Economic Slowdown – Quick Response But No Quick Fix (LBS Executive Breakfast Session – July 2020)

Global stocks rebound on hope of COVID-19 vaccines and increased business activities

Nigerian manufacturers are mostly anxious about two things today:

  1. How long will the pandemic lockdown continue before demand for my products recover? (X) – Unknown
  2. When will the exchange rate unification take place and what will the value of the naira be in the forex market after this? (Y) – Unknown

When the Unknown Unknowns (Y) are greater than the Known Unknowns (X), according to Donald Rumsfeld, the result is investor uncertainty and economic paralysis.

The good news is that fears of an exchange rate erosion of the Naira may be grossly exaggerated and investors ‘have nothing to fear but fear itself’ (Franklin Roosevelt). In this edition, our slides on the economics of the exchange rate adjustment explain why the naira will not crash as widely feared by investors.

Perplexed Nigerians

A perplexed man feels baffled, puzzled, confused and full of uncertainty. Conflicting news of an imminent recession (-2.5% in Q2) and the recent jump in PMI (up 24.5% to 53.9pts) has left Nigerians unsure of what next to expect.

The swift response of policymakers to the crisis is laudable but there is still a long road to economic recovery. In other words, there is no quick fix or silver bullet. Perplexed Nigerians have however since transitioned from denial to acceptance and now anxiously await the outcome of the different policy initiatives (Economic Sustainability Plan).

Interestingly, the swift 18% increase in the pump price of petrol on July 1 st confirms the policy maker’s determination to respond adequately and speedily to a dynamic macroeconomic situation.

In this edition of the LBS Breakfast Session, Bismarck Rewane and the FDC Think Tank demystify the myths about the exchange rate movement and its impact on your business and portfolio strategy.

Download the Economic Slowdown – Quick Response But No Quick Fix (LBS Executive Breakfast Session – July 2020)