Will FG devalue the naira in January? – Tunde Gbenga

Will FG devalue the naira in January? – Tunde Gbenga

HAS THE PRESIDENT FINALLY ACCEPTED THAT NAIRA MUST BE DEVALUED?

There are indications that the presidency has tacitly accepted that the naira must be devalued. The interbank forex market (where banks buy and sell dollars amongst themselves) has also been closed till Jan 4. This could be a precursor to devaluation which sources say could happen early next year.

Though there is no indication as to the level of devaluation, we foresee a 15-20% devaluation i.e. to the N230 – 240 range i.e. a. The dollar currently trades at around N270-280.

Now theoretically devaluation is not bad… as it makes your goods cheaper to buy … if you are an export driven economy?… but Nigeria is not – our major export is still crude oil (Mr. Man under & over age footballers don’t count!)

The belief however is that things will only get worse, since most of our manufacturing inputs are dollar denominated… this is the Penkelemesi (peculiar mess) we find ourselves in.

Sabi Business 1

 PAY MORE FOR LESS? … NERC INCREASES ELECTRICITY TARIFF BY 45% 

The Nigerian Electricity Regulatory Commission (NERC), last week Monday, announced new tariffs payable by electricity consumers’ i.e. different charges for different categories of customers.

First things first; NERC has gotten rid of the fixed charges we pay (I’m sorry but isn’t this about N750 in savings… hurray?) and said we will only pay for what we consume!

Now as much as I’m not against having a cost-reflective power tariff, I feel as long as power supply remains epileptic you will still spend money on powering /fueling your generating sets.

Manufacturers say power accounts for 40% of their cost of running a business. The Manufacturers Association of Nigeria (MAN) says around N73million monthly is spent by its members in generating alternative power.

To put this in context, let’s use the average Nigerian office (small scale)as an example:

Working Hours:  8:00 am – 6:00 pm (10hrs)

Now if we assume that power consumption is split equally between PHCN/Generating Sets

Power Consumption: Total of N80,000 monthly is split between

Electricity Bill: N40,000/monthly (for 5 hours daily)

Generating Set running costs: N40,000/monthly (for 5 hours daily)

Now if tariffs go up by 45%, then common sense says your bill will increase by N18,000 (45% of 40,000) to N58,000. That means your generating set running costs must drop by almost 50%(from N40,000 to N22,000) for you to spend the same amount on power monthly (N80,000). This means power supply via electricity must improve by 50% for me to make any sort of cost savings.

A 50% improvement in power supply … Will this happen soon? (I’m tempted say… NA Today?)  but your guess is as good as mine…

 

KADUNA TO USE BAILOUT FUNDS FOR METRO LINE

The Kaduna state government has said that it intends to use the N10billion (at 9% interest p.a.) borrowed from CBN for a mass railway transport system.

Finally, we see ingenuity in terms of usage of bailout funds. Most bailout funds for states have been used to offset salaries, wages etc. (recurrent expenditure) which once spent doesn’t come back. This is the first state that has indicated that it wants to use bailout funds for capital expenditure (assets that yield value).

If utilized properly, it’ll boost the local economy by bringing transport costs down, increasing production, and improving the movement of goods and services across the state and its environs. This, in the long run, should reduce dependence on FAAC allocations from the FG, which in the era of declining oil revenues is a welcome development

… Now if only every other state… could follow this example…

Let’s give it up for El Rufai and Kaduna state.

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