Naira Loses N27 in Organised Market, BDCs Sell Dollar N815
The Nigerian naira crossed another fresh red line in 2023 as foreign currency demand outpaced the United States (U.S.) dollar supplied to the organised market or the investors, and exporters window amidst a sustained FX shortage in the local economy.
Down by N27 on each dollar transaction in the organised or official market last week, a relatively weak foreign currency supply side remains a downside risk for the Nigerian naira in the second half of the year given weak receipts from crude oil sales, according to market analysts.
While the country continues to face FX receipt challenges, Shell announced the suspension of crude oil loading after signs of a possible leak midweek.
The Nigerian government is still battling oil theft across its waterways. At the investors’ and exporters’ FX window, the Naira weakened significantly against the United States dollar.
Based on FX quoted on the FMDQ Exchange platform, the naira lost N27 in a week to close at N803.90 on Friday, from N776.90 in the last week. The sharp decline in local currency value occurred despite continued funds inflow into the financial system, eclipsed by the import-dependent nature of the Nigerian economy.
Recall that the Central Bank of Nigeria has mandated deposit money banks to source foreign currency themselves. The apex bank also allowed international oil companies to sell their foreign currency receipts to local lenders to boost supply at the Investors’ and Exporters’ FX window.
At the organised market for importers, and exporters, total turnover declined by 22.0% to US$343.69 million on Thursday, as trades were consummated within the N690.00 – N818.00 per greenback band, according to Cordros Capital.
In the forwards market, traders said the naira rates appreciated across the 1-month (+2.1% to N784.65), 3-month (+1.7% to N806.80), 6-month (+3.5% to N820.49), and 1-year (+5.0% to N866.75) contracts.
In the open market, the naira depreciated by N22.50 or 2.84 last week to N814.7/$1 from N792.20. According to a channel check conducted by MarketForces Africa, a number of Bureau De Change sold dollars at N815 on Friday’s close.
Analysts said the apex re-introduction of the ‘willing buyer, willing seller model at the Investors and Exporters FX market continues to influence the exchange rate direction – currently unfavourable for importers and fast-moving consumer goods operators that FX losses have eclipsed their earnings performances.
The sustained depreciation of the naira has been attributed to weak inflow into the market. Foreign currency inflow is yet to meet expectations; analysts said the decision to float the local currency is incomplete until the apex bank clears the unmet forex demand backlog.
As the foreign exchange market remains volatile, analysts said they anticipate the naira to depreciate further on demand concerns in the coming week; barring any market distortions while the market adjusts itself in line with the prevailing forces of demand and supply.
FX traders said a foray into N800 exchange rate band started on Friday when the Naira decreased by 7.72 percent when compared with N746.28 for which it exchanged for the dollar on Thursday – signifies that there was a spike in forex demand logged in the market.
The open indicative rate closed at N763.36 to one dollar on Friday. A spot exchange rate of N829 to the US dollar was the highest rate recorded within the day’s trading before it settled at N803.90.
According to market updates, the Nigerian local currency was sold for as low as N689.34 per greenback within the day’s trading. A total of 46.90 million dollars was traded at the investors and exporters window on Friday
External Reserves Drop
Accretion into external reserves remained tight. On Friday, Nigeria’s gross external reserves decreased by US$2.01 million to US$34.06 billion amidst Eurobond repayment conducted by the Debt Management Office last week.
Recall that Africa’s largest nation by size of gross domestic product (GDP) successfully settled $500 million Eurobond raised 10 years ago without recourse to refinancing despite pressures on foreign currency reserves. Analysts projected that decision to float the local currency will drive FX inflows in 2023.
Though, they maintain that there is a need to clear the FX backlog owed to foreign investors. This, in addition to other obligations, could plunge gross external reserves lower. Specifically, analysts said the apex bank has swapped obligation standing against the nation’s foreign reserves.
In light of recent initiatives by the new government, Afrinvest Limited maintains a base case capital importation projection of $6.2 billion for 2023, the investment firm said in a market update.
It said this is hinged on the unification of FX rates and pivot to a managed float system that keeps the rate close to its fundamental value and less aggressive capital controls in the second quarter of 2023.
According to data released by the National Bureau of Statistics (NBS), Nigeria witnessed a modest increase in total capital importation during the first quarter of 2023. The figures indicate that the country attracted a total of $1.13 billion in capital inflows, reflecting a 6.78% growth from the fourth quarter of 2022 record.
However, it is important to note that this amount represents a significant decline of 28% compared to the capital importation recorded in Q1 2022, which stood at $1.57 billion.
“In our opinion, we think the year-on-year decline in capital importation from Q1 2022 suggests that there are still challenges that need to be addressed in order to attract more foreign investment into the country.
“This is majorly the call on the federal government to speedily address the perennial issues or challenges that have continued to clog the pipeline of investment into the country. These challenges include the high cost of doing business in Nigeria, the unstable political and security environment, and the lack of transparency in government regulations.
“However, the increase in capital importation in Q1 2023 from the previous quarter is a positive sign for the Nigerian economy. We think that despite the highlighted challenges in the economy, Nigeria remains a promising destination for foreign investment as it has a large and growing population, a young and educated workforce, and a wealth of natural resources.
“With the right policies and reforms in place, Nigeria can attract the investment it needs to achieve its economic potential”, Cowry Asset Management Limited said in its market update.
Last week, oil prices closed at $80.11 per barrel on Friday as the global market regain position. Also, the Bonny Light crude price exhibited an upward trend by 3.96% to close at $81.88 per barrel from $78.76 per barrel in the previous week.
Shell Suspend Loading in Nigeria
Differentials for Nigerian crude oil were largely steady on Friday as Forcados loadings were paused, while production outages worldwide augured well for the value of deals.
Shell suspended loadings on the crude oil stream after signs of a possible leak on Wednesday. Traders noted the stream, due to load 220,000 bpd in July and slightly more in August, has suffered months of loading problems and viewed the outlook of a speedy resumption as unclear.
Production issues in Kazakhstan, Kurdistan, Libya, and Mexico were seen boosting differentials for competing Nigerian grades in the near future. Still, offers for Nigerian light sweet crude stayed at around dated Brent plus $2 for Bonny Light and Qua Iboe for the second day, traders said. Light sweet Nigerian Escravos was offered for around dated Brent plus $2.50.
#Naira Loses N27 in Organised Market, BDCs Sell Dollar N815