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I was going to open this newsletter with a jibe about how, even if you hate Arsenal football club and have been trolling them for years, in recent times, it has felt almost cruel to keep having a laugh at their expense. This is a team that played their first three matches without scoring a goal. But yesterday, they went and won their match, so let's back to trolling them 😡
But today's newsletter isn't about Arsenal or football. It's about someone I'm starting to genuinely feel sorry for, the CBN governor, Godwin Emefiele - see how I didn't put his nickname there? Can't keep kicking a man when he's down, even if he's the architect of said misfortune. Emefiele has been the subject of five of my newsletters and each time, even without an economics degree, I, and many other observers, point out exactly what is wrong with the CBN's policies.
Last month, I talked about how the CBN asked banks to send letters to customers warning them about using fake travel documents to get PTA and BTA. Somehow, Emefiele knows that he's fighting a losing battle, but his heart and mind are in it. It's like watching the movie, 300, but instead of the coordinated violence of the Spartans, you have agberos from Oshodi as stars of the show.
Oluomo FX a.k.a Godwin Emefiele
Emefiele has been trying to achieve foreign exchange stability for years, but he has increased his efforts in the last two months. Yet, he has been met by failure at every turn.
The reason for these failures are simple: it is impossible to have a difference of N83 between the bank rates and the parallel market rates without people taking advantage of the arbitrage opportunity. With that kind of differential, all you need to do to make N800,000 is buy $10k from the bank and sell it at the parallel market. Repeat that 20 times a month and you go home with N16 million. Not bad for 20 days of Emefiele-aided hard work.
The banks and the BDC operators know this but you won't hear me accuse anyone of colluding. Instead, I'll let Sanusi Lamido Sanusi do all the finger-pointing in his quote from 2016:
“For instance, when the CBN was selling dollar at N197 and people were buying at N300, if I sit down in my garden and pick up my phone I would have enough people to call in the industry to get 10 million dollars at officials rate and sell at N300 and make a profit of over N1bn and if I do that four times in a year. For doing nothing I would have earned N4bn."
Everyone knows how the game is played except Emefiele because, instead of admitting that this policy is failing, he's now spending his time playing defender of the FX. On Friday, a CBN circular made new threats, this time, not to customers, but the banks.
Part of the circular reads, “Given these responsibilities and in view of recent occurrences in the market, the CBN would like to remind banks to desist from all and any form of forex malpractice.
“We wish to reiterate that the FX operations licence of any bank or banks that are found culpable with the ongoing investigation would be suspended at least for one year."
To be sure the CBN is not only making threats, it is also planning to increase the supply of FX to banks. The reason is simple: CBN officials say that The black (parallel) market accounts for less than 1% of FX transactions. Yet, even if the banks are flush with FX, as long as the difference between their rates and parallel market rates remains high, round-tripping will not stop. Do not underestimate human greed.
The CBN's troubles don't stop there, it has had to deny claims that it will convert Forex in people's domiciliary accounts to Naira. It's a fear that a lot of people have had in the last year. I can understand where they're coming from because in the past few years, the CBN has publicly denied plans to devalue the Naira, only to turn around and do just that. Yet, I'm fairly certain we won't get to the point of FX in dorm accounts being converted to Naira. Still, I won't bet on it - after all, this is Nigeria.
Let's bring it home: in June, the World Bank recommended that the CBN unify the two FX windows (Bank/NAFEX rates and parallel market rates). It is sound advice because it will eliminate the round-tripping that is currently going on. Beyond this, it will also end this obsession that the average Nigerian has with looking up prices on Aboki FX. The fact is that the USD to Naira exchange rate doesn't affect the average Nigerian, so any obsession with it points to a policy failure.
Yet the biggest failure of all of this FX nonsense is that it is now almost impossible to move FX out of the country. If you're an investor, that's bad news - ask MTN Nigeria about how they needed to wait almost a year to pay dividends to MTN Group because of a shortage of FX or Unilever that had to source FX from "non-bank sources." If foreign investors know it will become a pain to move their earnings out of Nigeria, they won't invest here, no matter how significant the business opportunity is.
TL;DR: The best time to sack Godwin Emefiele was 2016, the next best time is tomorrow, at the crack of dawn.
That said, Emefiele has earned a break from appearing in the newsletter for another month. But another Nigerian who’s not off the hook and needs to give answers for some of his company's actions is Aliko Dangote.
In July, I wrote about Dangote Group's disturbing history of using armed soldiers to respond to protesters at their factories. At the time of that newsletter, an unknown number of persons had reportedly been killed by soldiers of the 23 Brigade, Yola at the Savannah Sugar factory owned by Dangote in Gyawana community, Adamawa. There has been little progress in finding out the names of the deceased. Yet, this week, I got my closest lead, as someone with knowledge of the July shooting told me that someone named Jacob Gad was among those shot in the leg by soldiers. He reportedly died as a result of those injuries. The Gyawana community said in this letter that it has suffered "recurrent acts of military and other security operations, often masterminded by the management of Dangote Sugar Refinery."
So far, no arrests have been made following the incident in July and there is no hope that justice will be done.
Read also: Who will save Nigeria's small businesses
Why am I bringing this up again? Farmers in the Gwayana community of Adamawa are protesting again after a Dangote factory released industrial waste onto their farmlands. Sahara reporters published this article alleging that the management of Dangote Sugar Refinery has again threatened action against the community.
A source who's close to the situation and who prefers not to me named, told me, "Dangote’s treatment of the Gyawana is by unfair. He often makes threats to shut down the company because it doesn’t make him money, knowing that the economy of the village is dependent on Savannah Sugar to a large extent."
Yet there's more to the story, and this week, I will speak to members of the Gyawana community. It will form the basis of a special bonus newsletter next week.
That's enough reporting for one day. Let me know what you think of today's newsletter. See you on Friday!
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