Wealthy Nigerians, middle class, youths in web of naira shorting
• Country at risk of all-time high money laundering
• Request for dollar-denominated accounts spikes
• Fund managers feast on desperation for dollar assets
• ‘Outlaw domiciliary accounts, go after black money’
Confidence in the economy has dropped to its lowest ebb, emboldening some Nigerians – the wealthy and hustlers– to bet against the naira, investigations have suggested.
As desperate behaviours intensify, the lines between the elite and ordinary folks, as well as the vanishing middle class and struggling youths, are fast disappearing with the majority boxed in the same ring, while they watch the currency lose its peg against its peers.
Through different approaches, which reflect individuals’ economic power and exposure, Nigerians from all walks of life are piling pressure on the naira, shorting it in expectation of a further fall in value.
The Guardian learnt of a worrisome tendency to short the currency (sell with the intention of buying it back when it slumps further) each time the dollar retreats slightly against the naira.
Experts, who have watched the behaviour, said the recent relief in the currency crisis when naira firmed up to around N640/$ was not sustained, because thousands of desperate Nigerians cashed in to mop the available dollar for speculative purposes.
The naira recorded marginal depreciation against the dollar at the Nigerian Autonomous Foreign Exchange Fixing (NAFEX), the nation’s official foreign exchange market, despite a significant increase in liquidity. Increased activities were witnessed in the market on Monday, as the daily forex market turnover rose to $134.30 million compared to $46.31 million recorded last Friday, data from the FMDQ showed.
After trading on Monday, the dollar was quoted at N430, which was higher than the N429.62 quoted on Friday, resulting in a 0.09 drop in the value of Naira at the Investors and Exporters (I&E) forex window.
At the parallel market, popularly called the black market, the local currency closed at N675 per dollar, the same rate as Friday.
At the top of the economic ladder, the number of Nigerians fixing their money in foreign currencies abroad (an ancient practice though) has increased multiple folds in the past few months.
An investment banker, who is conversant with the trend, said “most politicians, businessmen, religious and traditional leaders have joined the race of taking both earned and stolen money abroad” in search of safe haven.
“Inquiries about foreign accounts opening process has spiked in the past three years. Since then, it has continued to rise,” the banker, who said he has monitored the trend for 15 years, disclosed.
While Europe, the United States and the United Arab Emirates had been the traditional destinations of Nigerian seeking safe haven abroad, sources said interest has widened to a lot of African countries.
The Guardian could not, however, confirm if Nigerians pulling out funds from the country are equally accumulating assets denominated in other African currencies.
However, naira is not the only African currency in free fall. Suffering from extremely high inflation, the Ghanaian cedi, according to Bloomberg, is among African currencies with the worst spot returns in the year.
The currency has suffered about 30 per cent depreciation against the dollar year-to-date (YTD), much higher than that of Nigeria. Fifteen years after its redenomination to achieve a one-for-one exchange rate against the dollar, the cedi has slumped to GH¢9 against a dollar.
Other currencies such as South Africa’s rand and Kenya’s Shillings have equally seen degrees of depreciation against benchmarked currencies in the past few years.
This suggests that Nigerians, who would have been taking positions in other African countries, might have taken a haircut due to value erosion. Back home, interest in foreign currency–denominated accounts has hit the roof, a banker confided at the weekend, adding that her organisation is becoming wary about the volume of applications received daily.
“Previously, when an individual approached the bank for a dollar or pound-denominated account, you expect to hear ‘I am expecting payment in hard currencies from the such and such country, but these days, people tell you they just want to open dollar accounts for savings, which is not the idea of domiciliary accounts,” the banker said.
Further investigations revealed that the prospect of dollar-denominated accounts has widened from middle-class to artisans and low-income earners as well as students. Independent sources pointed out that interest in regular naira savings accounts, especially from young people, is being subdued by increasing request for dollar accounts.
Dr Tope Fasua, an economist and former presidential candidate, lamented that the behaviour represents extreme desperation by people who are determined to debauch their currencies.
In a previous interview, Fasua said the naira could only dip to as low as Nigerians wish it, arguing that the most dangerous factors fueling naira depreciation are speculation and poor perception management.
“It is a very scary prospect and I am personally worried about the ease at which people take positions against the naira. It is not done anywhere in the world; anybody can have a domiciliary account or any other similar arrangement through which they can short the naira. If you can easily move assets from naira to dollar-denominated assets, you are simply shorting the naira,” Fasua said.
The economist noted that the country faces a huge problem as long as anybody could take a position against the naira for profit purposes, arguing that no measures taken by regulators under such a possibility would yield results.
“In the long run, the naira will always fall as long as people have such access. The currency will continue to fall regardless of the trade balance of Nigeria or whatever we do to get FX into the system. It will be a one-way track for naira.
“Unlike other countries, Nigerians do not have confidence in the economy. Patriotism is completely missing, which is the reason Nigerians do not see why they should not buy dollars to keep; they believe the economy will always be bad,” Fasua observed.
While it appears authorities have surrendered to fate, Fasua charged President Muhammadu Buhari to arrest the situation, arguing that managing the naira is not only the responsibility of the Central Bank of Nigeria (CBN) but also that of the President. To rein in speculative tendencies, he suggested the country go after “black money” as India did about five years ago and ban or strictly regulate the operation of foreign currency-denominated bank accounts.
“I think N1,000, N500 and N200 bills should be changed into polymer currencies so that people will be asked to bring their money into the banking system as soon as possible. Polymer currencies are much more difficult to counterfeit. That will bring a lot of money into the banking sector. After that, Nigeria should make a law against the personal holding of domiciliary accounts. There is nowhere else this is done – that a citizen of a country signs up for a foreign currency account. Every country works to achieve a strong currency except where a currency is weakened to gain a competitive position in export like China did,” he suggested.
Godwin Owoh, a professor of applied economics, also made a case for aggressive clean-up of the financial system through currency census, which he said, could also be achieved by changing existing denominations. He noted that a lot of unearned billions of naira are kept away from the formal financial system to hedge on FX– a major reason for the perpetual static disequilibrium in both financial and goods markets.
Few years ago, a special operation conducted by operatives of the Economic and Financial Crimes Commission (EFCC) on a building said to belong to a former Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Andrew Yakubu, in Kaduna, led to the recovery of $9.77 million and another sum of £74,000.
Around the same time, $43.45 million, £27,800 and N23.22 million were found in an apartment building in Ikoyi, Lagos State.
There were other similar funds suspected to be proceeds of corruption kept away from prying eyes. Some of the foreign currency components of such money are suspected to be kickbacks sourced from the black market for settlement purposes.
Owoh suggested that only a properly conducted currency census would unravel the mystery around such money and end the distortion caused to the economy.
While dozens of hustling Nigerians who mill at banking halls for foreign currency-denominated accounts are turned back for failing on knowing your customer (KYC) protocols, the doors of loosely-regulated financial technology (fintech) players are wide open, giving them access to foreign assets across the world. And unlike banks, subscribers to fintech products earn between five and 10 per cent on their savings in addition to margins from the spread (earnings from exchange rate gain over time).
“When I signed up, I bought some dollars at N360/$. Later, I bought at N450 per dollar while the recent accumulations were at over N600/$ exchange rate. Supposing I don’t earn interest on the savings at all, I have gained about 100 per cent on the first tranches of deposits I made,” Susan Laide, a young lady who subscribes to a popular app currently feasting on Nigerians’ desperation to profiteer from the fate of naira, narrated.
The market sometimes turn against ‘shorters’, which many Nigerians have become in recent times. That happens when a currency shorted suddenly spikes in value. For instance, the Russian ruble rose against expectations amid the war in East Europe, becoming one of the best-performing currencies in the year. Those who shorted ruble expecting a tumble would have had their fingers burnt.
But the founder of the Money Wit Club and ex-Vice President of Parthian Partners Limited, Oler Oladele, told The Guardian that the chance of such a drastic reversal in the case of naira “is slim”, at least on a long term basis. The investment expert traced the historical path of the currency and concluded that those who hold the dollar against the domestic currency would eventually be profitable in the long run.
“There is low confidence in the economy. When people thought it would get better, it got worse, and it does not appear there will be a respite in the near future. So, it is logical for people to convert their savings to dollars. People are only preserving their savings as there is no confidence in the economy or the national economic managers,” she said.
Oladele argued that there is a doubt the naira would gain an edge against the dollar in the future if it has not done the same in the past 10 years, wondering how anybody could convince Nigerians that the dollar would not hit N2,000/$ in the future if it would gain six times the value of the naira in the past decade.
“What you see is that as people make money, they just convert it to the dollar to preserve the value because the trend is that the currency has been sliding. Unfortunately, the confidence is nose-diving because of a self-fulfilling prophecy. Demand for the dollar is above supply, hence, the naira is always sliding. What that means is that anybody that keeps their money in naira will lose out,” she explained.
Beyond other measures, she said, those managing the economy should regain public confidence in their ability to discharge their responsibilities, insisting that nobody will bother about converting their wealth to dollars if the naira is stable.
According to a lawyer and former President of the Chartered Institute of Bankers of Nigeria (CIBN), Mazi Okechukwu Unegbu, there is no end in sight for the downside anytime as politicians would continue to explore safe haven to hide billions of stolen naira in the coming months. The ex-banker added that there “is little the government can do to prevent people from taking positions” against a consistently falling naira.
There is speculation that the dollar, which hit a 20-year high of 109 points recently, would continue to buckle as the Federal Reserve System eases its aggressive monetary tightening in the coming months. That would give battered currencies around the world some breather.
But Onegbu said the international market outlook might not trickle down to the domestic market with Nigeria grappling with extremely peculiar economic challenges.
“Nigerians will continue to put their money where they think it will be best protected. No matter how bad the situation is with the dollar, Nigerians will always prefer it to the naira,” Onegbu, who insisted Nigeria missed a golden opportunity to firm up the value of the naira, noted.
About a year ago, The Guardian reported that more youths and the middle class were in a rat race to embrace cryptocurrencies with thousands saving their spare cash in stablecoins. If anything has changed, the crypto space is widening in the country notwithstanding the recent crash of the market with youths with high-risk premiums seeing the window as a useful hedge against the naira.
A recent study conducted by a market analytics site, CoinGecko, picked Nigeria as the most cryptocurrency-obsessed country in the world. While the window has emerged as a major option for Nigerians looking to evade the beating of the naira, the CBN regulation has insulated the country’s financial system from the market – a reason its operation does add directly to the pressure on the FX.