BlackRock Sees Renewed Dollar Rally as Trump Talks It Down – Bloomberg

  • Global reflationary shift started before U.S. election: Bamba
  • Treasury 10-year yield may climb to 3% in 2017, company says
Treasury yields and the dollar have room to rise further with or without Donald Trump, according to the world’s biggest fund manager.

An increase in global inflation expectations that began months before November’s U.S. election will continue, and may push U.S. 10-year note yields up to 3 percent by the end of December, according to BlackRock Japan Co. The greenback may strengthen to 120 yen, said the company, whose parent BlackRock Inc. oversees $5 trillion.

Dollar investors have been whipsawed in the past month with the biggest rally against the yen since 1995 following Trump’s election victory turning into the steepest rout since August after he was reported saying the greenback was “too strong.” The President-elect had campaigned on promises of “massive” tax cuts and spending of as much as $1 trillion to rebuild infrastructure, while his “America first” stance produced pledges to tear up trade deals and punish companies that send jobs overseas.

“The regime of deflation and monetary easing since the Lehman shock switched to a regime of inflation and fiscal policy around July of last year,” marking the end of the 35-year bull market in bonds, Yue Bamba, head of Japan fixed-income product strategy at BlackRock in Tokyo, said in an interview on Thursday in Japanese. “Trump is not the root driver.”

U.S. 10-year yields have fallen to 2.34 percent as of 11:08 a.m. in Tokyo on Wednesday, from as high as 2.64 percent in December. The dollar has weakened to 113.01 yen from a 10-month high of 118.66 on Dec. 15.

Even if Trump’s policies fail to fulfill reflationary expectations after his inauguration Friday, BlackRock sees an improvement in the global economy as firmly entrenched — as can be seen in U.S. wage pressures and Chinese producer prices. The company predicts the Federal Reserve will raise interest rates as many as three times this year. 

BlackRock holds fewer Treasuries than recommended by the benchmark it follows, while being overweight investment-grade U.S. corporate debt and emerging markets. A 3 percent yield on U.S. 10-year notes would equate to yields on investment-grade corporate debt of roughly 5 percent, and 7 percent for high-yield bonds, which would be “extremely attractive” against a backdrop of an ageing population around the world, Bamba said.Structural headwinds in the global economy are likely to limit productivity growth, capping Treasury yields below 5 percent and preventing runaway strength in the dollar, BlackRock said. The threat that surging U.S. yields and the dollar pose for emerging-market economies will also limit their increase, according to the firm. 

“The 35-year bull market in bonds ended in July of last year, but that doesn’t mean we’re at the start of a 35-year bear market,” Bamba said. “It’s hard structurally to paint a picture where U.S. yields keep climbing uncontrollably.”

Naira Stabilises At N497/$ As Hope Of Recovery Imminent – The Tide

The Naira on Monday stabilised at N497 to a dollar at the open market just as stakeholders expressed hope in its imminent recovery, The Tide, reports.

The Nigerian currency, however, strengthened against the Pounds Sterling, but weakened against the Euro at the open or parallel market as it closed at N595 and N517, respectively; from N597 and N515 posted on Friday.

At the Bureau De Change (BDC) window, the Naira traded at N399 to a dollar, a rate it would maintain for the rest of the week, while the Pound Sterling and the Euro traded at N604 and N522 respectively.

Trading at the interbank market saw the Naira weakened further at N305.25 to a dollar, from N305 posted on Friday.
Traders at the market said that while the scarcity of the greenback remained visible, there were strong indications that the Naira was on its way to imminent recovery.

The Tide reports that since the closure in the sale of forex to BDCs last December, the spike in the Naira exchange rate had continued unabated.

Worried by the development, the Association of Bureau De Change Operators of Nigeria (ABCON) last week pushed for the adoption of a single rate at the market.

Alhaji Aminu Gwadabe, the President ABCON, argued that multiple rates were frustrating efforts at stabilising the Naira and fast tracking its recovery trajectory.

Gwadabe expressed optimism that the resumption in the sale of about N250 million dollars to members of the association this week would help in addressing liquidity challenges in the market.

UPDATE 1-Nigeria lawmakers worried about gap between official and black market naira rates – Reuters

(Adds context)

Jan 18 Nigerian lawmakers have adopted an official exchange rate of 305 naira per dollar for the 2017 budget but have asked the central bank to initiate measures to close the 40 percent spread with the black market, the deputy senate president said on Wednesday.

Members of the upper house of parliament said during a review of the budget on Wednesday that they were worried about the exchange rate differential, which they described as damaging to the economy and said had led to a loss of investor confidence. 

“We are worried by the huge gap. The central bank needs to do something about it and stabilize the currency. We must find a way of bridging the gap and restore investor confidence,” deputy senate president, Ike Ekweremadu read out in the house.

The naira’s official rate, controlled by the government, has hovered just above 300 to the dollar since it was devalued in June. But the gap, 40 percent stronger than the parallel market, is discouraging investment from overseas and leaving Nigeria starved of foreign currency.

Echoing the senate’s concerns, Vice President Yemi Osinbajo said on Tuesday Nigeria needed to close the gap “very soon”, as Africa’s largest economy grapples with inflation and the risks of devaluation.

The official and black market naira foreign exchange rates will be “unified” this year, but there is no time frame for when it could happen, said Osinbajo.

Financial institutions, among others, have argued that Nigeria must allow its currency to float freely to solve its foreign exchange woes, a measure which has met opposition from President Muhammadu Buhari.

In an effort to stop up the foreign currency shortfall, Buhari’s government has been in talks with financial institutions, including the World Bank, for loans.

But those efforts to secure funds have stalled because Nigeria has not submitted the required economic reform plans, according to one of the banks and sources close to the matter.

(Reporting by Chijioke Ohuocha; Additional reporting by Paul Carsten and Camillus Eboh in Abuja; Editing by Catherine Evans)

POLL-Nigeria likely to devalue naira this year, central bank on hold – NASDAQ

* Nigeria to keep benchmark rate at 14 pct in January

* Analysts still expect devaluation later in the year *

By Vuyani Ndaba JOHANNESBURG,

Jan 18 (Reuters) – Nigeria will devalue its currency, the naira, later this year in an effort to improve liquidity and close the gap between the official and exchange parallel markets, a Reuters poll found on Wednesday. That expectation by seven of the nine economists polled this week comes even though Central Bank Governor Godwin Emefiele has said he would not devalue the naira <NGN=D1>. “The possibility of a devaluation is certain; the question is the timing,” said Aly-Khan Satchu, an analyst and investor at Rich Management in Nairobi. “They are eventually going to capitulate at some point this year, a similar scenario to Egypt at the end of last year – a big devaluation in the official rate.” Nigeria stubbornly held on to an official peg of 197 naira to the dollar for 16 months, until June of last year, hurting the economy. It subsequently floated the currency but maintained some measures to prevent further weakening.

The naira currently trades at 305 per dollar. Dollar shortages meant the currency fell to close to 500 against the dollar last week on the unapproved open retail market [nL5N1F3400]. Satchu said keeping the currency artificially high is effectively stalling the economy and making investment difficult.

 

ON HOLD

 The Central Bank of Nigeria is expected to leave its benchmark interest rate unchanged on Tuesday, and for the rest of the year, at 14 percent to halt rising inflation and support growth, the wider poll of 12 economists also found.

After the central bank added 300 basis points to borrowing costs last year to try and tame soaring prices, all 11 analysts surveyed said they expected it to keep its benchmark rate on hold next week. Inflation was uncomfortably high at 18.55 percent in December, its highest in more than 11 years and the 11th straight monthly rise [nL5N1F34O5]. Galloping inflation comes as Africa’s largest economy grapples with its first recession in 25 years, largely caused by the decline in global oil prices since 2014.

Crude oil sales account for 70 percent of government revenue. Inflation is expected to average 15.2 percent this year and slow to 11.0 percent in 2018. “High inflation, however, remains the main stumbling block at this stage, but the CBN may become more willing to gradually loosen its grip on the naira as inflationary pressures start to ease somewhat this year,” said Cobus de Hart of NKC African Economists in a client note.

The economy is expected to grow 1.5 percent this year and 2.9 percent next, although the most bearish analyst said it is possible the economy will contract 1.5 percent this year.

(For other stories from the poll [nL4N1F240Y]) (Editing by Larry King) ((vuyani.ndaba@thomsonreuters.com; +27 11 775 3157; Reuters Messaging:vuyani.ndaba.thomsonreuters.com@reuters.net)) Keywords: NIGERIA ECONOMY/POLL (EMBARGO 1020 GMT)

Read more: http://www.nasdaq.com/article/pollnigeria-likely-to-devalue-naira-this-year-central-bank-on-hold-20170118-00132#ixzz4W7NW9Ex5

FG’s plan to secure foreign loans stalls – Punch

By Oyetunji Abioye with agency report

The Federal Government’s efforts to secure funds from international lenders to help haul the country out of recession have stalled because it has not submitted the required economic reform plans, according to one of the banks and sources close to the matter. 

The Federal Government has been in loan talks with the World Bank for a year. It had told the lender it would present its proposed reforms to make the economy more resilient and attractive to investment by the end of December, according to Western diplomats and a Nigerian official who declined to be named as they are not authorised to speak publicly, Reuters reported.

But this has not happened and as a result of the delay, which the government has not explained, the Washington-based bank has not been able to consider a loan yet, according to the sources.

The Minister of Finance, Mrs. Kemi Adeosun, and the World Bank declined to comment, Reuters reported.

The Director of Press, Ministry of Finance, Mr. Salis Nai-nna, said he could not comment immediately on the matter when our correspondent contacted him on Tuesday night.

He asked our correspondent to put the questions into writing and that comments would be available today (Wednesday).

The Director-General, Debt Management Office, Dr. Abraham Nwankwo, did not pick calls or respond to a text message sent to his mobile telephone line.

Similarly, the President, African Development Bank, Dr. Akinwumi Adesina, told Reuters on the sidelines of the World Economic Forum in Davos, Switzerland on Tuesday that the AfDB was holding back the second tranche of $1bn loan for Nigeria because the country had yet to submit its economic recovery plan to the lender.

“We are waiting for the economic policy recovery programme and the policy framework for that,” Adesina said, without specifying when the AfDB had expected to receive the reform plans.

The Federal Government is seeking to borrow $4bn in total from the World Bank and other foreign institutions, and $1bn through Eurobonds to plug a yawning budget deficit and fund badly needed infrastructure projects.

The country, which relies on oil revenue for most of its income, has been hit hard by the sharp fall in crude prices since 2014 and is struggling to drag itself out of its first recession in 25 years.

It is unclear why the government has not submitted reform plans to the international lenders.

The funding deadlock could throw into doubt badly needed infrastructure projects planned for this year, including new roads and improvements to power infrastructure.

The failure to secure the funds, and to present a reform programme, could also deter some investors from Nigeria’s planned $1bn Eurobonds sale in March.

A financial source said the government was working with a consultancy firm on putting together a package of proposed reforms.

The source, who declined to be named as the matter is confidential, did not elaborate.

The Federal Government needs money to help plug a budget deficit of N2.2tn ($7bn) for 2016 and to help fund a record budget of N7.3tn for 2017, which is aimed at stimulating the economy.

It has been holding talks with various institutions and China over the last year to borrow funds but apart from a $1bn loan from the AfDB, at a rate of 1.2 per cent, nothing has been made public.

The AfDB paid out an initial $600m in November but is awaiting the economic reform proposals before it disburses the rest of the money.

It is unclear how much money Nigeria is seeking from the World Bank, or whether the lender was pushing for any specific economic reforms from the government.

The diplomatic sources, however, said the bank wanted to see how Nigeria planned to lower its dependence on oil revenues and boost investment, which has been hit by a high official exchange rate for the naira currency.

The Central Bank of Nigeria, backed by President Muhammadu Buhari, has kept the naira rate to the dollar at 40 per cent above the unofficial or parallel market rate, which has dried up dollar supplies on official channels.

The policy has also made investors reluctant to commit to new projects as they expect the central bank will have to devalue the naira eventually as oil production has been hit by an insurgency in the Niger Delta oil hub.

The central bank has also imposed hard currency curbs, making impossible the import of almost 700 goods, which has forced dozens of plants to close running out of spare parts.

Adesina told Reuters on Tuesday that the currency rate problem needed to be addressed by the government in its reform programme, which he said the AfDB was coordinating with the World Bank.

“We are being clear that the quantitative restriction in terms of access to FX is what’s creating huge gap between parallel market rates and official rates,” he added.

Abuja airport closure: Foreign airlines list demands – Punch

By Okechukwu Nnodim, Abuja

International airlines operating in Nigeria have outlined their demands before they can effectively fly to the Kaduna International Airport once the Nnamdi Azikiwe International Airport, Abuja is closed for a six week repair on its runway, beginning from March 8.

The airlines made their demands known to the Minister of State for Aviation, Senator Hadi Sirika, during a meeting with officials of the Aviation ministry at the headquarters of the Federal Ministry of Transportation in Abuja on Tuesday.

Sirika, who listed the demands of the airlines after the meeting, stated that the carriers were concerned about the perimeter fence at the Kaduna airport, the size of its apron, whether it would accommodate a considerable number of aircraft, and if airline officials were going to be involved in the screening of passengers.

Other concerns raised by the carriers, according to the minister, are issues bordering on catering services at the Kaduna airport; how to tackle vehicular breakdown at the facility; inadequate number of boarding gates; and how to track the luggage of passengers should there be issues of missing belongings.

The minister stated that the airlines also queried the ministry on how the various agencies of government that would function during the six-week closure of the Abuja airport would be managed.

“We are tackling the issues and will continue to meet with stakeholders to further handle all other concerns as we work towards using the Kaduna airport during the six-week period,” Sirika said.

Confirming what the minister said, the Station Manager for Lufthansa German Airlines in Abuja, Zlatko Zlatic, said the airlines were pleased with the manner in which the government was handling the process.

He, however, stated that the foreign carriers would soon go and inspect the Kaduna airport to confirm its readiness for operations beginning from March 8, 2017.

Crude proceeds rose by N22.84bn in Nov – NNPC – Punch

By Okechukwu Nnodim, Abuja

Latest figures from the Nigerian National Petroleum Corporation have revealed that the country’s crude oil sales proceeds increased by $74.9m or N22.84bn (using the official exchange rate of N305 to a dollar) in November 2016.

This, however, was despite the 8.4 per cent drop in the international market price of Brent crude in the month under review. Nigeria produces and exports Brent crude.

In November 2016, the country earned a total of $96.3m from the sale of crude oil, up from the $21.4m that was made in the preceding month.

An analysis of latest industry data from the NNPC showed that the increase in crude oil earnings came at a time when the Organisation of Petroleum Exporting Countries’ referenced basket price shed about $4.65 per barrel to finish at $43.22 per barrel in November.

The NNPC further stated that Brent was down by 8.4 per cent to finish at $47.08 per barrel, as it noted that OPEC had agreed to cut output by 1.2 million barrels per day from January 2017, and secured a reduction of 558,000 barrels per day from non-OPEC members.

Although the corporation did not state the total volume of crude oil that was sold in November 2016 and whether this was instrumental to raising the country’s earnings, it noted that total crude oil and gas proceeds also moved up in the month.

It said, “Total export proceeds (oil and gas) of $162.4m were recorded in November 2016 as receipt against $97.29m in October 2016. Contribution from crude oil amounted to $96.31m after adjusting for $2.5m lifting deposit utilised earlier. “

RPT-EXCLUSIVE-Nigeria’s efforts to secure international loans hit deadlock – sources – Reuters

* Govt has not submitted reform plans to World Bank – sources 

* Lender has not been able to consider a loan yet – sources

* AfDB holds back second tranche of $1 bln loan – bank chief

* Nigeria seeks to drag itself out of first recession in 25 yrs

By Paul Carsten, Ulf Laessing and Sujata Rao

ABUJA/DAVOS, Switzerland, Jan 17 (Reuters) – Nigeria’s efforts to secure funds from international lenders to help haul it out of recession have stalled because it has not submitted the required economic reform plans, according to one of the banks and sources close to the matter.

The government has been in loan talks with the World Bank for a year. It had told the lender it would present its proposed reforms to make the economy more resilient and attractive to investment by the end of December, according to Western diplomats and a Nigerian official who declined to be named as they are not authorised to speak publicly.

But this has not happened and as a result of the delay, which the government has not explained, the Washington-based bank has not been able to consider a loan yet, the sources said.

Nigerian finance minister Kemi Adeosun and the World Bank declined to comment.

The African Development Bank (AfDB), meanwhile, is holding back the second tranche of a $1 billion loan for Nigeria, AfDB president Akinwumi Adesina told Reuters on the sidelines of the World Economic Forum in Davos, Switzerland.

“We are waiting for the economic policy recovery programme and the policy framework for that,” said Adesina, without specifying when the AfDB had expected to receive the reform plans.

Nigeria has said it is seeking to borrow $4 billion in total from the World Bank and other foreign institutions and $1 billion through Eurobonds to plug a yawning budget deficit and fund badly needed infrastructure projects.

The country, which relies on oil revenue for most of its income, has been hit hard by the sharp fall in crude prices since 2014 and is struggling to drag itself out of its first recession in 25 years.

It is unclear why the government has not submitted reform plans to the international lenders. The funding deadlock could throw into doubt badly needed infrastructure projects planned for this year, including new roads and improvements to power infrastructure.

The failure to secure the funds, and to present a reform programme, could also deter some investors from Nigeria’s planned $1 billion Eurobonds sale in March.

A Nigerian financial source said the government was working with a consultancy on putting together a package of proposed reforms. The source, who declined to be named as the matter is confidential, did not elaborate.

RECORD BUDGET

Nigeria needs money to help plug a budget deficit of 2.2 trillion naira ($7 billion) for 2016 and to help fund a record budget of 7.3 trillion naira for 2017 which is aimed at stimulating the economy.

It has been holding talks with various institutions and China over the last year to borrow funds but apart from a $1 billion loan from the African Development Bank, at a rate of 1.2 percent, nothing has been made public.

The Abidjan-based AfDB has paid out an initial $600 million in November but is awaiting the economic reform proposals before it disburses the rest of the money.

It is unclear how much money Nigeria is seeking from the World Bank, or whether the lender was pushing for any specific economic reforms from the government.

The diplomatic sources, however, said the bank wanted to see how Nigeria planned to lower its dependence on oil revenues and boost investment, which has been hit by a high official exchange rate for the naira currency.

Nigeria’s central bank, backed by President Muhammadu Buhari, has kept the naira rate to the dollar at 40 percent above the unofficial – or parallel – market rate, which has dried up dollar supplies on official channels.

The policy has also made investors reluctant to commit new projects as they expect the central bank will have to devalue the naira eventually as oil production has been hit by an insurgency in the Niger Delta oil hub.

The central bank has also imposed hard currency curbs making impossible the import of almost 700 goods, which has forced dozens of plants to close running out of spare parts.

Adesina told Reuters on Tuesday that the currency rate problem needed to be addressed by the government in its reform programme, which he said the AfDB was coordinating with the World Bank.

“We are being clear that the quantitative restriction in terms of access to FX is what’s creating huge gap between parallel market rates and official rates,” he added.

($1 = 314.5000 naira) (Reporting by Paul Carsten and Ulf Laessing in Abuja and Sujata Rao in Davos, Switzerland; Additonal reporting by Chijioke Ohuocha in Lagos; Editing by Pravin Char)

 

African Markets – Factors to watch on Jan 18 – Reuters

NAIROBI, Jan 18 (Reuters) - The following company announcements, scheduled economic
indicators, debt and currency market moves and political events may affect African markets on
Wednesday.
    - - - - -
 EVENTS:
 *SOUTH AFRICA - The statistics office is expected to release
 December consumer price inflation data. 
 
 GLOBAL MARKETS
 Asian stock markets held near three-month highs on Wednesday
 as investors scooped up exporter shares after U.S.
 President-elect Donald Trump expressed concerns over a
 stronger dollar. 
                                  
 
 WORLD OIL PRICES
 Oil prices edged higher on Wednesday with a weaker dollar
 underpinning the market, although gains were limited by
 expectations that U.S. producers would boost output.
                        
 
 EMERGING MARKETS
 For the top emerging markets news, double click on           
 
 AFRICA STOCKS
 For the latest news on African stocks, click on     
 
 SOUTH AFRICA MARKETS
 South Africa's rand rose to its highest    in two months on
 Tuesday, gaining as much as two percent, benefiting from a
 brighter commodities outlook and uncertainty about the
 outlook for U.S. economic policy that has favoured emerging
 market currencies.             
 
 NIGERIA MARKETS
 Nigeria needs to close the gap between the official and black
 market rates for the naira against the dollar "very soon",
 Vice President Yemi Osinbajo said on Tuesday, as Africa's
 largest economy grapples with inflation and the risks of
 devaluation.             
 
 NIGERIA ECONOMY
 Nigeria's efforts to secure funds from international lenders
 to help haul it out of recession have stalled because it has
 not submitted the required economic reform plans, according
 to one of the banks and sources close to the matter.  
              
 
 KENYA MARKETS
 The Kenyan shilling        traded stable against the dollar
 on Tuesday, with a likely surge in demand by oil importers
 seen posing depreciation risk for the local currency.
                 
 
 KENYA ECONOMY
 Kenya's economy will expand by 6 percent this year, a senior
 Treasury official said on Tuesday, brushing off concerns
 outside government that sluggish credit lending and investor
 uncertainty ahead of a presidential election would slow
 growth.               
 
 GAMBIA POLITICS 
 Gambian President Yahya Jammeh declared a state of emergency
 on Tuesday after refusing to hand power to opposition leader
 Adama Barrow, who won an election last month.             
 
 GHANA GOLD PRODUCTION
 Ghana's gold output fell 7 percent in the first nine months
 of 2016 to 1.9 million ounces compared with the same period
 the previous year, data from the Ghana Chamber of Mines
 showed on Tuesday.                    

The political economy of BDCs and black market premiums – The Guardian

By Nonso Obikili, Contributor  

Bureaux de change (BDCs) and their cousins, the road side black market dealers, need no introduction. They exist in almost every town across the country. In most towns, there are whole streets associated with currency trading, and almost everyone has a guy that can be called for quick foreign exchange transactions. In a way, this feature is not unique to Nigeria. BDCs exist in many cities around the world although they are mostly associated with tourist locations.

Nigeria however appears to be different. As at last count, there were almost two thousand registered BDCs not including the unregistered road side money changers. Although there is technically nothing wrong with having that many currency dealers, the obvious question is why? Why do we have so many BDCs when other countries with much larger economies and much more foreign transactions have fewer?

To answer that question, it is useful to understand how the Nigerian state functions in terms of political patronage. Much has been written about the history and origins of the Nigerian state but we can summarize it like this: it is essentially a set of political actors who position themselves via various institutions to extract as much value as possible from whatever economic activity is going on in Nigeria. We typically refer to it as grabbing their share of the proverbial national cake.

Since the discovery of crude oil in commercial quantities, the dominant ingredient for the national cake has been crude oil. The black gold in the ground. Crude oil is extracted and sold on international markets for US dollars. Whatever dollars make it through the NNPC get dumped at the central bank for sharing by the Nigerian state. The Nigerian state doesn’t share dollars though. They share Naira. The dollars must be converted to naira which brings us to part one of the puzzle.The second part of the puzzle is based on a feature of the Nigerian economy. Much of the Nigerian economy is informal. Informal in the sense that registration and documentation for a large part of the economy is unheard of. Few have the time or patience for pesky rules and procedures. We just want to transact business and get on with it.

When you combine crude oil dollars flowing to the central bank with an informal economy that is allergic to unnecessary procedures, you create room for political middle men. The guys who buy the official dollars from the central bank and distribute it to the informal economy. Crucially, the rewards to the middle men depends on the difference between the price they buy from the central bank and the price they sell to the informal economy. The larger the spread between the two, the larger the rewards on every dollar sold.

The obvious next question: Why can’t anyone just buy from the Central Bank? This is where the political patronage comes in. To buy from the apex bank, you need a license. Those licenses don’t come easy. Excluding banks, you need to be politically connected to get one. Not surprising then that the owners of BDCs typically include politicians, traditional rulers, high ranking officials, and former Central Bank staff. In fact rumour has it that part of the unofficial retirement package at the Central Bank was a BDC license. There’s another case where one traditional ruler allegedly owned up to ten BDCs. Why own ten BDCs and not one big BDC? Apparently at the time allocations were given per BDC, and so more BDCs meant more allocations and more rewards.

In summary, the Nigerian state has created a whole system of political patronage around converting oil Dollars to Naira, distributing rewards to politically-connected friends via this process. The rewards depend on the spread between official and black market rates. The network of political patronage also explains why the foreign exchange market quickly goes berserk once there is a shock to the oil price, which reduces the inflow of dollars. The network senses the opportunity for an increased spread between the official and black markets and starts to put pressure on policy makers to implement policy to increase the spread. The network also quickly turns it claws to others sources of inflows. You then start to hear rules like “exporters must sell their forex to so and so at this rate”, or money transfer companies must sell to BDCs, and so on. As we now know, this kind of patronage and foreign exchange market has severe consequences for the economy.

So how do we get rid of this patronage and the resulting spread? The first step is to simplify the procedures involved in buying or selling foreign exchange. The simpler the procedures, the less likely it is that people and businesses will resort to road side dealers. If people and businesses buy from official sources, then the spread will drop to minimal levels. The second step is to liberalize access to official forex purchases from the central bank and move away from allocation to auctioning and markets. If anybody can buy officially from the Central Bank then the spread will disappear.These policy suggestions are not new. In fact, we have had periods in the past where they were implemented successfully. Here is hoping our policy makers can navigate their way around the politics and find their way to a credible and sustainable foreign exchange market.

Nonso Obikili is an economist currently roaming somewhere between Nigeria and South Africa and tweets @nonso2. The opinions expressed in this article are the author’s and do not reflect the views of his employers.