Ex-Fidelity Bank chairman Mustafa Chike-Obi questions Nigeria’s foreign reserves value

Ex-Fidelity Bank Chairman, Mustafa Chike-Obi, says Nigeria may be paying over $10bn annually to maintain its foreign reserves for relatively low returns. Read More: https://punchng.com/chike-obi-bigger-reserves-dont-make-nigeria-richer/

Mustafa Chike-Obi, former chairman of Fidelity Bank, says maintaining Nigeria’s $52 billion to $53 billion foreign reserves costs the country more than $10 billion annually.   Chike-Obi spoke on Thursday during an episode of Policy Without Politics, a podcast he host with Ken Ikpe.   He said the reserves earn an average return of 3 percent from liquid assets held abroad, while the naira used to fund them costs 20 percent.   “So now you have an asset that’s yielding 3% at best today. But you are buying it with naira and you’re paying people 20 percent on the Naira. So for every dollar reserve you have, you are losing 17 percent a year if the Naira stays at the same nominal level,” Chike-Obi said.     “So the $52-$53 billion reserves today is costing Nigeria an average of 17 percent. If you multiply 17 percent by $52 billion, I think you get over $10 billion a year. That’s the cost of maintaining the reserves.”   He said the cost of holding reserves must be weighed against their benefits, arguing that a larger stock does not automatically mean Nigeria is better off.   “My problem with the reserves is that Nigerians now feel the bigger the reserves, the better off Nigeria is. That statement is inaccurate because the dollars to be reserves have to be invested, have to be invested in liquid instruments that are held abroad,” Chike-Obi said.     He said the assets were held in liquid instruments at institutions abroad, including branches of Nigerian banks and JP Morgan.   “Some of them are branches of Nigerian banks. So First Bank London has some. I know Zenit Bank London may have some. JP Morgan has some,” the former bank chairman said.   Chike-Obi said investments that could not be readily accessed did not qualify as foreign reserves, citing a 10-year South African bond as an example.   “If you bought a 10-year bond, for example, a South African bond, it will not count as reserves,” he added.     Chike-Obi identified meeting foreign obligations when they fall due and reassuring trading partners and lenders that Nigeria can pay for imported goods as the two main reasons for holding reserves.   “What that amount is needs to be managed. So bigger is not better. You need to get a schedule of your foreign obligations when they do and keep dollars that can match that,” he said.   Chike-Obi said he did not know the precise level of reserves Nigeria needed but believed it was well below $52 billion.   He added that the amount needed would depend partly on how reliant Nigeria was on imports.     “And the more foreign good dependent you are, obviously the larger your reserves should be,” the investment expert said.   Nigeria’s foreign reserves stood at $55.09 billion on October 14, after rising from $51.94 billion on July 28, according to Central Bank of Nigeria (CBN) data.    

Former Fidelity Bank chairman, Mustafa Chike-Obi, has questioned the economic benefits of Nigeria’s foreign reserves, arguing that maintaining reserves of between $52 billion and $53 billion could cost the country more than $10 billion annually. Chike-Obi spoke on Thursday during an episode of Policy Without Politics, a podcast he hosts with Ken Ikpe. He said […] The post Large foreign reserves don’t mean Nigeria is better off — Chike-Obi appeared first on Vanguard News.