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Nigeria's Foreign Reserves: Why Suffer In The Midst Of Plenty?

We have being hearing Govt. Official telling us that Our foreign reserve is Huge (can not specify the correct amount right now) but there is nothing to show for this:

1. Unemployment is increasing everyday

2. Cost of food increasing everyday

3. NEPA is not improving

4. No security of lifes and properties

5. Naira is not appreciating against other currency

6. Health section is not to write home about.

7. Accident prone road network across the county

Why are we suffering the mist of plenty?

Why I do not know oooooo.

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28 answers

To start with, it is bad economics to accumulate that amount in the foreign reserves, when the domestic economy is depressed. For the young man (Afeni I believe) who mouthed the high-school textbook argument about the need for a weak currency, please remember that there is no such thing as perfect market conditions in the real world, thus consigning theory to what it is, theory! I'll advise you to acquaint yourself with the work of J.M.Keynes and J.K.Gailbraith for a close approximation of how to revive a depressed economy.

Furthermore, the Nigerian situation has been known to defy prescribed economic models, and that deliberately holding down our currency has done us us no good. Instead, we are working towards boosting local productive capacity and consumption through infrastructural investment. We believe that while this is taking place, we can also leverage on the ingenuity that is inherent in us as a people and diversify. But that is a story for another day.

It should also be noted that throwing money at a problem would not neccessarily solve it. There would still be structural imbalances that require socio-political solutions, and reformation of enabling frameworks. Thus in a nutshell, the Government can not go it alone. As some posters have pointed out earlier, greater investment is being made in some key sectors which would , Insha Allah, bear fruit when this administration is out of office.

With regard to the presence of such a huge amount in the reserves granting us access to credit, I categorically state that (and you can hold me to this) this administration has no plans to engage in such, and with the passage of the proposed fiscal responsibility act, the order of prioritization of projects would be more pronounced.

On a parting note, it should be noted that your reserves are meant to indicate your ability to fulfil import cover for a period (6 months for most economies when their GDP is taken into account. Ours is 5 years) honour international financial obligations, and enhance monetary operations (ask the IMF wetin dat one mean).

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I think the foreign reserve should be left alone. Having large foreign reserves keeps investors and loaners interested. Nobody wants a repeat of what happened during shagari's government when the price of oil crashed. We've got to think ahead.

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The controversy surrounding the nation's actual foreign reserve after the payment of the foreign isn't going away.

A national newspaper hinted that the nation has about $9billion in its foreign reserve while CBN chief,Prof Charles soludo says we have over $36billion in the account.

Come to think of it,who needs $36billion in the reserve when we don't have regular power supply,unemployment,crime,poor funding of the educatioanl sector , hign food prices and bad roads( actually only 15% of Nigerian roads are tarred) that is shameful if you ask me.

Who needs an over bloated foreign reserve when the people are starving?

what do u think?

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inflation was dolwn to 11% firts quarter but is back to 15%. foreign reserves attract foreign investors it ensures an environment of stable currency not pressumely high or low. moreover nigeria is at a clinical period if we start digging into the reserves very soon no accountability of it would be known.

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@Asiwaju,

Thanks for all your postings. we seem to think alike.

While have huge foreign reserves while Basic infrastructure needed and necessary for industrial development are lacking. The best value that can be given to any fund is to invest it in assets/programs that will be useful now and in the future, adding value to the fund. This is what can be refer to as Leadership Vision. Not just putting it in Foreign Bank Vaults.

Pa Awolowo did same in the 60's -- Industrial and Housing Estates, Television Station, Best Road Network, Free and qualitative Education, Functional Farm settlements, all these are still with us till date.

Why is OBJ Govt. keeping huge foreign reserves in foreign banks, where the home countries are using the same fund to give us loans/grant and developing their economy. we have to put the fund into useful and meaningful use.

It is a statement of fact that Oil price will fall, in fact our crude will finish one day, so why not invest the ready fund in provision of the infrastructure neccessary catalsyst for our industrial development, which will serves as shock absorber during these period, making us to depend less on income from crude oil.

Japan does not produce crude oil but their income from manufactured goods in far higher than that of Nigeria. Why ?? They invest heavily in Education, provision of the enabling environment for industry growth.

(Not wasting it on buying Presidential Jet, Bribing Legislators, hosting Commonwealth Head of States, Building new accomodation for the Queen, New Banquet Halls, Galivating all over the world e.t.c.)

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It's not money that is just left around doing nothing. It's usually actively managed. It can also be used to stabilise the local currency from speculation and other shocks. Wether the level of reserves that we have is optimal is another debate entirely.

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You obviously got me wrong then. I was not implying that someone did magic, only that it's a good thing whichever way we arrived at it.

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and thats why i said in my previous post that, its no magic, just the market!

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we need those reserves to be as healthy as possible. As someone said, what would happen if the price of crude crashes. I'm not an economist, but does anyone else appreciate the irony that now we're debt free, and have much healthier reserves, we can more easily go and borrow money?

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And must one die b4 the rainy days? I still repeat we need to know how much we have inside and how it can be well implemented, foriegn Reserves or not, Nigeria is still indebted to many financial insitution, its just like taking a loan from bank "A" to pay Bank "b", Gbese na still gbese. And dont forget that when all these neccesary infrastures are met, Nigeria would save times 100 of what we save now.If the refineries work, God knows how much we would earn from it, If the roads,Water and Light would work God knows how much they would make from Tax payers money, no matter how much it is, Its just like keeping your money in a savings account for little or no interest when you can aswell withdraw the same money invest in some kinda buz to make more.

We need to see things work in this country and if you say china still ave worse problem, that is pretty obvious. The most populated Country in the whole world and the problem of china is not fund but population. Nairaland no dey criticize Govt. it only promotes one of the dividends of Democracy "Freedom of Speech"!

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China has problems that are arguably worse than the problems we have in Nigeria. They have less freedom. in china, a forum like this one where we criticize the goverment cannot exist. The operators will be arrested and jailed. They also have areas of the country that are very deep in poverty, and a larger population to support.

save money for rainy days? What if the investments required in the country aren't immediate?

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It's ironic that you're using of the example of China to justify the squandering of Nigeria's foreign exchange reserves. China's foreign exchange reserves stand at almost 900 billion dollars! www.chinability.com/Reserves.htm

Since we have made this mistake of spendng excess reserves in the past and got into debt as a result. It would only be silly to repeat the mistake again. In this regard, I must applaud the current administration.

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Afeni, that is 2001 and we are in 2006.

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What do you mean by local reserve?

Sorry, my rate of inflation was a bit off. The current rate of inflation is 18.9 percent in Nigeria now. The 25 percent inflation was in the mid 1990s.

Link showing the rate of inflation at 18.9 percent.

http://www.economist.com/countries/Nigeria/profile.cfm?folder=Profile-Economic%20Structure

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I believe we should settle with the local reserve before we Go the foriegn reserve.

Someone said inflation has raised, Abeg how did you get your %25 Inflation from and anada said we have paid the debt as if we owe just one debt. Good, he met 3Billion and raised it to 38 billion but dont forget that he met the price per barel at $9 then and now its about 72 per barel. See no magic just the market!

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men somepeople really just dont know or are just pessimist. we have paid the debt, also we have commisioned around 2billion us dollars for the railway( una don hear about am so) also several powerplants have being commisioned billinons of dollars. but yes out reserves peaked at about 37 billion its down to 34 but by year end with its current growth it should peak 50.this administration has tried nigerians are just judging it by the mind of old.

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@Onanugaola

The problem is not an increase in spending.The problemis how the money is spent.Since the past 8 years govt spending has quadripled.

The foreign reserve should be left alone to help us cope with the days when oil prices fall back to normal levels

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Onanugaola, you must also keep in mind that one of the reason why the government is not spending all the available money is because of inflation. The rate of inflation is already at 25% in the country. If the government were to do everything you asked with that money, the rate of inflation would be well over 40%.

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@Seun and Afeni,

I am saying the Govt. should just spend the accumulated fund wastefully.

Govt. should rather spend on project that will impact positive on the masses of this country.

Let us have constant electricity, good road networks, well funded Security outfit, provision of water, Adequate fund of Education and Agriculture e.t.c. These will creat jobs and reducing crime rate.

However,What about OBJ newest presidential Jet costing the Nation US$72 million?

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@Mariory

It can fall down to those levels quicker than u imagine.because pf the high price of oil,there is greater investment in oil exploration than ever b4 to find oil to meet up increasing demand from countries like China and India.This extra investment at some point will lead to over supply of oil surpassing demand from India and China.This will lead to a fall in the price of oil.If u think of it, the price of oil in 1980 adjusted for inflation was about $100 per barrel b4 it crashed subsequently.The subsequent years saw increasing demand for oil but the extra investment spurred by earlier high oil prices led to oversupply.The crash in oil prices meant that investment was stifled leading to today's supply problems .

Also the high oil prices will lead to greater exploration of alternative sources of energy creating even more downward pressure on the price of oil.

Improvement in the political situation in the Middle East will also lead to lower oil prices.

All these add up to one major lesson-Save windfall oil revenues now that oil prices are high because the future won't be so rosy. Any spending if necessary, should be geared towards investment in other sectors of the economy to diversify the economic base and lessen our dependence on oil.

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It is highly inprobable that it will fall back to those levels because of China and India. But other economies are currently planning/implementing non-fossil initiatives. The price will surely go down in the near future.

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In past oil booms we spent our money prodigously in the 70s untill the early 80s when oil prices crashed, then we ended running up huge debts.SURELY IT IS COMMON SENSE not to run into the same trap.

Only a few years ago oil was selling for $9 a barrell,what makes u think that it will fall back to that level?

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Plus what happens if we spend the money and then the price of Oil crashes? The result will be more borrowing and then back to square one.

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Seun, you hit the nail on its head, you said it all nothing more to add!

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Onanugaola, why do you want Nigeria's currency to appreciate (increase?) against other currencies?

A strong Naira at this time, with rampant un-employment, is economic suicide.

I am not going to go to much into detail, but in short, the weaker your currency, the more attractive your goods look to foreigner countries. Sell more goods leads to increased employment.

Also, Cost of food increasing is good for the economy. There reason being, it would encourage more people to return back to farming instead of roaming lagos looking for quick money.

As for the rising unemployment, well thats what happens when everyone takes it upon themselves to reproduce. No babies = lower unemployment in the future.

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I disagree completely with this line of thinking. Money should only be spent after serious consideration. governments are more likely to be wasteful than the other way round, so if our government is able to control it's appetite for consumption of foreign exchange we should be praising them. Do you want the money to be poured down the drain as usual, in the name of giving us a better life? Let them just keep the reserves as long as possible. Thanks.

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