April 5 (Lagos) - Naira has somewhat stabilized in the range of 320-325 over the past couple of weeks at the parallel market. Officially Naira is at 197 so the parallel market is pricing the Naira more than 60% below its official level.
The de-valuation that is economically necessary is not happening for political reasons and leading to capital flight. At the same time de-valuation could also destroy the economy as it will vaporize the already minimal buying power of majority of consumers. The currency de-valuations of 2011, 2014 and 2015 did little to help the economy.
So a new narrative is emerging that Nigeria does not need foreign investors but that is an argument made only by inexperienced or politically motivated economists.
Foreign investors continue to pull money out of Nigeria because of the same problem. The situation is threatening to put Nigeria among a basket of markets that is a no go area for International portfolio investors because they cannot be sure of the value of their investment once it is in the market.
The corruption that is arising out of this situation is also huge as some people can access Dollars at CBN's official rate and make an overnight profit by selling in the parallel market.
This is a recipe for economic disaster that will unfold if the situation is not arrested quickly. CBN did act during its last Monetary Policy Meeting by increasing the benchmark lending rate by 1% but that increase is merely enough to contain inflation rather than support the currency.
If the situation is not controlled we are going to get hyper inflation because of the amount of Naira that will chase the few Dollars from CBN.
Interest rates will have to rise further and the sooner the CBN realizes it needs to act fast the better for all of us in the economy.
There is a lot of talk on diversification of the economy away from oil but very little action on ground. Even the oil revenue of Nigeria is under threat from the pipeline vandals in the oil producing areas.
reporting for easykobo.com on Tuesday, April 5 2016 from Lagos, Nigeria