IS NIGERIA READY FOR REVIVAL?
THE SLOWDOWN IN NON-OIL GROWTH IS RELATED TO
THE LACK OF DOLLAR LIQUIDITY the peg. These included import restrictions and trading limits on the interbank market, among other measures.
Welcomed FX strategy
As such, the CBN’ s move to a flexible exchange rate regime was welcomed by both local businesses, particularly those reliant on imports, and international investors, who viewed it as a way to boost foreign exchange liquidity and invigorate trading activity.“ This was a very bold move by the central bank. It has helped a lot in terms of restoring confidence in the market,” says Mr Amangbo. Although it had an immediate impact – the naira lost 30 % of its value against the dollar on June 20 – in the intervening weeks, a gap between the official and parallel exchange rates has emerged once more.“ The level at which the foreign exchange market is now operating is not considered to be a sufficient adjustment by some businesses and investors. There’ s a still a gap between the parallel and official rates,” says Abubakar Suleiman, executive director at Sterling Bank. According to research from pan-African lender Ecobank, this reflects a structural mismatch between US dollar supply and demand. Here, the steep drop-off in oil production is playing a big role in diminishing the quantity of dollars in Nigeria’ s economy. By May 2016, production had fallen to about 1.4 million barrels a day( b / d) from an average of 1.8m b / d in the first quarter of the year and 1.9m b / d in the fourth quarter of 2015. At the time of writing more recent data was unavailable, although further production declines were anticipated.“ Given the lack of progress in talks between the government and the Niger Delta militants, we expect production to remain depressed in the second half of 2016. This could further weaken the naira, along with Nigeria’ s balance of payments position,” says Renaissance Capital’ s Ms Mhango.
Liquidity boost
To improve liquidity levels on the interbank market, it will be vital to stabilise and then increase oil production. The government’ s drive to secure external financing in support of a record $ 19.4bn budget, which includes a tripling of capital expenditure, will also provide an indirect boost. In early September, Bloomberg reported that the federal government had agreed to long-term loans with the World Bank, the African Development Bank, China and Japan, though the value of this financing was unclear. Nigeria was expected to borrow about $ 3bn from the World Bank and African Development Bank, following comments made by the country’ s finance minister in June. It is also expected to raise about $ 1bn in Eurobonds before the end of the year.
“ Dollar liquidity remains constrained and
50 Business Times Africa | 2016