Reasons Naira May Hit N500 to $1 Before Year End- Otunuga

Lukman Otunuga, a research analyst at FXTM a keen follower of macroeconomic events, with a strong professional and academic background in finance, has once again predicted that certain external and internal factors may push the Nigeria’s currency vulnerability to dollar exchange rates even before the end of the year.

Well versed in the various factors affecting the currency and commodity markets, Otunuga, who was speaking Nigeria CommunicationsWeek recently in Lagos, said that depreciate in international oil price is principal among factors affecting the naira due to the mono-economic nature of the country.

He provides in-depth analysis on the global currency and commodity markets and isoften quoted by leading international media outlets such as: MarketWatch, CNBC, NASDAQ, Reuters, AFP, The Guardian and Yahoo.

Prior to joining FXTM, Otunuga spent two years as a research analyst with international currency broker FXCM, where he focused on technical and fundamental analysis of the global currency, commodity and stock markets.

Otunuga was also responsible for leading educational seminars for international and local high net worth individuals, and has published a series of educational articles on forex trading with City A.M.

Otunuga holds a BSc (hons) degree in Economics from the University of Essex, UK and an MSc in Finance from London School of Business and Finance, where he studied corporate finance, mergers & acquisitions and the role of international financial institutions.

Enjoy the chat:

When you heard, National Bureau of Statistics report that Nigeria's economy has slide to recession, what first came to your mind?

“When I heard that the National Bureau of Statistics report that Nigeria’s economy has slip to recession, what first came to my mind was for extended period that oil price was down punished major oil-export dependent nations with Nigeria been a no exception.

“If we consider the fact that about 95% of export revenues and 70% of government revenue in Nigeria come from oil revenue, then you can understand why the nation has been under pressure.  So, what has happened to Nigeria is both external and internal.

“Looking at the external factors, Nigeria is heavily oil export dependent. At the same time, even though dollar is not the legal tender in Nigeria, it has strong grip on the economy. Therefore, when you consider the global oil market and the dollar issues, they combined to put Nigeria under pressure.

With Nigeria's mid-term policies, how quick can we come from the present recession?

“Well, we have to look at this from the short term and long term. Just last week, the even the Central Bank of Nigeria (CBN) decided to maintain the interest rate at 14%, despite the Finance Minister was saying that higher interest rates can actually act as barrier to the growth in future. Now, the CBN, on the short term is looking at price stability. In the month of August, inflation has climbed to 17.6%.

“So, I think the CBN is trying to see how the economy will fare in the Months of September and October before taking action. So, referring to the question, I think, on the short term, what the CBN can do is stay on the fence and watch how the Nigerian economy performs.

“On the long term, we have to fix our minds that a step has been taking towards diversification to agriculture and building of infrastructure. If these things are put in place, Nigeria could be back within the next two to three years.

You predicted that if CBN continued its policy direction with regards dollar restrictions, Naira will suffer in the market. That prediction has come to pass, Now, what in your view should CBN do differently?

“Yes, I remember that prediction. When I made that prediction I said that if the CBN was to delay de-peg of the Naira it will become deplorable over the natural forces of the demand and supply where equilibrium forces.

“That is what has happened.  If you look at the Naira the official rate today naira is trading around N360 to $1 while the black market is around N420. So, I think even now, the Naira could be open to further losses, due to stronger dollar and weaker oil prices.

“There are still talks at the CBN which is why there is still gap between the official price and the black market. On what CBN should be doing, we have to keep in mind that the Naira is still affected by external factors- oil price. This entails that Naira could still be open to some losses in 2016.

Can you estimate how long (months, years) it will take Nigeria's economy to flourish again BEYOND oil; that is, owing to Government's decision to focus on Agriculture, technology?

“The way to diversification is best for Nigeria, but will take a very long time. Remember, Nigeria is made up over 160 million populations with youth the population quite high. One aspect of the diversification is agriculture, which is a better option to reducing food importation and export the surplus.

“When you look at agriculture, manufacturing, technology and building of infrastructure will help Nigeria live beyond oil exportation.  For instance, in the West they produce oil and refine it instead of exporting crude only to import as oil later. So, this is something that can take years to achieve; I think four year minimum.

What Should CBN do with regards managing Bureau De Change (who are principal managers of dollar-naira exchange rates outside the banks)?

“I think the CBN could attempt that funds in this area be transferred through the CBN channels which will be used to manage the dollar-naira exchange.

The Federal Government of Nigeria has declared it intends to submit 2017 budget proposal to NASS as soon as possible, which sector, in your view, should have the lion's share with regards to economic recovery?

“It goes back to what we have been saying. I feel the share should go to agriculture. No doubt, this is the time for Nigeria to diversify; and it takes time and money to get agriculture to a stable state. And when you have surplus, you export to boost your nation’s self reliance and foreign reserves.

“Another area of investment should be on infrastructure. We know that Nigeria’s infrastructure is weak and it takes a nation with strong infrastructure to easily galvanise all sectors for economic growth, especially manufacturing.

“Tourism could also be a huge industry to help in diversifying the economy.  Let the government invest on roads to boost transportation of those agricultural produce and power. Power will enable SMEs heave sign of relief too and spring up surprises in technological advancements.

What is you prediction with regards how much Naira will exchange to Dollar by year end? What informed your view?

“For now, the main driver between the naira-dollar exchange rates as at today the dollar is domineering. The dollar may continue to strengthen against the Naira, because the U.S is working to strengthen its currency too. If this continues by year end naira may exchange for N500 to a dollar at the black market and N400 official rate.

In the face of the economic recession in the country, what is FXTM doing to help Nigerians (traders) on financial mastery/management?

“Good financial management is extremely important and this comes down to a person’s ability to successfully balance opportunities and risk with regard to their investments. When talking about forex trading, this means having in place a robust risk management strategy and acquiring an in-depth knowledge of the markets so that you can react accordingly to changing market conditions.

“These skills can be learnt and improved, which is why at FXTM we’ve really invested in trader education to ensure that Nigerians can achieve the most from their trading experience. We’ve recently held a number of highly successful educational events in Abuja, including a seminar on ‘The Ultimate Trading Formula’ and a 3-day afternoon trading workshop, and we’ll be holding similar events in Lagos in November. In addition, our local office also offers regular free educational training sessions.

Each week we hold a range of programs including: Basic, Applied and Advanced level financial market trading courses, a MetaTrader 4 Class and an investment seminar on how to trade with the FXTM Invest Program.

“FXTM was one of the first brokers to introduce the updated MetaTrader5 platform that offers hedging and we are seeing a lot of interest in that, so we will look to develop classes on that in the near future as well.