Naira and party primaries: A sad new economic “theory”

The two dominant political parties, the ruling All Progressives Congress (APC) and the opposition Peoples Democratic Party (PDP) are warming up to their primary elections. Drums are rolling for the delegates, who have become the de facto “kingmakers,” hosting aspirants across the 36 states of the country and the Federal Capital Territory, Abuja. While some […]

The two dominant political parties, the ruling All Progressives Congress (APC) and the opposition Peoples Democratic Party (PDP) are warming up to their primary elections. Drums are rolling for the delegates, who have become the de facto “kingmakers,” hosting aspirants across the 36 states of the country and the Federal Capital Territory, Abuja.

While some say the delegates are just stooges of the governors, who handpicked and dictated their tunes, aspirants jostling to be the presidential flag bearers of the two parties are on the road, hawking from south to north and west to east to solicit votes of the delegates ahead of the primary election. After all, some pundits say, winning the primary ticket of any of the two dominant parties in Nigeria is synonymous with winning the general elections in some states and indeed the whole country, one may safely say it is like completing half of the race.

As always, the delegates may not necessarily have any criteria for voting the party’s flagbearer. After all, we have not seen any concrete manifesto from any of the aspirants, be it the purported serious aspirants or the acclaimed jokers, as a friend would say. Perhaps, a difference is a drama that one of the aspirants recently released as he showed off his physical workout, in an attempt to convince the delegates of his fitness to be Nigeria’s president. This is what politicians have defined to be our form of democracy – a selection by a few stooges representing their lords.

Interestingly, the two dominant parties would always claim they have tens of millions of members, but the delegates are, as always, handpicked by a few lords, because some governors and/or godfathers have turned themselves into the ultimate kingmakers, deciding who rules over 200 million Nigerians from the comfort of their living rooms. While we say we run a democracy, the reality is that we are perhaps just a bit different from an oligarchy, with very few, largely unpatriotic and incompetent politicians making fools of us. Well, that’s a topic for another day!

An amazing event that is unfolding about these so-called party primaries is the increasing validation of analysts’ perspectives about the strong correlation between primary elections of political parties and the Naira/USD exchange rate. Over the last three weeks, the Nigerian Naira has been unduly volatile, with pundits attributing the surge in Naira to the upcoming party primaries. While it sounds absurd, especially to an economist like me, who ordinarily would not expect to see any correlation between political party primaries and the exchange rate, it seems to be an unfolding theory, as the reality may suggest.

If the quotes of foreign currency traders on the streets of Lagos, Abuja and Port Harcourt can be relied on, the United States dollar now commands between N605 and N610, a staggering 4.3 per cent depreciation of our esteemed Naira in barely three weeks. Interestingly, the Naira was under pressure a similar period in 2014 and 2018, the years preceding Nigeria’s two immediate past general elections. This seems to validate pundits’ opinion that the pressure on the Naira is a seasonal effect of the upcoming primary election of the two dominant political parties.

As unscientific as the perception seems, it’s really difficult for economists to give a rationale reason for the sudden pressure on the Naira, especially at a time when oil price remains strong at $122 per barrel, a historic high record. Likewise, import bills are expected to be relatively moderate this season. So, the current pressure on the Naira is alien to the fundamentals of foreign currency demand and supply in the country, hence pundits who attribute this sad event to the party primaries may after all not be wrong, especially as it is becoming a recurring event that can at some point be established as a new theory.

In that case, the world could be looking forward to another contribution to knowledge from Nigeria. For now, it could be called the Theory of Party Primaries and Foreign Currency Markets. The theory should go on to explain how in a developing democracy, a certain, perhaps inexplicable (call it spurious) correlation has been established between the time the dominant parties prepare to select their flag bearers in an election and the value of the local currency. It would obviously be an interesting extension of the frontiers of knowledge, an elucidation of part of the exogenous factors that impinge on a developing nation’s foreign currency market.

Whilst the pressure on the Naira seems remote to the parallel market, as the official rate in the Investors’ and Exporters’ window has been relatively stable around the N415/USD corridor, the truth is that the rate is somewhat not reflective of the demand and supply dynamics of that market, as analysts noted the rising unmet genuine demand for foreign currency in the official window.

In fact, while writing this column, I got an email from my bank, one of the top five players in the country, educating me, as a customer that I need to apply for Personal/Business Travel Allowance 14 days in advance of my trip, while the request for school fees, rent payments and upkeep of students abroad need to be submitted at least 30 days in advance, due to the rationing of foreign currency by the Central Bank of Nigeria.

Indeed, the external reserve has shed 4.4 per cent or $2.25billion year-to-date, during a period of high oil prices. So, the question is what exactly is causing the demand pressure in the foreign currency market?  Unfortunately, foreign investors are negative on Naira-denominated assets, both equities, and debt instruments, as they continue to raise concern around the liquidity of the Naira and valuation of the currency.

With this depreciation of the Naira, the inflationary pressure may be exacerbated. In April, the headline inflation spiked to 16.82 per cent year-on-year, the highest rate of increase in consumer goods prices over the past eight months and a surge from 15.92 per cent in March. Now that the Naira is also under pressure and the monetary policy committee has reneged on its support for growing the economy, as reflected in the 150 basis points hike in the monetary policy rate to 13 per cent, the Nigerian masses may need to tighten their belts further.

As if the hunger in the land is not enough, these politicians are compounding the crisis with their deliberate and inadvertent erosion of value. How would the poor innocent Nigerian cope with the “triple whammy” of rising interest rates, spiking inflation and avoidable depreciation of the Naira? How will these voiceless, marginalised, poor Nigerians survive the unfolding difficulties between now and the actual time of voting next year? This is more so given that in most of the states, governance has been shut down, as the governors are either vying for one post or are busy coordinating the visits of the presidential candidates who are scouting for votes.

While inflation and Naira depreciation are eroding the purchasing power of the already low-income people, the rising interest rate would be limiting available funds in the system, thereby undermining job creation opportunities and ultimately throwing more Nigerians into the poverty trap.

 

Where do we go from here?