Bracing for Post-election’s Economic Realities
to N225. Today, the fear problem has been removed but the fundamental is still there, the naira value is still there and what it means is that now the naira is overvalued and in due time, it will correct itself. I do not believe it will go back to N225, but it may go back to N215 per dollar.”
Responding to inquiries from panic foreign exchange users who feared that the two weeks’ erosion of dollar value in Nigeria would affect their position, the FDC boss said there was no need to panic, explaining that the naira was bound to find its level in the next few days since all the elections have been concluded without any major crisis.
Warning against panic sale of dollars, Rewane said: “The rule of trading is you buy low and sell high, once you start to sell low, that means you have lost your margin. Definitely, I can tell you that the market movement in the past one week has been sentimental and not fundamental and sentiment exaggerates fundamental direction. We are going to see a correction of this within the next day or two and then we go back to where we were. What we had is a change of leadership but not a change of system.”
And speaking on what to expect between now and May 29 when the new administration would swing into action, the FDC chief said, Nigerians shouldn’t expect any significant change in the system. He said, “I can assure you that nobody in Jonathan administration will attempt to do anything funny.
“From the day of the election, if you do anything funny, then you have done something to take advantage of the transition, except such government official wants to go to prison.
I think there will be a transition and remember what I said that a change of leadership without a change of system will end up with the same result. The new government has to change the system and when you change the system you will get a different result and that is what happens. But for now, every other change you are talking about so far is just a discount of the fear factor.” Market Correction Underway However, analysts from Nairametrics believed that although the market is bound to correct itself, it said it might no longer be realistic to have an exchange rate in the region of N160-N170 to a dollar. The organisation hinged its argument on a number of prevailing economic challenges including oil price plunge and low external reserves.
“We believe the days of N160-170 are not coming anytime soon as the quartet of oil price plunge, dwindling government revenue, low external reserves and thirst for high imports remain an issue. The interbank market is still relatively flat and did not witness any major post-election bounce,” it said.
Analysts also believed there is still pent-up demand for dollars with limited supply that could still pose a significant risk for further devaluation. For example, our external reserves are thought not to be enough to meet up to the acceptable six months import bill.
“Despite the above, we believe it is still early to project if the naira will continue to remain strong. Based on current over-supply the black market will continue to undergo a correction that will see the naira trade between N200 to N210 to the dollar.
This off course depends on whether the CBN will still go ahead with devaluation and/or loosen up some of its tighter controls. The potential impact of the election transition going smoothly as well as the vibes from the APC is also a huge factor,” Nairametrics said in a report.
Another analyst following the trend in the foreign exchange market is the Chief Executive, Financial Market Dealers Association of Nigeria, (FMDAN) Mr. Wale Abe. He told THISDAY that the initial cause of sudden depreciation of naira was the rise in the Nigerian risk profile close to the general elections.
He said: “The crisis that was projected was part of the risk profile of Nigeria that we were not likely to hold the election. Now, that has been debunked because we held a peaceful election. Improved Outlook “After the election, some international investors, due to the high level of corruption in the land felt that the APC government might be able to do better in the anticorruption war. So the election victory of the APC has begun to raise the outlook for naira against the dollar.
It means we are now more likely to welcome more foreign investors who were waiting by the sides because whether you like it or not, Nigeria is a preferred investment destination in Africa.
“Don’t forget the fact that some Nigerians who have huge investments in dollar now see that Nigeria is at peace. This category of people is bound to make their entry back into the Nigerian economy once the election is over. Those who have been moving their investments out of the country for the fear of the unknown are now rest assured that all is well.”
In terms of fiscal policy, there is the belief that the APC government will be more disciplined. These are some of the factors that affected the naira.
The perception today is that the APC government will be disciplined to the extent that the country is likely to get value for every naira spent. With that perception, it is very much possible that the APC government will be more financially disciplined. This means they will have fiscal policies that are consistent with monetary policies. This direction is bound to have a positive impact on the value of the naira.