Mr Bolaji Soneye
By Uche Vera
In this Interview, Mr Bolaji Soneye, the Managing Director of Flotrade, a Lagos Based Foreign Exchange Firm talks on the unification of the Naira and how it has emerged as one of the biggest drivers of the Naira performance. He also spoke on the war in Iran and how it will be among the factors that would affect the work done so far in ensuring the appreciation and stability of the Naira.
Questn: What are the key factors that are currently supporting the relative stability or appreciation of the Nigerian Naira? And how sustainable are these drivers, that is these factors, in the medium term?
Ans: Thank you for this question. I would say that the major factors that have been contributing to the stability of the gains in the Nigerian Naira has a lot to do with the government policy, which is the political willpower to actually put reforms and policies in place, as well as the central bank policy of Nigeria. And it’s emanated from the floating of the Naira by ensuring the rates between the Naira, that’s between the official market and the black market are no longer there. Making the Naira have a unified exchange rate. Okay? This really helped the Naira to find the balance. And then also takes away all forms of manipulations and corruption that have been existing before. This boosted investors’ confidence, and it made investors from everywhere in the world begin to demand for the naira, probably for the purpose of coming to invest in the country or any other form of security, financial security. That is the first one. The second one is also policies on crude oil or rather I would call it petroleum products where the government had actually taken out subsidies. Okay?.
Complete taking out of subsidy makes more money available in the country, makes more Naira available in the country, makes the government also have more money in hand to put into capital expenditures, to put into capital investments to ensure that the developments in different areas that are needed in the country, either in construction of roads, healthcare, security, whatever, there is more funds available and it gives investors this form of comfort that there’s going to be stability in that economy.
That policy also ensured that the importation of crude oil or crude oil products are also stopped. I think recently it was announced that the importation licenses of some companies in terms of importing petrol and other crude oil products into the country are being withdrawn. This just means there will be less Naira looking for the dollar or looking for other currencies to be able to import. And once the naira is no longer looking for other currencies to import, it gives the naira some form of stability and balance. These policies are really helping the naira to find balance, either to appreciate and also sustain the acquisition.
Qustn: Expandiate on what you’re talking about and relate it to the foreign exchange markets, I know you’ve just mentioned that we don’t spend money outside Nigeria, to get in crude oil. So we are likely going to get the Naira, you know, sitting well and stabilizing further. Can you explain that to us further? And are there other means of foreign exchange interactions that could also affect the Naira?
Ans: Sure, of course, there are other means of foreign exchange interactions that could affect the Naira. First, it has to do with inflows. That means remittance from the diaspora, either from Nigerians in the diaspora or from investors in the diaspora. Inflow has increased into the country tremendously because of the policies of the central bank. Okay, and this inflow means as foreign currencies are coming into the country, they will be demanding for the Naira, and for every currency or economy that gets a demand of their currency, it gets to appreciate.So, the policies are really of inflows to really come in from the diaspora, and this has helped the Naira to sustain its acquisition.
Questn: Okay, let me take you back to unification. You talked about unification:To what extent have foreign exchange market reforms, such as exchange rate unification, like you mentioned earlier, helped restore confidence in the Naira?
Ans: Okay, this simply first directly affects businesses, I must say, because before now, it was extremely difficult for businesses or even private individuals to source the USD at a price that is stable, where one person or one business entity does have an unfair advantage over others.
What we’ve had before now is probably some people being able to source the dollar at the official rate, while other people in the same business will have to go source it at the black market rate, with a margin difference or spread difference of about 300 or 400 Naira in between the value both companies get. Imagine somebody then going to get a million dollars at 350, which is the official rate, and another person going to the black market to get it at 800.We have to import the same products, we have to do the same business. One person already has an unfair advantage, which means for those who cannot soruce it at the official rate, it would actually be at the mercy of the black market, and of course, in most cases, it turns out to be losses for those investors.
But in this case now, where the currency has been unified, all businesses now get a trade wage, that is one.Then two, the USD is now readily available. You can even see the banks now, the local banks telling you you can now use your local debit Naira card to purchase goods abroad and pay in dollars. It just shows now there is no more dollar scarcity, there is now dollar availability, and it also ensures that private individuals who before now find safety in converting their Naira to dollars, dumping their Naira to look for dollars to buy and save their money in dollars, starting their dollar account or foreign account, are no longer doing that.Even those who have their money in dollars now, are now beginning to bring out their dollar and begin to convert their money in Naira, because they feel there is loss of stability. So this makes dollar readily available, unlike what we used to have before. So I must say the unification has made dollar accessible, available, and no longer in up demand like it used to be, you know, where everybody is just dumping the Naira to look for the dollar, people are now comfortable and safe, safe because they now feel the Naira is no longer losing its value.That’s the first thing, once the fear is off, fear of losing the value of your investment or currency, once that is off, then you will see more people have confidence to say, okay, I think I can keep doing business in Naira, I think I can go to that place, put my money there. And then even if I want to take my money out, because sometimes businesses come into the country, and then once they do their businesses, and they now want to take their profits out, it becomes a challenge when dollar is no longer available. But unification now has made it a lot easier.
Dollar is now available, you do business in Nigeria safely, you make your profit, and you want to take your money out comfortably, because now the dollar is available, readily available, and the Naira is also not losing its value.
Questn: So what global factors, such as oil prices, for example, do you think pose the biggest risk to the stability and continued appreciation of the Naira over the next 12 months?
Ans: Global factors generally play a big role.Firstly, I must say geopolitical activity plays a big role, and I must say that war also plays a very, very big role in the global economy. So for example, the war in Iran currently ongoing is actually going to hurt deeply on global economy, which could lead to global recession. And no country is immune to it.So the Naira cannot be said to be immune to such situations, because if you notice, it’s about 12, 13 days ago now, the Naira has begun to shift ground from its early 1,300 position into 400 positions right now. And it’s because of the instability, global instability, which also affects the oil market. Okay, and the oil market, global instability is going to affect everybody.For some of us, you know, we’ll be like, what is happening in Iran? Why are we in Nigeria feeling the heat? Not knowing that the world is now connected, intertwined together, that whenever there is crisis in some key regions of the world, for example, that of Iran and the Gulf area, which are high oil-producing economies, they supply about 20 to 25% of oil. And this war now has put a stop to that supply, either temporarily, medium or long-term stop. That stop and cutting that supply is going to affect the local economies, who depend directly on that supply, that is one.Then two, it’s going to make the prices of crude oil spike up. And this spike will reflect in the international market. And once it reflects, it’s going to affect all by-products that come from crude oil, like the petrol, the kerosene, the gas, and every other thing, which will make pump prices go up for so many countries.Nigeria is having their own effect right now. Prices moved from about 800 to 1,300. And if this war is not controlled, price might even go as close as 2,000 Naira if it extends for another one or two weeks.
Pump price as well will go as high as that, because the crude oil prices will keep appreciating, and it might go to as high as 150 to 200 dollars. If crude oil gets to 150 dollars per barrel, then I must say pump price in Nigeria will go close to 2,000 Naira, if not more. And this, of course, will have an effect on our currency as well, because that will lead to inflation.And you know what inflation does to every currency, right? Inflation leads to the loss of value of currency. So it’s going to be a global inflation, and Nigeria is not immune to it. Because once price of pump petrol, our pump price goes up, then it will affect transportation, it will affect production, it will affect price of local commodities in terms of food and so many other things.And then Naira may take a slight fall, I must say, but not just Naira alone. So many other economies will take a hit, like India, like even China and others will take a hit.
Questn: Talking about inflation, let us look at what economic indicators are saying for Nigeria. You know what our economy is about. What it stands at presently. Do you think, given what our economy is about currently, do you expect the Naira to continue with the current trend? Is the Naira going to keep appreciating over the next 12 months, just looking at our economy?
Ans: Looking at it on a long term perspective, now it will be a bit difficult to say the Naira will keep appreciating because of the global instability due to the war in the Gulf region, in the Arab region. If the war happens to end today, okay, and even if the war ends today, I must say that prices of crude oil will not drop back to $60 per barrel in the next six months. Reason being that facilities are already being damaged, so supply will still be slow.But that being said, if all things had been equal and there was no war at all, I believe inflation in Nigeria would gladly be retained. The central bank has been able to put up some monetary policies, using the interest rate to control inflation, and then also taking on some other policies to ensure inflation drops. And for the first time in so many years, inflation in Nigeria retraced a bit, at least significantly, that it begins to reflect in the day-to-day life of Nigerians, in terms of price of food items, consumables, and others.If the war in Iran or in the Gulf region had not happened, I would say inflation in Nigeria has been cleaned, and what we can see is it’s going to get better. But now with the war that is happening now in the Middle East region, this is going to cause a global inflation, and Nigeria is not immune to it. Nigeria is not immune to it.
We will be affected, either we like it or not. After the war, there is calm, and nobody can tell how long this is going to last. I just pray world leaders are able to come together to be able to find a common ground and get a ceasefire and end this war as quickly as possible.We may see inflation figures rise, maybe some 3-5% higher in the long run.
Questn: Okay, so you are saying the Naira might not continue with the current trend over 12 months because of global instability?
Ans: Yes, yes. Okay, so let me talk about this.Questn: Okay, so let me talk about this. You know that we have our own crude oil, so we don’t need that risk of bringing in crude oil. So how does that still affect the Naira going up or going down during the global crisis? Ans: The comfort we will get from having our own crude oil as a nation is the fact that we will not have scarcity of petroleum products, but that comfort will not extend to higher prices in the petroleum products because crude oil is sold at international market rates.So even if we have our own crude oil, three weeks ago it was a bit about around $60 or $65 per barrel. Now that prices have spiked globally to about $100 per barrel today to $101 per barrel, Dangote will buy crude oil from Nigerian government at the international market rate because that is the current market price. And if Dangote buys crude oil expensive at $102 or $101 or $100 per barrel, of course it will reflect in cost of production and it will reflect in the final price at which consumers will get petroleum products.So the only comfort we will have as a nation is we will not experience scarcity because we are not importing crude oil.
We have it locally, so we will not experience scarcity. There will be no queues. Businesses may not shut down. For example, India. India imports 90% if not 100% of crude oil that they use in their country. And as we speak right now, in the last three days, Indian universities have all shut down.Government establishments to some large extent are now semi-shut down. They now have to work maybe two days in the office, four days from home, kind of. You get it.Even China is already experiencing queues, scarcity. There are lots of queues in China as we speak. Japan is also feeling the heat, seriously, because they don’t have crude oil.They have to import. But for us, we will not have much pressure on us. We will only feel the pain in the area of prices.In China now, there’s scarcity and prices up. In India, there’s crisis already. Both prices is up and then it’s also not available to buy at the pump.
In Nigeria, we will have crude products or petroleum products available for us to buy. The only problem is prices will go up. But it’s better than not being available at all.I must say, we are indeed blessed in this period of crisis, which so many nations that we look up to, that we think they are big and all of that, are in serious crisis right now.
Questn: How important is foreign investor confidence to sustaining the Naira stability and what policy actions are still needed to attract more foreign exchange inflows into Nigeria?
Ans: Foreign investor confidence is high because our stock market is reflecting it. The Nigerian local stock market is heavily reflecting the influx of investor confidence, the influx of foreign investors into the economy.
Because if any economy is going to pick up from the ground or experience a major turnaround, it starts to reflect from the stock market. And the stock market has been booming heavily in the last two and a half to three years now. Okay, and that just shows a strong proof of investor confidence.Talking about sustaining it right now, I think it also has a little role to play in our political system now. If there is stability in the administration, let’s say we are going into election year next year, if it looks as though the current administration that brought this confidence in, that’s turning around the economy and giving this investor confidence to me. If it looks as though they may not sustain their position, probably for some reason, the Nigerian people may likely vote them out, then you will see investor confidence drop and you might start experiencing capital flight.But if they study the environment and see that, okay, this administration has some acceptance and may likely return and remain in power for another four years or thereabouts, then you will see investors keep staying and probably even bringing more money into the economy, which is positive for the Naira. And this will help the Naira continue to sustain its appreciation. As a matter of fact, for me, appreciation in the currency is not really what even any economy wants as a big thing.What they want is stability, okay? Appreciation can be slow and steady, but at least stability is what they want. Not as though Naira is 13 today, then tomorrow is 11, and then the day after it goes back to 17. No.If it remains at 15 or 13 or 14 and is able to stay around that area for a longer period, this just gives investors more confidence to stay. And from the look of things, our stock market has just said it all. Investor confidence is there.The market is booming and more money is coming in. The capital base is expanding. Investors have confidence in the policies of the administration.Then they begin to study what our political system would look like, you know, coming into the election next year. To let them know if they would stay, invest more, or pull out.
Questn: What are the biggest risks that could truncate the stability and appreciation of the Naira, and what do you think the government should do to manage those risks?
Ans: One of the biggest risks that could truncate the stability of the Naira is, you know, there’s this general trend in Africa recently, where we have military juntas and military men taking over governments and all of that.And there has been an attempt, a failed attempt in the country, Nigeria, if we have anything like that. And if that happens in Nigeria, I am telling you, the economy is going to collapse. Investors are going to pull out everything, and the markets will not be able to sustain it. And then this will lead to a big breakdown. This could be a situation. Then two, if that did not happen, another challenge we may experience that may also affect this trend is if the insecurity issues are not addressed quick and nipped in the board. If the insecurity problem begins to expand into economic areas, okay, because I must say that that also plays a lot of role in the stability of any economy or currency, if insecurity continues to expand. So the administration has a lot to do, a lot, lot, lot of work to do to secure lives and properties, to push back on the insecurity, and stem it down to the barest minimum, such that the economy will be able to sustain itself. Because the truth is, it is the people who work overall that contributes to the general GDP.If insecurity begins to make people who are in the rural areas unable to work, unable to do their businesses, unable to farm, and all of that, it is going to have a long-term effect eventually. And the truth is, if the insecurity matters are not nipped to the board, for those who choose to go the route of terrorism to make a living, if they are not controlled, it’s going to expand and it’s going to affect the value of the currency of the country, because once there’s insecurity, investors’ confidence also pulls away. So I must say, the administration has a lot to do to ensure the country is safe and becomes safer.