The forex market may well have resisted analysts' predictions that the unofficial segment would see a temporary excess of dollars when political group delegates, who allegedly made a fortune with national currency, began dumping its fx holdings following the major political events.
After the All Progressives Congress (APC) held its presidential primaries, lack of liquidity in the black market intensified, with major Bureau de Change (BDC) operators unable to fulfill rising demand.
With politicians taking more than required from the market, there are fears that the crowding out effect would harm the economy and aggravate the political risk in the months ahead.
According to the findings, some currency dealers are unable to raise as little as $1,000 on their own since they have run out of capital during the presidential nomination operations.
The lengthy financial collapse has taken a bizarre twist in the last three weeks, with claims that representatives from the two major political parties were mostly mobilized in hard money.
Claims of 'dollar rain' began to circulate a week ago, following the opposition Peoples Democratic Party's (PDP) presidential primary in the Federal Capital Territory (FCT).
Market checks revealed that illiquidity has intensified in the last week, with the naira trading between N600 and N610 to the dollar. The dollar soared during the PDP convention, trading for as much as N610/$, but has since retreated to around N602/$.
While of yesterday, the country's currency was worth N607 per dollar, as uncertainty persisted.
large traders are still holding their assets, assuming that the naira has yet to bottom out.
According to a dealer in Lagos, most of his partners ran out of stock in the previous few weeks. When asked what may have caused this, he stated that the dollar was scooped up for use by politicians and that the money has yet to reach the consumer segment of the market following the end of party primaries.
“You're aware of how business is done. Most of the would continue to hold dollars, anticipating the rate to rise. Most of those who require funds have sold back to the merchants who were hired to soak up the market, and the traders are sitting on the money. ”Supply is at an all-time low right now, he added.
As a result, private firms who require foreign currency for operations are hungry since there is no availability everywhere. A textile dealer in Lagos informed our reporter that she had to reschedule a trip because she couldn't get dollars everywhere.
The 'aboki' who has been feeding me with money since over seven years that I needed $25,000, he just said about it, that he can't raise it even if he combs the entire Lagos, she stated.
Dr. Muda Yusuf, former director-general of the Lagos Chamber of Commerce (LCCI) and pro-market activist, warned that private sector operators would suffer in the following days because they could not match the “war chest” of politicians who are now big players in the currency market. He went on to say that the pattern portends trouble for the economy.
Yusuf, speaking on a television program, voiced alarm about the growing difference between the official and parallel market rates, calling it a big impediment to foreign capital movement.
The country received a total of $1.57 billion in the previous quarter. The figure fell 17.46 percent year on year (YoY), and 28.09 percent quarter on quarter (QoQ).
Dr. Tope Fasua, a businessman and presidential contender in the 2019 general elections, equated the culture of dollarisation of the political sphere with the wider dollarisation of society.
“It is a clue to one extremely serious topic in our day,” he remarked. Politicians and leaders are the ones that lack faith in our money. They claim that the first step in destroying a country is to destroy its money.
“As a result, we have intentionally undermined our currency, and leader after leader has demonstrated a lack of interest in the currency and the country.” “Every governor, council chairman, councilor, and their offspring spend solely money,” Fasua, an economist, stated. He said that the ongoing demand for dollars is a key source of the naira's devaluation, and that the elite are uninterested in strengthening the naira.
According to Ken Ife, an economics scholar, those who are holding hard currency, including the delegates, would start selling once it is certain that the exchange rate will not rise over N610/$.
“It's a psychological thing. They want a better deal, which is why they are stockpiling FX. ”At most, they will observe for one to two weeks, and then, once it is clear that the exchange rate has reached a new high, they will begin selling off what they have,“ the economist added. According to Ife, the current worry is unjustified because the dollarization of the political process benefits the informal sector. He acknowledged that the process is placing ”so much pressure on demand, but pointed out that it is a circle that accommodates both supply and demand.
Furthermore, informal sector accounts for only 7% of the FX market. As a result, he said the entire country would be so concerned when manufacturers and others that use FX for the purposes of business had the choice of using the official window. According to banking system sources, much of the hard currency handed by politicians was not generated locally. Many banks are involved in the money transfer, much of which is done behind closed doors.
“People talking of sweeping the market, they are referring to a relatively small part of the total amount spent.” “few of it come from overseas, while another piece was retrieved from storage tanks and several other locations,” the insider explained. There are also fears in the market that the 2023 elections would establish a new FX price cap that market forces will be unable to recover from even after the election. The only time in recent memory that the naira appreciated significantly on the black market was in 2017, when it rose from from N500/$ to N360/$. Otherwise, the movement has been unidirectional.
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