Devaluation: A beer parlour gist on how guys cash out

This is actually not beer parlour discussion. It is a wine parlour discussion (if there is anything like that) with a new friend, a banker in Nigeria.

My friend told me. Firstly, you need a friend in the bank — a banker. If you don’t know, you are entitled to a Basic Traveling Allowance. This means you are entitled to $4,000 per quarter, after you purchase a ticket. However, the queue is so long. Most bankers get preferences to jump the queue. You can get that ticket, request for BTA, get that $4,000, share the gains with your banker-friend. You go back to the parallel market or if you are “a very bad guy”, keep it & wait for the rise. We took another glass of wine.

He tells me another route that sharp folks use. Go to your bank. Folks have mortgage in UK. He fills form A and requests for Great British Pounds (this is to show some respect to this currency) to pay mortgage. That fund sourced at official rate is transferred to offshore account, meant to pay the mortgage. He rents out the apartment. He transfers the funds back to Nigeria. He gets the parallel markets rate. Wow. I opened my mouth.

He also spoke unclear of fake schools and hospitals in Dubai that people use to process medical and school fees. There is a ring in that space taking dollars at official markets. They send same back to Nigeria to sell at parallel markets. It is getting crazy but you need new friends. Big banker boys that can put you in front of the queue. Everything seems legal. The Central Bank made it so with a two-tier system with huge differential. Believe me this might be the simplest of gaming the system. It can be more sophisticated at the top.

The truth is that we need to pray for Nigeria. That our leaders will find the truth and wisdom to do what is right. I am no more an apostle of devaluation. The President, direct supervisor of the Central Bank, can’t be converted. Why am I carrying fake gospel around?

Everyday, we quote CBN reserves of $27bn but that’s not the full picture. Let me clear you. My friend shared some thoughts with me today, of course after another glass. In that $27bn, I learnt that there are unfulfilled orders of almost $8bn, swaps of $9bn (I will explain) and that leaves us with a balance of $10bn.

Just imagine that CBN meets all the orders (won’t happen) and also those who took swaps with them closed their deals (come for their money) that leaves them with $10bn. A $10bn balance can only pay for two months imports when IMF recommends six months.

I promised to tell you how swaps works. This is how it works. Some banks (mostly banks with international clout & offices and investors) can borrow from their international offices and lend dollars to CBN. So they give CBN dollars and collect Naira at approx 8–10% interest rate — the swap. Most foreign banks involved in this deal have exited and the ones whose swaps have not expired have mixed feelings on extending their lines. If the swap folks want no extension, you see that this is trouble. CBN gets to cough the dollars on its books.

We need to make smart decisions. The prevailing thinking I get from our leaders is that oil price will rise again and we can keep patching this model of demand management till we find our water-turned-to-wine.

The portfolio investors have left us. The even left South Africa and likewise almost all emerging markets. If we devalue, portfolio investors won’t likely come back with their fickle funds. Our gracious hope is to get sticky Foreign Direct Investment and believe me that without us sorting this illiquid FX market, it might not happen. FDI slumped from $767m in Q4 2014 to $120m on Q4 2015 according to latest NBS data.

That’s why the urge to do something is critical. We will need to fix competitiveness and domestic productivity like I previously said but what about a currency that attracts FDI? Are we going to carry like that needs no attention? Are we going to leave that to chance?

My banker friend has more gist but as a full-blooded Nigerian after dispiriting talk , he agreed that it is actually time to pray. I agree with him. Only prayers can allow us face the facts and stop whipping emotions.

P.S Sometimes folks argue from the outside on devaluation but the rent-seekers just laugh out loud, all way to the bank. A white friend of mine, a journalist (who might read the piece) said I stung her conscience when I said on my Facebook post “everyone with FX is now a speculator”. It is what it is. Those with stash of FX in the bank are playing the long game. “Baba God pick up my call”.

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