The Word On The Streets XV: The Foreign Currency Edition

If you’re not hip to TWOTS, you can run through past editions here. Your correspondent flew under the radar for 4 days in Lagos last week. Here’s what I saw and heard

1. The London to Lagos flight was an eventful one featuring an autistic kid and a couple of Nigerian heroes. That story has a separate post of its own. Go here.
2. The economy is the main thing going on as you can imagine. Everyone is feeling it in one way or the other. Here’s a friend of mine with a pretty good summary:

I went to the salon the other day and when they gave me my bill of N16k, I checked it and started asking them why it was that price. They now told me ‘but auntie, this is the same price we’ve been charging you for a while now and you have never complained before’. I felt bad but I now check the price of everything I buy

This is the story of how economies go into recession. Everyone starts to cut back on their spending due to a lack of confidence in what the economic future looks like. Salons like the one above will then have to cut costs by sacking staff etc. You can see how things can spiral from there.

3. Having said that, I went with my friend to Spar and Shoprite in Lekki and both stores were full of people and we queued for a while before we could pay for the stuff we bought.

An economy is full of different stories and most times, one story is never the dominant narrative. So life goes on in Nigeria, in some ways. But what lies beneath? Who knows? As my friend remarked as we drove around the Spar carpark looking for parking space

This Africa Rising narrative is now played out but when you look at the amount of consumption going on here, there was something to it.

4. I got out of the plane in Lagos and while waiting for my Uber to arrive, I wandered over to the bureau de change in the airport and asked how much to change Sterling to naira. The lady offered me N450 to £1. I thought that was a good deal and handed over some £s and took her naira.

I got to the hotel where I was staying and had to make the payment upfront. Perhaps I wasn’t thinking clearly but I made the payment with my UK card and thought nothing of it. A couple of days later, I logged on to my card statement online and saw that the payment I made at the hotel had been converted to Sterling at N288 to £1. In effect, the payment had cost me almost double what I would have paid if I had just changed the money and paid them in naira. Because I work for my money and don’t really have time for foolishness, I called my card company to reverse the payment and then paid the hotel in naira.

Now, I am not a foreign investor but you can see the problems created by the current exchange rate regime. If I had accepted the payment that way, in theory, the naira bought from me at N288 could be sold to a Nigerian making a payment abroad with their naira card for N450. Why should anyone be able to make such margins without adding any value? It’s going to be really tough to get anyone to bring foreign investment to Nigeria until this foolishness is over.

5. Staying with forex. I hung out with a banker friend of mine on the Island. While we were there, a friend in private equity came to join us. As we were walking out, I saw yet another friend who also works in private equity. As you know, bankers and private equity types think highly of themselves but from the mini debate that followed, they do have a point this time.

The gist is as follows. Imagine you’re a private equity fund in Nigeria. Your investors are all outside of Nigeria. When you find an investment opportunity in Nigeria of say, $50m, you call them up and ask them to send you their contributions. You pool this money together and invest in the Nigerian company. So far, so uncontroversial.

A private equity investment typically lasts for 5 to 10 years i.e at the end of the investment, the investors will need to be paid their money (plus any profits)in dollars. Given that the naira is not a currency that is traded freely, the only way to ensure that you can get dollars when the investment comes to an end is to get something from the CBN called a Certificate of Capital Importation (CCI). This CCI serves as proof that you actually brought money into Nigeria and as such allows you to get forex when you’re ready to take your money back out. You can come in through the black market but imagine trying to get $50m from the Nigerian black market when you want to exit. You will have to round up every Mallam in Lagos and even that won’t guarantee that you will get all the dollars you want.

Now this is where the problem starts. If you bring in that $50m today, CBN will change it for you at N199 to $1. Foreign investors don’t really care what the rate is as long as it’s a realistic one. The trouble is most people know that N199 is not a realistic rate and a devaluation is guaranteed to happen at some point in the near future. So imagine you come in today at N199 and in the next 6 months, CBN throws in the towel and devalues to N250. Before even making any money at all on your investment (which is not guaranteed), you have already lost 25% of your money.

This is what triggered the mini debate that night. People are now spending all their time thinking up all sorts of solutions to make this happen. What if you don’t bring in the dollars at all? Say you leave it in an offshore account to earn some interest then pledge it as collateral for a loan in naira? That is, you get a Nigerian bank to give you a naira loan for the equivalent of the dollars you have while you deposit the money in their offshore account or something.

This brings another headache. The interest rate you will get for a dollar deposit is wildly different from what you pay for taking out a loan in naira. Further, the devaluation by CBN can happen at any time so no one is going to give you a loan with a fixed interest for 1 year ahead. You can only do it in 3 months installments i.e you renegotiate the rates every 3 months.

This is the kind of uncertainty currently plaguing the Nigerian economy and making it difficult to plan ahead (something that was already terribly difficult to do). It is the only thing occupying the minds of people who should be spending their time thinking of other things.

The final insult is that there really is no business you can do in Nigeria today that will give the same returns as collecting money at official rate and selling it on the black market. For how long will this continue?

6. Had conversations with a number of people either working in the oil and gas industry or with good knowledge of the space. Things are quite rough out there now and Nigeria is going to pay for it in the coming months and years.

When a minister asks for a bribe to sign an agreement, the oil company will pay. But they then add that cost back into their joint venture funding and deduct it before Nigeria can get any returns. Nigeria pays for this stuff. Now there is no money for NNPC to make payments, the outstanding payments have reached something like $10bn and everyone is now disputing what they should pay like my friend in (2) above.

There is also no investment going on which means that even though the budget was based on 2.2 million barrels per day, it is currently around 1.7m bpd and is only going to go down in the next few months. So before you rejoice at oil prices going up, just know that the impact is muted.

The other side of the story is that oil companies are now looking closely at their costs. One person told of how 4 expats who previously had their own houses have now been moved into a single 4 bedroom house to share. Another person told me of a frightening scam that had gone on for 10 years perpetrated by the company’s staff running into tens of millions of dollars. The staff in question have now been sacked but you wonder if it would have been discovered when oil was $100/barrel.

As we drove past a shiny new building in Lekki, my friend said

The thing about this building is the speed with which it went up. You just know they had their money complete before they started construction.

Another friend later told me the building belongs to an oil and gas company that is a contractor to one of the oil majors. The oil major effectively paid for the construction of the building by paying a sweet amount of ‘rent’ for 3 years in advance.

What is probably the best hotel in Ikoyi these days is rumored to be owned by a guy who was a contractor for one of the oil companies via the local content scheme. Does it matter if the local guys built stuff at twice the cost it would have taken to build the same thing in Asia? Who cares. The costs gets passed through the JV and Nigeria simply earns less.

7. Had lunch with a couple of friends at a quiet place in GRA, Ikeja. We got there and there was no one to be found to attend to us. After knocking on the doors and tables, a rather good looking lady came out and after placing our orders, we got talking to her.

We are going to put cabanas outside and get a live band to be playing here regularly. We want to build and expand the restaurant business

So I asked if the restaurant was new. It transpired that they have actually been in business a long time but focused on in-flight catering mainly for private jets.

Buhari has killed that business o. They are not flying again and when they fly they are not even eating that much. So we have to diversify

8. A friend has a business which traditionally has a high turnover of staff. But she told me she’s had some of her staff for more than a decade. So I asked how she manages to keep them that long.

I’ve introduced perks for them. They can probably earn more if they go elsewhere but they wont get the same perks like the health insurance. One of my staff’s children broke their bone while playing. She then took the child to traditional bone setters. She didn’t mention it and didn’t know her health insurance covered it. The local bone setters set the bone in the wrong place so shortly after it became obvious. She then mentioned and I asked her why she didn’t tell me. She said ‘e ma binu. Illiteracy o da ni’

Anyway the insurance paid for the child and all was well.

9. Found myself at a party with a lot of rich Lagos people who have openly declared war against ageing. There were middle aged women in tight short dresses and half a century old men rocking True Religion jeans like it was nothing.

Anyway I was minding my business as usual when I overheard this conversation

I do real estate and basically double my money every 12 months

I have no way of verifying this information. I am not an investigative journalist. I only tell you things I hear.

10. A friend took me on a drive on Sunday morning to show me what Lekki is like these days. We started from Admiralty Way in Phase 1 and went all the way down to Lakowe Resort before turning back. Along the way we turned off at Chevron roundabout and then on the way back at Agungi.

I have to say I was taken aback at the scale of development going on in Lekki and environs. The whole place is like a construction site with residential estates being built everywhere.You can also see how areas that are ‘undesirable’ today will literally transform overnight once the hipsters have been displaced from Lekki 1 and 2.

One thing I concluded is that Nigeria does not really have a housing supply problem. The fundamental problem is that there are just not enough people who can afford to buy homes in Nigeria right now. The most recent survey from EFinA(page 9) showed that only 0.5% of the Nigerian population earn more than N200,000 per month. The proportion of Nigerians who earn $2/day or less has not gone below 81% in the last 5 years.

A friend who worked in a bank said

We used to write maybe 10 mortgages per month at the bank. And the majority of those were for staff of the bank

That said, based on what I saw and the plans for the Ajah flyover as well as the much talked about 4th Mainland Bridge, I am able to answer the burning question on the lips of all my readers

Dear Feyi! Where do you think I should buy land?

Me: Buy in Lekki or Ajah or even further. Buy early and buy often

These places are not that far. I do a 21 mile round-trip here in the UK just to get to my barber. The problem really is the infrastructure and the challenge of trying to funnel everyone through the Lekki-Epe Expressway.

11. Staying in Lekki — I went to visit someone who lives in one of those nice estates. What I found interesting was that the estate has a 24 hour power supply managed by the guys who built the estate. It’s pay as you go so you buy ‘units’ to top up your meter and you have electricity round the clock. It’s not particularly cheap but you know the power is there always and you get it without the noise and fumes of generators.

The moral of this story is that on a smaller scale, this is what Nigeria has been battling to achieve for decades now — a direct link between consumption and payment. My friend knows what his bill will be like if he uses his air-conditioning a lot (the biggest consumer of power in his house). He can then make the decision to reduce his bill by cutting back. Some people on his estate do this from what he told me. Cut back AC usage if the weather isn’t searing hot and use fans instead.

What can I say? Welcome to London! Having 24 hour power here in the UK does not mean reckless usage. Quite the opposite. When consumption is linked to what you pay for, it teaches you to watch what you consume.

Now if we can get this to work across Nigeria…

12. Haven’t been to a Nigerian church in a while now so I made my way to This Present House(TPH) in Lekki on Sunday morning. It is always nice to be in the presence of so many well dressed and good looking people. Indeed, I can confirm that all the men in the church that morning had encountered a barber in the last 48 hours. The Pastor in charge that morning had an afro that could only have been achieved by some kind of laser clipper. He also had a Khal Drogo inspired beard.

TPH wants to be that church that fires up its members to getting entrepreneurship to create value. There’s the Business Wednesdays that has featured Segun Agbaje and Ladi Balogun and has Ibukun Awosika coming tomorrow. They have the Marketplace Alliance and the King Solomon Business Academy. More power to them I say.

I was also reminded of the things which really put me off Nigerian Pentecostal churches — the habit of constantly putting unprepared or unsuitable people on the pulpit and covering it all with the ‘anointing’. It’s not clear why anyone should listen to a message where the Pastor spends the whole time reminding you of the message that was preached by another Pastor last week.

13. I went to Churchill’s in Lekki to have breakfast. The moment we ordered for anything, the waitress (in a hot pant and suspenders. Yes, really) would write it down on some kind of receipt and ask us to sign it. She would then leave a copy on the table.

I was curious so I asked why they were doing this

It’s because of these white people. They will eat something and then say they never ordered it. So we started this system where we write a receipt for everything you order and you sign for it. At the end we then tally your bill based on the signed receipts.

On a different day with another friend, we got talking about nightclubs in Lagos

Ah! Lagos clubs? If you are with friends and you don’t arrange how you will make payments among yourselves, they will collect payment twice from different people in your group. They can even bring the bill that has already been paid by another table and add it to your own.

Based on this, I concluded that the girl at Churchill’s was only telling me half the story. I imagine the ‘white people’ had been stung a couple of times and decided to take drastic measures

14. I walked into a store in Ikoyi and about 5 of the sales staff were huddled together discussing the most critical issue threatening the peace and stability of the nation — Tiwa Savage and T-Billz.

The simple answer is to say the disintegration of their marriage is about the corruption of Nigerian culture or women not being prayerful enough etc. But scratch beneath the surface and there’s something more interesting going on.

In conversations with 2 different people, they mentioned at least 3 young women who were either divorced or going through divorce proceedings. The common narrative is deadbeat guys who don’t do much for their women apart from supply them stress. The guy who wont provide any money and then accuse his wife of having the nerve to source for the kids’ school fees from elsewhere. The guy who wont work but rely on his wife to pay for everything while he chases his ‘dream’ of becoming a ‘pastor’. The guy who earns less than his wife and so decides to use punches and beatings to equalize the situation. And so on.

4 women do not a revolution make. But maybe one day, there will be enough women who will say ‘Saint Tiwa of Savage (PBUH) gave me the courage to cut that fake ninja loose’

15. Lagos is stressful. Seeing people queuing for fuel at 2am is just heartbreaking. Why do things have to be this way?

And my word, the sun on Sunday was out of this world. Even sitting inside air-conditioning offered no respite. At one point I could hear sizzling sounds in my head as the sun fried my brain.

And then there’s the confusion that people in uniform like to profit from. Saturday was environmental sanitation day. But a lot of people were unclear as to whether it had been cancelled or not. For the people in uniform like LASTMA, this was like handing them the password to an ATM. A friend of mine was relieved of the burden of his N51,000 for having the temerity to book a flight to Abuja that morning. The N1,000 was collected by the last set of policemen he encountered and even telling them he had only N1,000 left did not spare him. They ‘reluctantly accepted’ it from him.

Nigerians preying on Nigerians is the long running tragedy of the country.

16. A friend is building a shared office space so I went to take a look at the construction site. He currently has a 17kva generator but will need a 80kva one when the space is fully operational.

We got talking about how much all of this is costing and how everything is now so terribly expensive. So I suggested what I thought was a brilliant idea — I asked him to sell the 17kva generator and use the money to reduce the cost of the 80kva one he was going to buy. He and my other friend laughed at me

I cant do that. When I buy the big one, this 17kva will become the backup to the 80kva. Then NEPA (public power supply) will be the backup to the 17kva. You cant have only one generator for this kind of business o. A generator must break down in this country.

I always need to be reminded that I’m in Nigeria.