Naira Can Appreciate Below N1,200/$ If CBN Implements Right Policies – Rewane

The Managing Director of Financial Derivatives Company Limited, Bismarck Rewane, says the appreciation of the naira against the dollar in the last few weeks is sustainable if the apex bank comes up with, and implement the right policies.

FILE: Bismarck Rewane


The Managing Director of Financial Derivatives Company Limited, Bismarck Rewane, says the appreciation of the naira against the dollar in the last few weeks is sustainable if the apex bank comes up with, and implement the right policies. The renowned economist, who was on Channels Television’s Politics Today programme during the week, also spoke on steps to stem Nigeria’s galloping inflation as well as expectations from the 294th Monetary Policy Committee meeting of the apex bank next week.


The inflation rates were released by the National Bureau of Statistics last week and they are not good figures, not anything to write home.

Quite frankly, the Nigerian economy is limping and gasping at the same time but let us break it down. In the past two or three weeks, we’ve seen the naira appreciate by about 28%; from N1,915 all the way to N1,475 today. So, that’s good news. Nigeria has announced that its backlog of forward contract agreements in the foreign exchange market have been cleared to the airlines and authentic claims have been cleared. Second piece of good news. The third piece of good news is that Nigeria is to refinance its existing bond obligations. That’s also movement in the right direction but very slowly.

We are dealing with a populace that are anxious, angry, hungry and very restive so we have to take that into consideration. Nigeria’s inflation is at 31.7% but food inflation is above 37% and 38% and that is if you believe the numbers because when you take a synthetic basket you will find that things are really difficult and we’ve got to a point where people are eating less in quantity and eating inferior quality of food thereby reducing their life expectancy and increasing their vulnerability to all sorts of shocks.

Another piece of good news is that Nigeria has opened its borders with Niger and some other countries so that food can come in, and food can go out at the same time. So those are the critical things but we need to look at inflation in its real sense and you can see that the naira has appreciated.

I was going to take you back to the state of the naira. The good news that the naira has appreciated against the dollar in the last few days. Is it something that is concrete or manually regularised; is it something that could be sustained?

The truth is that it’s sustainable as long as you do a number of things and I was going to go come to that. The first is that interest rates have been increased therefore the propensity to save has increased and the propensity to consume has actually reduced. People are consuming less and actually saving more if they are saving. The government itself is consuming less and actually saving. You heard that there’s a ban on travel. For the optics of it, at the same time there’s a lot of waste in government, there’s a lot of leakages in government, there’s a lot of mismanagement of things but these are early days. The fact that you have moved from N1,915 to N1,475 and Goldman Sachs’ Standard Chart are saying that it will get to N1,200. Our own analysis shows that it could even do better as long as you do those things: one, you refinance your existing debt, you take care of the ways and means and you do not need this kind of distractions like what’s happening in Delta State; those kind of conflicts and misunderstandings and insurgency which will disrupt the oil pipelines and reduce our oil cash flow is what we don’t need at all.

So, we need to do something about that and that’s why I’m saying that to say that because the naira has appreciated and therefore it’s going to be sustainable, it’s only sustainable to the extent that you you bring all the other factors so you have a cocktail of measures and that you must be serious and credible about it. I must say that there have been at least 17 or so circulars from the Central Bank, all of them moving in the right direction. So, we think the naira will exceed and will continue to go in that direction but there’s a lot of work to be done. Definitely so.

You talked about the inflation rate. Give us a sense of what this means because this is a doom and gloom as far as the projection is concerned and if this continues, it means only one thing; we do not want the England situation to happen to our economy. Right?

No. The last time we spoke, we took six commodities and when we looked at those six commodities, all of them were showing signs of red danger, significant deterioration, but when we looked at those things today, a bag of rice which was N95,000 at the end of February has come down to N88,000. Is that good news? N88,000 is a really expensive for rice which was N70,000 in December. A loaf of bread has gone from N1,500 to N1,600; it has increased. Why? Because of the price of diesel, because of the price of wheat and also because of the price of sugar. Then yam tubers, the tuber in February was N7,500, it’s gone to N8,000 in the planting season and don’t forget there’s a confluence of Ramadan and Easter coming together.

Then we went to beans, that was flat; beans was N80,000 in February and it remains N80,000 this afternoon at Oyingbo market. To pepper, we’ve seen some strange happenings in February. Pepper was N85,000 a bag, Today, it is N120,000. Some good news here, eggs were N4,500 in February, it’s now down to N4,000, obviously people are people are struggling but this is the picture, it was all six items, all red, now we have two in marginal green, one flat and three in red. This is also bad news because people have actually run out of money to buy these goods. You talk about inflation, you have the minimum wage negotiation which going to take place soon, if you don’t take care of that professionally and in good with with sound economists to manage this process, that could be a poisoned chalice for the Nigerian economy.

Interesting! So good news as far as food is concerned but this good news needs to be sustained and for those of us who love to eat our yam either as pounded yam or fried yam or whichever form, we still need that price of yam to come down. We need the prices of pepper and bread to come down also the way same way we’ve seen rice coming down and the eggs coming down but how can we curb the rising rate of inflation? What is the solution?

Firstly, I think there’s a transitory inflation and there’s a structural inflation. So, when you see core inflation increasing which we are seeing now, it means the structural problems are there. The transitory problems and the transient inflationary factors can be solved one way; that is import some food commodities – rice, sugar and some other items, import them, short term dump them in the market and that will bring the price down. Follow that up obviously with the appreciating exchange rate so those who have brought in goods at the high with a high exchange rate will have to now buy dollars at a low exchange rate and average it out and that will happen but we need to have forex inflows. Where are the forex inflows going to come from? For the first time in the history of this country, cocoa price is above $8,000 a ton and we are doing we are expected to do 250,000 tons. So that means instead of having $600 million this year we could, God willing, end up with about $2.3 billion. We have LNG (Liquified Natural Gas) and then we’ve had oil going as high as $87 a barrel but the oil that we have is either being stolen or something like that so there’s a lot of housekeeping that needs to be done to make sure that the leakages reduce.

There are those who said the CBN does not have any business in some of the things that it did under Mr Godwin Emefiele — the Anchor Borrowers Programme and the rice pyramids but we’ve seen also the the CBN supporting the Ministry of Agriculture. Is that the right way to go?

If I read it right, Central Bank donated fertilizers they had to the agencies that deal with it (fertilisers). I think the primary responsibility of the Central Bank is to maintain price stability and that’s what is being said. The rice pyramids of the past, to a large extent, it was a hoax; there there was no rice in them. So, let’s  forget that period in the history of money policy in Nigeria as one that was a bad dream; it was a dream turn into a nightmare but where we are now is that we need to go about it systematically; that is using the packaging of the ways and means, securitising of those debt, allowing interest rates rise to a point where at least it does not discourage production but at the same time it encourages savings.

There’s need for new money — new money is a function of confidence and confidence is a function of consistency in policy. These are the things that the administration has to come to tense with. We have a trust deficit in this country as policy makers; when we say one thing today, the next day, we change —  there’s no consistency. The reality and the honest truth is that when people begin to see consistency, they stop panicking, when they stop panicking, they buy less in quantity but over a longer period so you now begin to see the price of those commodities come down. Even like diesel, diesel is down now to N1,450, it went as high as N1,700 about two months ago because people don’t have money to buy this thing and secondly people are now becoming more efficient and rational in their consumer behaviour.

You are saying that if there is an increase in crude oil production capacity in Nigeria, I know we are oscillating between a million, two hundred barrels per day which is some good news since this government came into office but then we need to do more to be able to meet up with our quota but again there are questions whether or not the Dangote production will help our capacity in any way and there are those other modular refineries producing on the Nigerian soil, aside from the Port Harcourt and other government refineries that are being fixed. What good news could come out of those?

The Dangote Refinery has the capacity of producing products for the Nigerian market but it’s not a silver bullet that is going to solve our problems. We must differentiate between the downstream activities which is about refining and all the other things that are midstream as well as the upstream activity which is about exploration and production. Where we are producing oil are in the deep water and deep offshore and deep water assets. In those assets, we have the production-sharing contracts where the Nigerian government take from revenue that are much lower. The places that we have the joint ventures where our our own stake is high as much as 60% with the operators, those are the areas where the above-the-ground risk, like what happened in Okuoma, is destroying and disrupting our activity. As long as those activities continue to take place, as long as the people in the oil-producing part of the Niger Delta, because there’s a general misconception that everywhere in the Niger Delta is oil-producing, no there are areas within the oil-producing areas that are marginalised, and if you go there, you will see that those guys have nothing to look up to; if you publish 20 top Nigerian richest men, none of them will come from that area while the crud oil comes from there.

So, there’s there’s the environmental degradation, there’s resource control, optimisation of the use of resources, there’s mismanagement, there’s fraud all of these things happen. Until you address them and allow these guys (investors) to come in and reinvest some serious dollars in the offshore. There’s a conflict between political misunderstanding and economic degradation. That has to be addressed.

What is the prospect of your group in advising the President and the government of the day?

Quite frankly, the meeting was useful and productive. We made it very clear that there’s this problem and that there’s a lot of work to be done in terms of restoring the credibility of government in Nigeria; nobody believes anything government says. It was supposed to be a short meeting but it lasted much longer and there was no asymmetric information; everything was put there. People had their motives for being in at that meeting but quite frankly, my understanding is that the President got a lot of balanced information, truthful information and it depends on what he does with it but ever since that meeting, in all fairness, I’ve seen some baby steps moving in the right direction in terms of getting things better but what I must tell you is that this is a long journey and we must fasten our seat belts for the bumpy days ahead. Nobody should deceive you that we are going to have a silver bullet; it’s not going to happen.

We need to go Mr Rewane but those solutions that you have proferred here, in 60 seconds, can you go through them?

Yes, first of all, we have no choice. Economic failure in Nigeria will lead to political calamity. It cannot happen so we have no choice; everybody has to come together. Second, the capacity has to be found because there are a lot of people in government but not everybody in government has capacity. It’s the President’s job to to look for the people with the capacity and sincerity at the same time to do what is required but I’m optimistic that sooner or later we get there but it’s not going to be an easy ride like I said. Better fasten your seat because the road ahead is very bumpy.

Looking ahead of the next Monetary Policy Committee meeting,  they must be able to make tough decisions, you’re making a projection there. Isn’t it?

Yes, I think that the MPC will do what it has to do on Tuesday. I think we’ll be seeing something like a 150 basic point increase just to ensure that these things get sustainable. So, you’ll see lending rates up, you’ll see the policy rates up and then also there’ll be recapitalisation. There are all sorts of measures to ensure that the banking system itself does not go into weakness. I think the governor of the bank is quite capable of, that’s his turf, so he knows what to do. Basically, we are looking forward to consistency in policy and that the exchange rate continues to appreciate and that should give some temporary comfort to Nigerians.