Nigeria: Rough Sledding Ahead

and when it all, when it all falls down

who are you going to call?”

-Kanye West

Anyone with their eyes open can see there’s lots of trouble ahead for Nigeria in 2015. I’m going to skip over the politics, for one because it’s an absolute nightmare, and secondly, it’s not really my thing.

Instead I’m going to talk about our economy.

Nigeria is a case study on how to fuck everything up. We once had a sizeable Excess Crude Account and external reserves. What happened to it? The governors clamored for their share, the President and ruling party tapped into the anointing to grease their political engine, and the Central Bank burned billions of it to keep the naira trudging along around N153-157 against the dollar. It worked while the going was good. But right now, oil prices have tanked faster than a peregrine falcon in a dive, and everyone in the FG is shitting their pants. At the same time, demand for the dollar is climbing globally, so it’s appreciating not just against the naira, but against the major global currencies like the Euro, Yen etc. The sane thing to do would have been to let the naira free-float against the dollar, conserve our external reserves and have money in case we need to plug budget deficits. The fallout will be rapid currency devaluation (which always hurts) but if we project a strong balance sheet and preparedness, there could be enough capital inflow to stabilize it at some level. Whatever floor it settles on will show us a much better picture of the internal value of our economic activity.  Plus if we took the hit now, the lower value of our naira would help government revenues since the dollars we get from selling oil would go much farther. That advantage disappears if things stay rough for more than a year or two, but it’s better than burning the dollar bush on the open market the way we are now. But it’s an election year, the imperative is to keep things going as long as we can till after the elections, then let all the flood waters hit at once. I imagine Jonathan has called his new central banker Emefiele and laid down the rule: keep burning those dollars, and by all means keep the naira up.

The bigger story here is that financial management is not a replacement for actual productivity. For years, we’ve been content to base our national life on sucking oil out of the ground in the Delta and shipping it to America. We don’t even do any refining worth mentioning, within our borders. Instead, we go back and reimport the damn thing at global market prices. You can’t even say when they become more expensive on the global markets, we’d import less since petrol demand is relatively inelastic. We have the damn thing, top producer and yet we can’t even refine enough to meet local demand. I mean, it’s so stupid, I want to cry. You’d think then that most of the money will go into capital investments: tractors, factories, business loans, infrastructure, schools and hospitals so we could grow more food, build items for our use, develop our human capital, improve health care, move goods and services around and start businesses all of which feed into the productivity that we desperately need to feed a country of 160m people and counting. But we don’t. The political class siphons most of it to live lavish on, maintain the most expensive parliament to ever parley, one of the largest presidential fleets to ever take flight (I believe at my last check we had eleven planes to fly one president), a bloated civil service and contracts and favors to family and friends. The rest of the country middles along, with no investments, no services, no security and no vision from the government. How could we possibly not be fucked up? I couldn’t tell you any other country where a president campaigns on knowing our pains, having grown up with no shoes, only to get elected and buy himself eleven fucking planes.

If we had cleaned our house, saved the Excess crude revenue and tightened our belts, we could have generated enough money to take care of our business without floating dollar and euro denominated bonds to borrow money. Right now, when naira tanks, the payments for those bonds will balloon, right when we don’t have enough revenue to pay for it. It’s like we don’t learn a thing. It’s tiring, because it could all have gone so differently.

Anyhow, while Nigeria nigeriates, what is an individual to do?

First, let me say that none of this constitutes advice. It’s all theory using myself as reference point. The right thing for you to do is almost certainly not the same, however it’s useful to share these thoughts so that it will spur

1. If I were in Nigeria right now I’d open a dollar account and park my savings in dollars. That’s the most important thing. Because when you wet a finger and stick it in the air, the only thing I smell is more trouble in 2015.  And you really don’t wanna park money in naira, right now. If I was working, I’d take part of my salary and save it in dollar or pound sterling accounts.

2. I’d sell any shares I have in most Nigerian companies. I’d make an exception for companies that sell commodities on the global market, so really the oil majors and then the best banks because they have opportunities to hedge. For everyone else, I’ll sell because input costs are about to climb, business will probably slow and investors in NSE will dry up (as they already are, the NSE is down around 14% for the year.) I’ll put those funds either in dollar denominated money market accounts, or even better, in foreign companies listed in the US (you could get an ITIN number from the IRS to trade US stocks from another country, or find Nigerian brokers with access to international markets). The alternative, is to invest in real estate (better if it’s one I can rent out) again only if the money is fairly substantial.

3. I’ll pay off any consumer debt I carry, as well as any business or personal loans with free floating interest. Expect rates to rise.

4. This one’s going to hit my family members, because they depend on importation but imports are going to be much more expensive, especially if you use US suppliers. If container is how you roll (umunna m, kwenu!) I suggest you start thinking of ways to hedge against devaluation. Point #1 above will help, looking for cheaper suppliers or locking in long term rates with existing ones even if you have to make upfront deposits, will help.NB: If this isn’t for you, tell your Umunna friend.

5. There’s a million other things anyone could do depending on their own situation. Some form of #1 is the most crucial. Considering that CBN is buying the ruling party time with it’s activities, you might as well use that borrowed time to your benefit too. All said, hunker down, keep your eyes open and invest in a passport. Ghana no too far. I’m serious.

On a national scale, there’s really nothing much we could do. In the short term, there’s all sorts of financial acrobatics you could attempt but their returns tend to diminish quickly. Nothing replaces: invest in domestic production, domestic refining, internally generated revenue, and preference for FDI that comes in the form of greenfield developments or infrastructure. And in the long term, drive exports. I could ask our leaders to understand the Marshall-Lerner condition and try to push the needle to where we meet it but that’s a tall order. I mean, we mine oil, export it and then reimport it, refined, STILL.  In 2014. After almost 50 years of oil production. The mind boggles.

The whole situation depresses. I predict a boom year for church business going forward. That’s the only businesses that never goes into recession in Nigeria anyway. Sigh.

God help us, man.

Follow me on twitter @eldivyn

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4 Comments

  1. My chest actually hurts to think on this VERY VERY AVOIDABLE mess we’re in right now. I’m just…

    Ah well.

    You know, I foresaw this a year ago and it kept niggling at the back of my mind. It was why I recently asked you if you knew a way for a non resident to trade American stocks. For all my foresight, I was lulled into a false sense of security by the inaction. Look at it now.

    We trudge on still.

    Like

  2. Man, it’s been cooking since US stopped buying our oil. Throw in election, rising violence, crashing prices and the reserves we’ve chopped down, and it’s looking worrisome. Nigeria is a basket case.

    Like

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