NIGERIA ' S MONEY-CHANGERS ARE GOING UNDERGROUND
THE CENTRAL BANK HAS MADE SEVERAL ATTEMPTS
TO DEFEND THE NAIRA AFTER IT PLUNGED IN LATE 2014 ALONG WITH CRUDE
PRICES
‘ New Level ’ “ The black market will go further underground ,” said Omotola Abimbola , an analyst at Afrinvest . “ The fact they went as low as getting security forces on the streets shows a new level of desperation .” Nigeria ’ s interbank market sets the naira ’ s official value and is meant to serve businesses . But the scarcity of foreign-currency has forced many to go to licensed bureaux de change and the unofficial , or black , market of informal street traders , both of which sell dollars at a higher rate .
The central bank has made several attempts to defend the naira after it plunged in late 2014 along with crude prices . Governor Godwin Emefiele tightened capital controls and restricted banks ’ ability to trade foreign-exchange , then tried a currency peg that deterred foreign investment and worsened the shortage of dollars companies need to pay for imports of raw materials and equipment .
As the economy shrank and inflation soared , Emefiele relented , devaluing the inter-bank rate in June and saying he would let it float freely . The naira slumped 38 percent within two months , prompting central bank intervention that has since held it around 315 against the dollar .
Stock and bond investors are staying away from Nigeria , pointing to the wide gap between the official exchange rate and the black-market one of about 470 as evidence that the central bank is still manipulating the currency . Forward prices suggest the naira will depreciate further on the official market , with 12-month contracts trading at 441 against the greenback .
Hoarding Dollars On Nov . 9 , Nigeria ’ s intelligence arm , the Department of State Services , raided bureaux de change and black-market traders and instructed them to cap their rates at 400 per dollar . As a result , people with hard currency are hoarding it rather than selling at an artificially low rate , according to Haruna Usman , a money-changer in Lagos . “ It ’ s a struggle even to get someone to sell us $ 200 , whereas before they ’ d often sell us $ 1,000 or $ 5,000 ,” the kaftan-clad Usman said from the mosque compound where he trades . “ Now , they ’ re only exchanging when they ’ re desperate .”
The central bank is in no mood to back down . Emefiele said this week that “ the security agencies should sustain their checks on the activities of illegal foreign-exchange operators in order to bring sanity to that segment of the market .” It ’ s another signal to foreign investors that Nigeria ’ s currency policy is broken , according to JPMorgan Chase & Co . “ The Central Bank of Nigeria is clearly not ready to embrace a truly free-floating exchange rate and arguably has further undermined the confidence in the exchange-rate regime ,” Yvette Babb and Sonja Keller , analysts at the New York-based lender , said in a note to clients on Nov . 18 . “ These events are likely to deter inflows .”
‘ Panic Button ’ Nigeria isn ’ t the first country to clamp down on black-market trading . Egypt also arrested street dealers while pegging its currency ’ s official rate , until a dollar-squeeze forced it to devalue on Nov . 3 . Nigerian authorities are running out of options and they probably won ’ t be able to enforce their clampdown beyond this year , according to Teneo Intelligence . “ It absolutely won ’ t work ,” said Manji Cheto , senior vice president at Teneo in London . “ This is akin to a person in a room that ’ s caught fire just slamming every panic button they can find because they don ’ t know which will open the door .” – Bloomberg
2016 | Business Times Africa 27