign Portfolio Investment outflow would surpass inflow, analysts said.
But there were also other intervening factors at work in that time, including the CBN’s devaluation of the naira in an attempt to defend the national currency. In one fell but unsavoury swoop, the economy as summed up by Oscar Oyema, head of the Nigerian bourse, was such that the “bearish sentiments prevailed for most of the year as foreign investors steadily withdrew from the Nigerian market due to currency risk and the recovery of developed economies, and the effects of the US Federal Reserve tapering of its quantitative easing policy.”
In an attempt to rein in bleeding of the naira, the Central Bank got cowered in what the investment community believed was an abdication of responsibility and a clear breach of confidence, allowed the powerful bloc of money traders to suspend trading.
It is not unlikely that this is the policy bungling that Sanusi alluded to.
Lamido Sanusi is now known as Muhammadu Sanusi II, having become Emir of Kano after being ousted from CBN last year.
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