JPMorgan: Poor Economic Decision By Okonjo Iweala

Okonjo iwealaNgozi Okonjo-Iweala. Photographer: Drew Angerer/Bloomberg

In 2012, when Nigeria was listed on JPMorgan emerging market Bond index, it was done based on a two way quote by the CBN and the then minister of finance, Okonjo Iweala, backing their decision on Nigeria growing economy of 7.4 percent annual GDP and 6.9 percent in 2011, substantiated with a blooming global oil price averaging between $90 to $100 a barrel as at the time, and Knowing fully well that cost of servicing foreign debts will reduce significantly and position she, Okonjo Iweala as the powerhouse of Africa largest economy on the international scene and the force behind the actualization of Nigeria dream to a more mainstream investment destination, they concluded it was the right thing to do without proper consideration for future consequences in the advent of global disaster like current drop in global energy prices and emerging market economic rout.

Here is the logic, Nigeria is a petrol-dollar economy, which means her economic growth is directly proportional to both petroleum (crude oil) and dollar strength. The former is regulated by global demand and supply while the latter is determined by the US economy, while Nigeria’s economy is being driven by non-oil sector (construction, telecoms, manufacturing and agriculture) mainly, it is normal to expect the economic team representing the nation to base their decisions on those sectors that are thriving and can be internally regulated even if it means not been listed as at the time but no, their decision was based on crude oil price.

In 2014, when oil price started falling after peaking at $105.64 in June, with fewer options left to curb the situation, Okonjo Iweala, the minister of finance took to the media, in her words “Nigeria should brace for tougher economic times ahead” insinuating she has no solution apart from her overzealous ambiguity to be at the realm of power and yet we were being chastised for not retaining her team in power.

The current Central Bank of Nigeria (CBN) administration came in without much time to curtail the situation, and with naira weakened to more than 200 per dollar for the first time, Godwin Emefiele, Chairman of Central Bank of Nigeria was forced to take a decisive decision which includes spending $380 million to stop the fall of the Naira, restricting 41 item’s importers from accessing FOREX official rate, overhauling foreign currency domicile accounts, restricting dollar withdrawal limit on locally issued credit cards and pegging naira to a fixed rate of 197 to a US dollar. Bear in mind that these might not be perfect economic measures as Nigeria is a heavy import-dependent economy but juxtaposing the danger of what would have happened without these measures with been delisted, an economist will agree it is an acceptable policy given the circumstances.

Here are the possible consequences if the CBN had succumbed to JPMorgan pressure and gone ahead with the devaluation using two-way forex market has suggested, naira value would be between 300 to 320 naira to a US dollar by now, inflation would have surged to double digit from 9.20 percent recorded in July, 2015. Cost of goods and services would jumped to a new height, followed by increase in unemployment as interest rate would have risen, making loan almost inaccessible for companies to finance capital projects. Overall, the decision would have created negative perceptions about Nigeria true economic growth (GDP), and subsequently, forced these same foreign investors backed by JPMorgan to safeguard their fund by withdrawing based on uncertainty and high risk after profiting from the decline.

About the Author

Samed Olukoya
CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and, with over a decade long experience in the global financial market. Contact Samed on Twitter: @sameolukoya

4 Comments on "JPMorgan: Poor Economic Decision By Okonjo Iweala"

  1. Kola Norman Williams | September 14, 2015 at 4:58 pm | Reply

    What utter rubbish! This is absolute junk journalism. So she is to blame for Africa’s largest economy not having any policy direction for four months because the Prezident of this country was unprepared for his office and decided to take four months to name a Minister. Did you really think the who,e world will fold their arms and wait for King Buhari to make his decisions? They already voted with their feet. Look at the lull in the economy and the downward spiral in the stock market. Please if this is what journalism has come to then whoever wrote this piece is intellectually bankrupt.

    • This issue started before she left office. Nigeria was listed under index watch in January, 2015. She left office on May 29, spending more than 4 month without fixing the situation before she left and you are expecting new administration to fix her mess with 4 month? You are a joke

      • Kola Norman Williams | September 15, 2015 at 11:19 am | Reply

        Your comment is illogical. When she was in office she dealt with these agencies and got Nigeria rated positively by Fitch, Standard and Poors etc. The situation in the country would have been better managed had Buhari appointed a Minister of Finance immediately after resuming office in order to manage fiscal policy. He didn’t do that. Instead, he has taken the country on a four month junket ride. It is unprecedented anywhere in the world especially if you feel the country is in crises. Obama immediately appointed his cabinet ministers when he took over and so did Cameron. It is only in Nigeria that a President will wait four months under these inane excuse that he cannot trust anyone. That is the real reason we are where we are. Please go and read Bloomberg, Wall Street Journal, NY times FT and Forbes to understand what is happening instead of coming here to discuss ignorantly.

  2. Sorry, you don’t even know what you are talking about. She got Nigeria rated? The truth is people like you lacked the basic understanding of economic policies or even fundamental of financial matters and you are too proud to let people who have a better understanding help your crippled minds. The people we needed to formulate economic policy are called Monetary Policy Committee (MPC) and we have them, PMB appoint or not appointing has nothing to do with this situation, Godwin Emefiele was appointed by GEJ, so their inability to deliver if that is what you are referring to directly tied to the past administration.

    For the record we have people who formulate fiscal policy, learn about economic matter of your country and master it before coming on a forum like this to display your ignorant. I don’t have time for little minds like you and won’t dignify your foolishness with response from now on.

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