Business News

Nigeria’s External Reserves Hit $37bn with $3.5bn New SDRs

Nigeria’s foreign reserves will get a timely boost on Monday when the country’s share of $3.5billion from the $650 billion Special Drawing Rights (SDRs) approved by the International Monetary Fund (IMF) to boost global liquidity, matures for collection.

Consequently, the nation’s foreign reserves currently put at $34billion will hit the $37billion threshold, which will boost the capacity of the Central Bank of Nigeria (CBN) to fund higher volumes of external transactions and achieve a further convergence of the exchange rate around the I & E window.
This is coming as the CBN has threatened to revoke the operating licence of any microfinance bank found engaging in foreign exchange transactions.

The apex bank has also urged the organised labour to collaborate with it to grow the country’s economy.
The approval for the SDRs credit was announced by the board of IMF on August 4.
SDRs are supplementary foreign exchange reserve assets defined and maintained by the IMF.
They are units of account for the IMF and not a currency.

Also, they represent a claim to currency held by IMF member countries for which they may be exchanged. SDRs were created in 1969 to supplement a shortfall of preferred foreign exchange reserve assets, namely gold and United States dollars.

Managing Director, Financial Derivatives Company Limited, Mr. Bismarck Rewane, who confirmed the maturity of the IMF’s credit to THISDAY yesterday, said: “Upon receipt of the IMF’s SDR credit of $3.35billion expected on August 23, we expect gross external reserves to increase to about $37billion. This will provide more support for the CBN to support the currency and lead to a further convergence of the exchange rate around the I & E window.”

Rewane also said in the August edition of the FDC Monthly Update, released during the weekend, that “an increase in the gross external reserves will support the CBN’s intervention at the foreign exchange markets and help in the convergence of the parallel market rate towards the rate at the I&E window.
“In the first fortnight of August, Nigeria’s gross external reserves maintained a steady accretion. The reserves gained 0.30 per cent to $33.58billion (August 13). The cumulative gain as of August 13 is $180million. At $33.58billion, the reserves level is sufficient to cover 8.24 months.

“We expect the CBN’s increase in forex supply to commercial banks to support the exchange rate for invisibles in the near term and ultimately, close the gap between the parallel and official rates (N104/$ as of August 13). Similarly, we expect the $3.35billion IMF SDR allocation to increase the external reserves level to about $37billion and support the CBN’s intervention in the forex market,” Rewane explained.
About $275 billion (193 billion SDRs ) of the new allocation would go to emerging markets and developing countries, including low-income countries.

The economic research firm projected additional foreign exchange accretion through the anticipated rise in higher oil revenue in the coming months.
“We expect the increase in Nigeria’s domestic oil production to be sustained in the coming months barring any disruptions,” the FDC report stated.

It added that: “An increase in oil production will offset the fall in oil prices and this will lead to higher oil revenue. This will impact positively on the fiscal and external balances of the country.”
FDC quoted the Organisation of Petroleum Exporting Countries (OPEC) monthly oil report as stating that Nigeria’s domestic oil production increased by 3.60 per cent (45,000 barrels per day) to 1.44mbpd in July from 1.39mbpd in June. This, according to the report, is 22.58 per cent below the benchmark of 1.86mbpd.
Nigeria’s oil rig count had increased by 40 per cent from five to seven in June.
Consequently, the company expects oil prices to remain soft in the near term due to the surge in Covid-19 cases globally.

FDC stated, “China, a major importer of oil, recently imposed lockdown measures. This will dampen its oil demand prospects and weigh on the oil price. We expect oil prices to stay within the $70 per barrel- $74pb range.”

It explained that although lower oil prices and the attendant reduction in oil earnings cannot be ruled out, the government’s acquisition of a 20 per cent stake in Dangote Refinery will be the saving grace.
“Oil accounts for 86 per cent of Nigeria’s export earnings and contributes approximately 10 per cent to GDP. Lower oil prices coupled with Nigeria’s low oil production would lead to reduced oil earnings and government revenue.

“The government’s acquisition of a 20 per cent stake in the Dangote Refinery, which is projected to be the largest single-plant in the world, guarantees a steady supply of crude to the refinery and will boost the NNPC’s revenue. In addition, the Kaduna and Warri refineries will undergo rehabilitation and complement the Dangote refinery. Nigeria could be on its way to being becoming a regional oil hub,” the report added.

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Business

Dollar scarcity persists as Naira drops to N515/$1

Amid persistent dollar scarcity, the Naira, which had made recent gains, remained pared to N515/$1 on Thursday.

The Naira had strengthened to 506/$ on August 4 after plunging to 525/$ at the parallel market on July 28, a day after the Central Bank of Nigeria (CBN) stopped foreign exchange sales to Bureaux de Change and had been hovering around 508/$ and 510/$ in recent days.

However, data obtained from abokifix.com, revealed that the Naira traded at 515 to a Dollar, 702 to the British Pound, and at N598 to the Euro. At the Investors and Exporters’ (I & E ) window, the Naira stood at 410.12 to the  Dollar, leading to urgent calls that the apex bank should settle its divorce with the Bureau De Change operators (BDCs).

The CBN Governor, Godwin Emefiele, had on July 27, at the end of the Monetary Policy Committee (MPC) meeting, announced the stoppage of forex sale to the BDCs, saying they had turned themselves into ‘agents that facilitate graft and corrupt activities of people who seek illicit fund flow and money laundering in Nigeria’.

He said the CBN would channel a significant portion of its weekly allocation currently meant for BDCs to commercial banks to meet legitimate forex demand for ordinary Nigerians and businesses.

Analysts at Nairametrics noted that the CBN, being the sole arbiter of the Nigerian Financial System, made the right decision but at the moment, created the gap in supply and demand.

They noted that since the foreign exchange (forex) market is influenced by demand and supply, the idea of subjecting the demand of FX to PTA, BTA, School, medical fees and SME transactions is fundamentally uneconomic.

“Does a student’s need for monthly pocket money or emergency funds from his parents in the UK not count as legitimate? If yes, is this legitimate need provided for by the banks? No! This common transaction is easily done with the BDCs and here lies the gaps. There are legitimate concerns that making the banks the “be all and end all” would create another monster as they have also conducted illicit malpractices in the past.

The ABC of BDCs is to cater for the pocket FX needs of individuals and SMEs and its reach and accessibility provide a comparative advantage. Also, through their services, they contribute to the economic development of the nation via provision of data for the MPC, channels for CBN intervention in the retail forex market and creation of over 15,000 jobs among others”, the analysts explained.

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Economy

Naira falls to N500/$1 at black market as forex speculators intensify their activities

The exchange rate between the naira and the US dollar closed at N411.67/$1 at the official Investors and Exporters window.

Naira depreciated on Monday against the US dollar to close at N411.67 to a dollar compared to N411/$1 recorded on Friday, 18th June 2021.

Also, the exchange rate depreciated at the parallel market to close at N500/$1 on Monday, June 21, 2021. This represents a N2 drop when compared to the N498/$1 that was recorded on Friday, June 18, 2021.

The drop in the value of the naira at the black market continued due to activities of speculators and lower liquidity at the forex market.

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Business News

Naira Stages Recovery, Strengthens to N483/$ on Parallel Market

The naira, which has been under pressure at the parallel market, staged a major recovery yesterday to close at N483 to a dollar.
Yesterday’s rate made the naira stronger than the N502 to a dollar it has been trading at the black market in the past few days.

Forex dealers attributed the gain at the parallel market to improved supply of the greenback, resulting in speculators losing their shirts.

The President, Association of Bureaux De Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe, had last week warned that forex speculators might lose over N100 billion in the next one month as the Central Bank of Nigeria (CBN) sustained funding for Bureaux De Change (BDC) operators.

Gwadabe had said the CBN was committed to improving funding for over 5,000 BDCs nationwide in a new move to deepen market liquidity and protect the naira against speculators.

He had called for the return of normalcy to the market, saying speculative behaviour hampering the market operations and stability would come at a huge loss to speculators.

He had also warned those hoarding dollars to profit from the currency crisis to desist.
“The ABCON and CBN have observed with disdain the speculative behaviour currently beclouding the market with the misinformation that the CBN has adopted the I&E window as its official rate,” he had said.

The CBN had a fortnight ago increased forex allocations to banks to meet the requests of customers, particularly travellers, seeking forex for travel allowances, payment of tuition and medical fees, among other Invisibles.

The moves followed the warning by the CBN Governor, Mr. Godwin Emefiele, at a weekend meeting with bank managing directors, cautioning them to desist from denying customers, particularly travellers, the opportunity to purchase forex for Personal Travel Allowance (PTA), Basic Travel Allowance (BTA), tuition fees, and medical payments as well as Small and Medium Enterprises (SMEs) transactions or for the repatriation of Foreign Direct Investment (FDI) proceeds.

Acting Director, Corporate Communications Department at the CBN, Mr. Osita Nwanisobi, had said in a note that the CBN remained committed to ensuring liquidity in the forex market to meet genuine and legitimate demands of customers.

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Economy

Naira tumbles by 51.95% despite CBN’s defence measures

The value of the naira to the dollar fell from 196.99 in December 2015 to 410 in April 2021, reflecting a 51.95 per cent decline despite the various foreign exchange policies introduced by the Central Bank of Nigeria to strengthen the currency.

According to a monthly document obtained from the CBN’s website, the value of naira at the inter-bank forex market stood at N196.99 as of December 2015.

The PUNCH had reported last month that the CBN officially adopted the NAFEX exchange rate of N410.25/$1 as its official exchange rate, devaluing the naira from N379/$.

In a move to achieve exchange rate stability and preserve the country’s forex reserves, the CBN in 2015 reviewed downwards the spending limit on the usage of naira-denominated debit cards for transactions abroad.

In a circular issued in April 2015 signed by the then Director of Trade and Exchange, Olakanmi Gbadamosi, the bank said the limit had been reduced from $150,000 to $50,000 per person annually, while daily cash withdrawals per person was pegged at $300.

After six months of implementing the policy, the value of naira in the official window remained stable at 197/$, but fell from 210/$ to 258/$ at the parallel market.

In June 2015, the CBN announced that it was stopping the supply of forex to 41 items that could be easily produced in Nigeria, a development that brought about the forex exclusion policy.

The implication of the policy is that importers of items on the forex restriction list would not be able to get forex directly from the windows created by the apex bank to bring the products into the country.

A circular issued by CBN said, “The implementation of this policy will conserve foreign reserves as well as facilitate the resurrection of domestic industries and improve employment generation.”

However, after about a year of implementation, the value of naira plummeted at both markets, falling from 197/$ to 232/$ and 218/$ to 351/$ at the official and parallel markets respectively.

In 2017, the exchange rate at the official window fell to the N300/$1 threshold, ranging between N305 to N306 to a dollar.

This was despite the introduction by the CBN of a new window for investors, exporters and end-users aimed at driving liquidity in the forex market.

From January 2020 to April 2021, the naira continued in a downward trend at both markets, falling from 307/$1 to 381/$1 in the official window and 361/$1 to 481/$1 at the parallel market.

Within this period, the CBN adopted new forex rules. For instance, in November 2020, the bank announced that recipients of diaspora inflows could receive their funds in foreign currency or have it transferred to their domiciliary accounts where they also have options to withdraw in cash or transfer.

In March 2021 the CBN introduced an incentive of N5 for every $1 of fund remitted to Nigeria through International Money Transfer Organisations, as part of its reforms to boost the inflow of foreign currency in the country.

The incentive was termed ‘Naira-4-dollar scheme’.

Speaking on the CBN policy, an economist and the current Chairman of Foundation for Economic Research and Training, Prof. Akpan Ekpo, said the idea behind the naira-4-dollar scheme was to shore up the exchange rate.

Responding to a question on why the Nigerian forex continued to depreciate despite the policies, an investment strategist at Afrinvest, Omosuyi Temitope, said, “The reason the policies are failing is because they are makeshift policies; they can’t address the fundamental factors that have kept the naira under water.

“The major factor that needs to be addressed is the external trade condition – that is the current account; so long as the Nigerian current account continues to suffer major setback, particularly when we have huge imports over exports, then naira will remain likely subdued.

“Between 2018 and 2020, for instance, we have continued to witness consistent deceleration in the current account balance; last year alone, the current account balance was negative, $17bn, from about $14bn in 2019.

“We also saw the performance of the foreign reserve; as a result of deceleration in current account, foreign reserve also went down, and in the last few months, foreign reserve has continued to plummet. So, if we don’t address our external trade position – that is, if Nigeria doesn’t export enough to get foreign earnings, we will continue loss in terms of naira depreciation.”

He added Nigeria must produce sufficiently to meet local demand in order to reduce the dollar demand for importation of consumer goods.

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Business

Naira depreciates at official window as dollar supply drops significantly by 58.5%

The exchange rate between the naira and the US dollar closed at N411.50/$1 at the official Investors and Exporters window.

Naira depreciated against the US dollar on Tuesday to close at N411.50 to a dollar, representing a 0.1% loss compared to N411.07/$1 recorded on Monday, 7th June 2021.

However, the naira remained stable against the US dollar on Tuesday at the parallel market to close at N502 to a dollar. This was the same rate that was recorded on Monday, June 7, 2021.

The dollar supply dropped significantly by 58.5% as panic buying and speculation persists in the forex market.

Details later…

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Business News

Emefiele Guarantees Manufacturers Steady Supply of Forex

The Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, yesterday reiterated the bank’s commitment to ensuring steady availability of foreign exchange for manufacturers.

Emefiele also urged banks as well as Nigerians to strive to end environmental pollution and ensure sustenance of banking principles.

Speaking alongside the Minister of Industry, Trade and Investment, Mr. Niyi Adebayo, at an interactive session with a business team from the United Kingdom, Emefiele, however, explained that the fall in oil prices had affected the inflow of forex.
This, he said, informed the restriction of access to forex for the importation of goods that could be produced locally, in order to ensure judicious use of forex.

He identified the three main sources of forex inflows to the country as the sale of crude oil, remittances from Nigerians abroad and foreign investors.

Emefiele, represented by the Deputy Governor, Economic Policy, Dr. Kingsley Obiora, stated that some of the issues raised by the companies would be looked into to assist them in their daily operations.

However, Adebayo who facilitated the meeting said the growth of the companies would boost the economy and make more money available for the federal government to build more infrastructure and to create jobs for the youths.

A statement by Adebayo’s aide, Mr. Ifedayo Sayo, said the companies lauded the CBN for funding of local companies and the various reforms put in place to assist in keeping their businesses afloat.

They also solicited for more forex to enable them to continue in business, pay their lenders and maintain their machines.
Some of the companies present at the interactive session included GlaxoSmithKline, a pharmaceutical company, Savanna Energy, AzuraPower West Africa, Guinness Plc.

Representative of GlaxoSmithKline, Mr. Omon Elyhibro, lauded the minister and Emefiele for the support which the businesses had received from the government in the firm’s 50 years of operation in the country.

He said it was the desire of the government to make the country the export hub for pharmaceutical products, adding that this will be realised through a partnership with local manufacturers.

He commended the CBN support for the local manufacturing companies.

On his part, Managing Director of Azura Power West Africa, Edu Okeke, also praised the CBN for its support for the power generation company and called for more support in terms of forex allocation.

Okeke who commended the CBN for the various reforms put in place which had helped the growth of the sector stated that the reforms have helped to unlock the sector.

Emefiele Harps on Environmental Protection, Sustainable Banking Principles

Meanwhile, Emefiele, yesterday enjoined the banks as well as Nigerians to strive to end environmental pollution.

He said it was imperative to key into the global movement for a greener world adding that
“We must keep our ecosystem alive so that everything remains green,” he stated.

Emefiele, at a tree planting session alongside the CBN deputy governors, at the bank’s headquarters in Abuja to commemorate the World Environment Day celebration with the theme: “Ecosystem Restoration,” said lending practices must take the environment into consideration and ensure that sustainable banking principles are observed when banks are lending money.

The CBN governor stated that some international financial institutions and development finance agencies have started to demand evidence of compliance with sustainable banking principles before approving monetary assistance.

He said: “As a bank, you want to borrow money from a bank, they will tell you that as long as they find anything that pollutes the environment, that does not make the environment clean and green, they will not condone that credit activity.

“And we must join not only as bankers, but we must also join as Nigerians and members of the global community to ensure that we join the entire community to ensure that our environment remains green.

“It keeps the oxygen flowing well in our lives and we can all live well and avoid pollutants that destroy our lives and environment.”

Emefiele said the apex bank intended to seize the opportunity to join “all well-meaning human beings all over the world to commemorate a day like this.”

“A day like this reminds us to ensure that our ecosystem remains green. And we need to make sure we remove everything that is creating pollution in our environment.”

At the Model Secondary School, Maitama, the Special Adviser to the CBN Governor on Sustainable Banking, Dr. A’isha Mahmood, urged the pupils, who she described as young ambassadors of the environment, to protect the environment in order to avoid adverse environmental issues.

She stated that the CBN and other financial institutions had in 2012, adopted the Nigerian Sustainable Banking framework, a written document, guiding their business operations and practices, to ensure that their actions are socially and environmentally responsible.

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Business

Naira exchanges for N491/$ at parallel market

The naira exchanged to the dollar at N491.5/$ at the parallel market on Wednesday.

According to naijabdcs.com, the official exchange rate website of the Central Bank of Nigeria for the Bureau de Change operators, the country’s currency was bought and sold at N487/491.5 to the dollar as of Wednesday evening.

The CBN recently adopted the NAFEX Investor & Exporter forex window rate of N410.25 as its official exchange rate to the dollar.

It confirmed this new official rate on its website on Monday night, after it had removed N379/$.

It would be recalled that in April 2017, the CBN established the I&E forex window as part of efforts to deepen the foreign exchange market and accommodate all forex obligations.

The purpose of the window was to boost liquidity in the forex market and ensure timely execution and settlement for eligible transactions.

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Business News

Nigeria Devalues Naira, Official Rate Now 411 To Dollar

Nigeria let the naira weaken to a record low against the dollar on the official market on Friday, according to traders, who said this could be a move by the central bank to unify multiple exchange rates. 

Having traded within a band of 380 and 381 to the dollar since July last year, the naira hit a record low of 419.75 against the dollar on Friday. It then closed at 411.25 — the last closing rate for the naira on the over-the-counter spot market. The central bank did not respond to calls for comment and no quotes have been available on the naira’s official rate since Tuesday. It weakened further on the black market, traders said.  

“What the central bank is saying is that the (OTC) spot rate will be the official rate because that’s where the largest volumes trade,” one currency trader at a major Nigerian bank told Reuters. 

Nigeria operates multiple currency regimes, which frustrate businesses and have prompted calls from the World Bank for the rates to be unified to attract investment. Rising dollar demand has put pressure on the naira as providers of foreign exchange, such as offshore investors, exited after the COVID-19 pandemic triggered a fall in global oil prices. 

Central Bank Governor Godwin Emefiele in February said the currency was trading at 410 naira on the official market while the government has been using that rate for its business as it tries to boost earnings from crude sales, its main export. 

The World Bank has linked approval of a $1.5 billion budget support loan to currency reforms. The central bank had been trying to unify the rates and boost the dollar supply through direct interventions. It revised the futures rate on the naira upwards last month to ease pressure on the currency after quoting the 150-day futures contract at 435.81 naira, in its first dollar sales to foreign investors this year. 

The bank is due to hold its interest rate setting meeting later this month with economic data on inflation and first quarter growth figures expected from next week. It has kept rates on hold to support the economy hobbles by lower oil prices and impact of COVID-19 pandemic but dollar shortages have been contributing to rising inflation, a key source of concern for the central bank.

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Covid-19

COVID-19:W’Bank approves $1.5bn to help Nigeria rebuild economic resilience

The World Bank Group (WBG) has approved the sum of $1.5 billion social protection fund to help Nigeria  finance  resilient economic recovery post-COVID-19. This  new Country Partnership Framework (CPF) will run from 2021 to 2024.

According to the bank, Nigeria is at a critical juncture following the sharp decline in oil prices and production.

The bank calculated that government’s revenues could fall by more than $15 billion this year, and the crisis may push an additional 5 million Nigerians into poverty.

“With the sharp fall in oil prices due to COVID-19 pandemic, the economy was projected to contract by over 4 per cent  in 2020, plunging the country into its deepest recession since the 1980s. Government’s revenues could fall by more than $15 billion this year, and the crisis will push an additional 5 million Nigerians into poverty.

“This CPF will guide our engagement for the next 5 years in supporting the Nigerian government’s strategic priorities by taking a phased and adaptive approach.

“To realise its long-term potential, the country has to make tangible progress on key challenges and pursue some bold reforms. Our engagement will focus on supporting Nigeria’s efforts to reduce poverty and promote sustained private sector-led growth.” it said.

The world apex  bank also said that the CPF will focus on four thematic areas including,  investing in human capital, increasing the coverage and effectiveness of social assistance programmes and investing  in promoting women’s empowerment and youth employment and skills, especially for young women. “Investing in human capital by increasing access to basic education, quality water and sanitation services; improving primary healthcare; and increasing the coverage and effectiveness of social assistance programmes. Additional investments in promoting women’s empowerment and youth employment and skills, especially for young women, will also help reduce maternal and child mortality. It will equally promote  jobs and economic transformation and diversification by supporting measures to unlock private investment and job creation and increasing access to reliable and sustainable power for households and firms.

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