WEBVTT - Nigeria And The Naira's Roller Coaster

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>These are very pricey and like let's last say, it

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<v Speaker 2>is all easy for us.

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<v Speaker 1>You might guess something of ten today, tomorrow you get

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<v Speaker 1>it for two.

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<v Speaker 3>Just keep hoping it to be better one day.

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<v Speaker 2>As we were just hearing from these Nigerians, times have

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<v Speaker 2>been difficult and the prime suspect seems to be the naira.

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<v Speaker 2>Over the past few years, the naira has experienced multiple downsides,

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<v Speaker 2>but most recently some upside too. What is still down though,

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<v Speaker 2>is Nigerian's spending power. They are yet to reap the

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<v Speaker 2>benefits of the naira's recent rebound. So how can you

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<v Speaker 2>go from being a weak currency to the best in

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<v Speaker 2>the world and then losing ground again? And what does

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<v Speaker 2>a stronger currency mean for the economy of one of

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<v Speaker 2>Africa's biggest markets. This is what we are going to

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<v Speaker 2>talk about this week with my colleague and Legos Bureau

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<v Speaker 2>chief Anthony ose Brown. I'm Jennifer Sabasanja and this is

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<v Speaker 2>the Next Africa Podcast, bringing you one story each week

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<v Speaker 2>from the continent driving the future of global growth with

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<v Speaker 2>the context only Bloomberg can provide. Thank you so much

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<v Speaker 2>for joining us. Anthony, you're very busy and it's an

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<v Speaker 2>honor to have you step away from watching what is

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<v Speaker 2>going on in Nigeria and mainly what is going on

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<v Speaker 2>with the naira. It's been a whirlwind, roller coaster day

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<v Speaker 2>after day for you and all of the team. Let's

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<v Speaker 2>just rewind back though to May of twenty twenty three

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<v Speaker 2>when Bulletin Abu, who's the current President of Nigeria came

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<v Speaker 2>to power. Bolatinubu has one Nigeria's presidential election.

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<v Speaker 1>So victory that will placed him at the helm of

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<v Speaker 1>Africa's biggest economy.

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<v Speaker 2>Can he fix the economy given his mandate? Should we

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<v Speaker 2>start there when we're thinking about the naira and the

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<v Speaker 2>roller coaster that has been the past year. What's your take?

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<v Speaker 1>I think that's a good point to start because before

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<v Speaker 1>that point, the naira was pegged against the dollar. President

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<v Speaker 1>to nob got inaugurated twenty nineth May and one of

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<v Speaker 1>the first things he said during his inaugration was that

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<v Speaker 1>the way the monitory policy has been managed before then

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<v Speaker 1>wasn't right and he was going to make sure reforms

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<v Speaker 1>are made. And within a week, the former Central Bank

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<v Speaker 1>of Nova sat and someone was appointed in acting capacity

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<v Speaker 1>and steps were immediately taken to remove the peg, the

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<v Speaker 1>nyira's peg against the dollar. And since then, as we said,

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<v Speaker 1>it's been a roller coaster right for the currency.

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<v Speaker 2>And Anthony, maybe you can talk us through the first

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<v Speaker 2>few months President Tuenibu was announcing new policy after new policy.

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<v Speaker 2>Are these reforms actually working in favor of the naira.

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<v Speaker 3>We could say it's waking.

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<v Speaker 1>They reduced the different shop between the parallel market rate

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<v Speaker 1>and the official market rate.

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<v Speaker 3>That has light little worked.

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<v Speaker 1>From about seventy percent the French ship between the official

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<v Speaker 1>rate and the parallel market rate, it.

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<v Speaker 3>Has dropped to almost nail.

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<v Speaker 1>In fact, we have had seen situations where the parallel

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<v Speaker 1>market rate is weaker or is stronger than the official

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<v Speaker 1>market rate, so that multiple rates or the rate to

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<v Speaker 1>the friend ship between the official market rate and the

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<v Speaker 1>parallel market rate no longer exists practically in the market,

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<v Speaker 1>and that means more people are willing to bring in

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<v Speaker 1>dollars through the official market than through the power market.

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<v Speaker 1>And that has also led to improved liquidity in the

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<v Speaker 1>official market. So we could say in that sense it

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<v Speaker 1>has worked. The naira is weaker, but somewhere around much

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<v Speaker 1>we saw it actually appreciated strongly and became the world's

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<v Speaker 1>best performing currency, moved up almost I think thirty to

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<v Speaker 1>forty percent before I say, losing ground in apriy again.

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<v Speaker 2>And how has this and some of the other reforms

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<v Speaker 2>t Nubu has put in place actually had an impact

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<v Speaker 2>on the economy in Nigeria.

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<v Speaker 1>Yeah, it's been a bit devastating for a lot of

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<v Speaker 1>people on our people on the streets. The sharp devaluation

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<v Speaker 1>and the currency, along with the partial remover of subsidy,

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<v Speaker 1>has led to a spike in inflation, which was already

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<v Speaker 1>rising even before the devaluation of the currency. So inflation

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<v Speaker 1>is currently at nearly a three decade high and keeps

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<v Speaker 1>rising as almost at ten three seven percent of the

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<v Speaker 1>about as of match food inflation is higher at forty percent.

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<v Speaker 1>And that's huge because if you consider them, most Nigerians

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<v Speaker 1>spend more than half of their incommon food. That means

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<v Speaker 1>they sharp rise and food prices has forced most of

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<v Speaker 1>them to prioritize food expenses above other necessary expense like

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<v Speaker 1>medical care and education.

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<v Speaker 2>For people who are not local to the region, to Nigeria,

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<v Speaker 2>what does that look like if you're going to the

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<v Speaker 2>grocery store. How is that translating Well.

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<v Speaker 1>Most Nigerians shop in the open market. One practical example

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<v Speaker 1>is Nigeria's popular jelove rice.

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<v Speaker 2>We love jela rice.

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<v Speaker 3>Yeah yeah.

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<v Speaker 1>So as at match, the price of rice, the main

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<v Speaker 1>ingredients for gelo of rice jumped up by one hundred

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<v Speaker 1>and fifty percent. That's almost nearly three times the normal price.

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<v Speaker 1>So a lot of people may no longer be able

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<v Speaker 1>to eat youell of rise on the daily basis because

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<v Speaker 1>the price has jumped up significantly and can no longer

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<v Speaker 1>afford it.

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<v Speaker 2>I bet that, Anthony. If you were to ask the

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<v Speaker 2>ordinary Nigerian versus maybe a market participant, whether Tinubu's reforms

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<v Speaker 2>are actually working, they may have strikingly different answers.

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<v Speaker 1>So on the streets, everybody thinks is failing. There's been

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<v Speaker 1>some trends on x where people have been trended in

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<v Speaker 1>tenubumas go. That's because they feel he's costing a lot

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<v Speaker 1>of suffering for people. So yeah, So there's a huge

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<v Speaker 1>differential between how investors and foreign portfolio investors and analysts

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<v Speaker 1>look at the economy and the way ordinary people on

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<v Speaker 1>the streets look at the economy. For ordinary people on

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<v Speaker 1>the streets. They are not seeing any benefits in what

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<v Speaker 1>the government is doing. But for the analyst, what Tenubu

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<v Speaker 1>is doing is writing and he's taking the steps in

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<v Speaker 1>the right direction.

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<v Speaker 2>And what about businesses, Anthony, is this a more stable

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<v Speaker 2>environment for the private sector?

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<v Speaker 1>Yeah, for the private sector for the long term. Most

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<v Speaker 1>of them see the likely positive outcomes of the current reforms,

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<v Speaker 1>but currently most of them are suffering. Most of them

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<v Speaker 1>have run into heavy losses basically because of the huge

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<v Speaker 1>devaluation and the currency or the nearly seventy percent evaluation

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<v Speaker 1>and currency has plunged most of them into losses. That's

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<v Speaker 1>because most of them had foreign currency obligations. Most of

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<v Speaker 1>them are struggling to survive. But most of them are

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<v Speaker 1>positive in the sense that if they survive the current

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<v Speaker 1>reforms and they are sustained, then they think in the

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<v Speaker 1>long run naturally will be a better place to operate in.

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<v Speaker 1>But in the short term, they are seeing a sharp

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<v Speaker 1>erosion of people's purchasing power. They are seeing a sharp

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<v Speaker 1>erosion of the groups that they've been having the last.

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<v Speaker 3>Few years in Nigeria.

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<v Speaker 1>Most of them will have to recapitalize and so they

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<v Speaker 1>are calling on equity from their parents, companies and from

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<v Speaker 1>shareholders to be able to recapitalize and survive the difficult period.

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<v Speaker 1>On the positive side, most of them are able to

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<v Speaker 1>meet their all our obligations currently from the market, which

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<v Speaker 1>was in the situation before.

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<v Speaker 2>Now stay with us after the break, we'll discuss how

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<v Speaker 2>the nyro's crisis and the president's reforms are affecting the

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<v Speaker 2>informal sector and what Nigeria could do to boost its economy.

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<v Speaker 2>Welcome back, So Anthony, tell us how's the naira and

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<v Speaker 2>also Tinubuo reforms affecting the informal sector which is a

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<v Speaker 2>significant portion of the economy and also small businesses.

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<v Speaker 1>I think the Agency put Nigeria's informal sector at almost

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<v Speaker 1>ninety percent or more of the economy, so this for

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<v Speaker 1>them is a huge deal. But one of the biggest

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<v Speaker 1>areas Tess factored them is in the working capital. So

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<v Speaker 1>suddenly they realize that they need more money to buy

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<v Speaker 1>the goods that they used to buy.

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<v Speaker 2>So Anthony, what's your sons, When will growth actually pick

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<v Speaker 2>up and where will it pick up? Is it the

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<v Speaker 2>oil sector for Nigeria or are there other sectors that

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<v Speaker 2>the country is looking to.

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<v Speaker 1>The oil sector is the low hangering fruit. Current production

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<v Speaker 1>crude production is around one point two three million barrass

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<v Speaker 1>a day, but Nigeria's potential capacity to produce crude is

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<v Speaker 1>somewhere around one point eight to two point six million

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<v Speaker 1>barrass per day. So if Nigeria were able to tap

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<v Speaker 1>into its available capacity, it could actually increase oil production

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<v Speaker 1>and were between forty to fifty percent in the next

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<v Speaker 1>few months. That has been difficult because of oil theft,

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<v Speaker 1>old assets that are difficult to push up, and then

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<v Speaker 1>a lot of bureaucratic challenges. But oil is one of

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<v Speaker 1>the easiest areas that Nigeria quick is a add growth

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<v Speaker 1>push grout. Then there's also the on aiir sector, reforms

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<v Speaker 1>around taxation and those areas are areas and nairaku boost

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<v Speaker 1>revenues and anthony.

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<v Speaker 2>Just to wrap up, I'm not going to ask you

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<v Speaker 2>to protect where the naira is going to go next.

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<v Speaker 2>I don't think that would be fair, but maybe you

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<v Speaker 2>can give us some insight into what to look for

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<v Speaker 2>in terms of what might drive the next price action

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<v Speaker 2>of the naira. There must be something that you're waiting

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<v Speaker 2>out for.

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<v Speaker 1>It's a bit difficult to say. In the short term,

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<v Speaker 1>the government is suspecting some influ so the government has

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<v Speaker 1>relied so far on portfolio inflows to drive liquidit in

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<v Speaker 1>the foreignes chain market. That seems to be running out,

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<v Speaker 1>so the government is now has to look beyond that

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<v Speaker 1>to get some influs in immediately. They're expecting a billion

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<v Speaker 1>dollars from the Afrasing Bank out of a three pint

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<v Speaker 1>three billion dollars that today asked for, they've already gotten

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<v Speaker 1>two twenty two billion. There's a World Bank loan that

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<v Speaker 1>they're expecting. There's two point two billion dollars maybe in June,

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<v Speaker 1>and then I think maybe another one billion dollars from

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<v Speaker 1>Africa Development Bank. If all these moneys come in between

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<v Speaker 1>now and June, maybe they will help support the nyra

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<v Speaker 1>and we could see some strengthening soon. But if they

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<v Speaker 1>don't come, then the naira will be in trouble. Beyond that,

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<v Speaker 1>the other support for the naira could be in increased

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<v Speaker 1>oil production. Then that will bring in more dollars to

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<v Speaker 1>support the currency. That's more sustainable in the long run

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<v Speaker 1>than the borrowings that the government is expecting because those

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<v Speaker 1>borrowings also means additional interest suspenses, which will eat away

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<v Speaker 1>at liquiditing the long run. Again, the last and most

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<v Speaker 1>sustainable one would have been to go to the MF

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<v Speaker 1>to take a huge loan. So analysts estimate that Nagua

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<v Speaker 1>could get up to twenty billion dollars if it's proved

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<v Speaker 1>the MF. But the Nigerian government actually sees the IMF

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<v Speaker 1>at of an anatma something that they will never discuss

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<v Speaker 1>or something that they would never want to consider.

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<v Speaker 2>That and our thanks to Anthony Os Brown, there are

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<v Speaker 2>Nigeria Bureau Chief speaking with us giving us his insights

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<v Speaker 2>in Legos. This program was produced by Leone Wadrago with

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<v Speaker 2>the help of emmele Ou. You can hear more stories

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<v Speaker 2>like this one on the Next Africa podcast, available every

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<v Speaker 2>week wherever you usually get your podcast. I'm Jennifer Zabastaja.

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<v Speaker 2>Thank you for listening.