Showing posts with label Economy. Show all posts
Showing posts with label Economy. Show all posts

Friday, March 1, 2024

Central Bank of Nigeria revokes licences of 4,173 exchange bureaus

Nigeria's central bank said on Friday it had revoked the licences of 4,173 exchange bureaus that failed to comply with its guidelines and directives, including rendering returns of transactions and payment of required renewal fees within the due period.

The central bank, which resumed dollar sales to exchange bureaus this week, outlawed street-trading of foreign exchange and raised minimum capital levels for exchange bureaus to at least 2 billion naira ($1.3 million) under new guidelines released on Feb. 23.

The moves are part of broader reforms to Nigeria's forex market which has been grappling with chronic foreign exchange shortages.

Central Bank of Nigeria (CBN) spokesperson Hakama Sidi Ali said the licences of the affected exchange bureaus were also revoked due to non-compliance with anti-money laundering and terrorism finance regulations.

"The CBN is revising the regulatory and supervisory guidelines for Bureau de Change operators. Compliance with the new requirements will be mandatory for all stakeholders in the sector when the revised guidelines become effective," Sidi Ali said in a central bank statement. 

By Elisha Bala-Gbogbo, Reuters

Related story: Video - Nigeria detains Binance executives

 

Thursday, February 29, 2024

Video - Bakers in Nigeria threaten shutdown amidst rising production costs



Master bakers across the country contemplate shutting down operations due to escalating prices and excessive taxes. They want the government to bring down the cost of bread production and reduce import duties on baking materials and equipment.

CGTN

Related story: Video - Rising Food Prices spark protests and smuggling in Nigeria

 

Video - Central bank of Nigeria raises interest rate to 22.75%



The interest rate hike is in response to surging inflation which has reached 29.9 percent. The rise in inflation is largely driven by fiscal deficits, rising food prices, a weakening naira, and the removal of a fuel subsidy.

CGTN

Related story: Video - Nigeria inflation hits high of 29.9%

 

 

Wednesday, February 28, 2024

Video - Nigeria inflation hits high of 29.9%



Inflation in Nigeria soared to 29.9 percent in January, the highest mark in nearly 30 years. Food costs, which rose at an average rate of 35.4 percent in the same month, are the main driver of the rising cost of living.

CGTN

Related stories: Video - Rising Food Prices spark protests and smuggling in Nigeria

Nigeria unveils big rate hike as hardship prompts worker protests

 

 

Nigeria unveils big rate hike as hardship prompts worker protests

Nigeria's central bank delivered its largest rate hike in absolute terms in around 17 years on Tuesday to tame soaring inflation, amid nationwide trade union protests over price rises that have left people struggling to meet their basic needs.

Central Bank of Nigeria Governor Olayemi Cardoso said the 4-percentage-point increase to 22.75% was needed as previous rate hikes had not cooled price pressures enough.

Inflation has reached almost 30%, its highest in almost three decades, driven by a steep fall in the naira currency , the removal of a fuel subsidy, fiscal deficits and conflict in food-producing parts of Africa's most populous nation and biggest economy.

Labour unions protesting on Tuesday said two of President Bola Tinubu's key reforms - allowing the naira to devalue twice in less than a year and scrapping the fuel subsidy - were making people's lives a misery.
"We are suffering in Nigeria. It was not like this before. There is real hunger," said fashion designer Surijadeen Idayat at a protest in the capital Abuja.

In a sign of the desperation, a deadly stampede broke out at a food distribution site on Friday, authorities said.

"This was not the situation a year ago. I have to cut down the number of meals in the family," said Ibrahim Mamuda, a 56-year-old resident of the northern city of Kano who said he has twelve children and that they are only eating one meal a day.

Tinubu has defended his bold but unpopular reforms, which he hopes will help him double Nigeria's growth rate to 6% annually from roughly 3% now.

In an effort to ease the pressure on vulnerable households, his government this week approved the resumption of direct cash transfers to those in need.

MAMMOTH HIKE

Tuesday's mammoth rate hike brings Nigeria closer to Ghana, which defaulted on its debts in 2022 and cut interest rates from 30% to 29% in January, and the insurgency-hit Democratic Republic of Congo, which has an interest rate of 25%.

Nigeria's international dollar bonds initially rose as much as 0.5 cents on the dollar as Cardoso spoke, before falling to again trade below their previous closing price.

Capital Economics analyst David Omojomolo said that Cardoso had "stepped up to the plate" by showing greater appetite to tackle Nigeria's inflation problem than the central bank had done previously.

But he said further inflation surprises or naira weakness could force another hike. 

By Chijioke Ohuocha and Elisha Bala-Gbogbo, Reuters

Related stories: Video - Rising Food Prices spark protests and smuggling in Nigeria

Video - Nigeria vows to address rising cost of living amid protests

Tuesday, February 27, 2024

Video - Rising Food Prices spark protests and smuggling in Nigeria



Nigeria is on the brink of a food crisis as skyrocketing prices, exacerbated by smugglers, leave millions struggling to afford basic necessities. The situation has prompted trade unions to call for protests against the government's handling of the crisis. The cost of food has risen by almost 40% in the past year alone, leaving many Nigerians unable to feed themselves or their families. With no end in sight to the crisis, the country is facing an uncertain future.

Al Jazeera

Related stories: Video - Nigeria vows to address rising cost of living amid protests

Video - Nigeria sees hundreds hit the streets over growing crisis

 

 

Friday, February 23, 2024

Video - GDP growth stronger than expected in Nigeria



Data released by Nigeria's National Bureau of Statistics showed that gross domestic product grew 3.46 percent in the fourth quarter of 2023. That pace was quicker than in the two preceding quarters. Analysts credit the growth to increased oil output, and government reforms to boost growth that are finally taking effect.

CGTN

Video - Nigeria vows to address rising cost of living amid protests



The government said it will deploy measures, including greater security for farmers against attacks from armed groups and providing them with better tools to increase production. Protesters are angry at the high rate of inflation, driven largely by high food prices and the government's decision to end a fuel subsidy.

CGTN

Related stories: Video - Nigeria sees hundreds hit the streets over growing crisis

Protests in Nigeria over skyrocketing inflation as local currency hits record low value

 

 

Wednesday, February 21, 2024

Tuesday, February 20, 2024

Protests in Nigeria over skyrocketing inflation as local currency hits record low value

Nigerians are facing one of the West African nation’s worst economic crises in years triggered by surging inflation, the result of monetary policies that have pushed the currency to an all-time low against the dollar. The situation has provoked anger and protests across the country.

The latest government statistics released Thursday showed the inflation rate in January rose to 29.9%, its highest since 1996, mainly driven by food and non-alcoholic beverages. Nigeria's currency, the naira, further plummeted to 1,524 to $1 on Friday, reflecting a 230% loss of value in the last year.

"My family is now living one day at a time (and) trusting God," said trader Idris Ahmed, whose sales at a clothing store in Nigeria’s capital of Abuja have declined from an average of $46 daily to $16.

The plummeting currency worsens an already bad situation, further eroding incomes and savings. It squeezes millions of Nigerians already struggling with hardship due to government reforms including the removal of gas subsidies that resulted in gas prices tripling.
 

A SNAPSHOT OF NIGERIA’S ECONOMY

With a population of more than 210 million people, Nigeria is not just Africa’s most populous country but also the continent’s largest economy. Its gross domestic product is driven mainly by services such as information technology and banking, followed by manufacturing and processing businesses and then agriculture.

The challenge is that the economy is far from sufficient for Nigeria’s booming population, relying heavily on imports to meet the daily needs of its citizens from cars to cutlery. So it is easily affected by external shocks such as the parallel foreign exchange market that determines the price of goods and services.

Nigeria's economy is heavily dependent on crude oil, its largest foreign exchange earner. When crude prices plunged in 2014, authorities used its scarce foreign reserves to try to stabilize the naira amid multiple exchange rates. The government also shut down the land borders to encourage local production and limited access to the dollar for importers of certain items.

The measures, however, further destabilized the naira by facilitating a booming parallel market for the dollar. Crude oil sales that boost foreign exchange earnings have also dropped because of chronic theft and pipeline vandalism.


MONETARY REFORMS POORLY IMPLEMENTED

Shortly after taking the reins of power in May last year, President Bola Tinubu took bold steps to fix the ailing economy and attract investors. He announced the end of costly decadeslong gas subsidies, which the government said were no longer sustainable. Meanwhile, the country's multiple exchange rates were unified to allow market forces to determine the rate of the local naira against the dollar, which in effect devalued the currency.

Analysts say there were no adequate measures to contain the shocks that were bound to come as a result of reforms including the provision of a subsidized transportation system and an immediate increase in wages.

So the more than 200% increase in gas prices caused by the end of the gas subsidy started to have a knock-on effect on everything else, especially because locals rely heavily on gas-powered generators to light their households and run their businesses.


WHY IS THE NAIRA PLUMMETING IN VALUE?

Under the previous leadership of the Central Bank of Nigeria, policymakers tightly controlled the rate of the naira against the dollar, thereby forcing individuals and businesses in need of dollars to head to the black market, where the currency was trading at a much lower rate.

There was also a huge backlog of accumulated foreign exchange demand on the official market — estimated to be $7 billion — due in part to limited dollar flows as foreign investments into Nigeria and the country’s sale of crude oil have declined.

Authorities said a unified exchange rate would mean easier access to the dollar, thereby encouraging foreign investors and stabilizing the naira. But that has yet to happen because inflows have been poor. Instead, the naira has further weakened as it continues to depreciate against the dollar.
 

WHAT ARE AUTHORITIES DOING?

CBN Gov. Olayemi Cardoso has said the bank has cleared $2.5 billion of the foreign exchange backlog out of the $7 billion that had been outstanding. The bank, however, found that $2.4 billion of that backlog were false claims that it would not clear, Cardoso said, leaving a balance of about $2.2 billion, which he said will be cleared "soon."

Tinubu, meanwhile, has directed the release of food items such as cereals from government reserves among other palliatives to help cushion the effect of the hardship. The government has also said it plans to set up a commodity board to help regulate the soaring prices of goods and services.

On Thursday, the Nigerian leader met with state governors to deliberate on the economic crisis, part of which he blamed on the large-scale hoarding of food in some warehouses.

"We must ensure that speculators, hoarders and rent seekers are not allowed to sabotage our efforts in ensuring the wide availability of food to all Nigerians," Tinubu said.

By Friday morning, local media were reporting that stores were being sealed for hoarding and charging unfair prices.
 

HOW ARE NIGERIANS COPING WITH TOUGH TIMES?

The situation is at its worst in conflict zones in northern Nigeria, where farming communities are no longer able to cultivate what they eat as they are forced to flee violence. Pockets of protests have broken out in past weeks but security forces have been quick to impede them, even making arrests in some cases.

In the economic hub of Lagos and other major cities, there are fewer cars and more legs on the roads as commuters are forced to trek to work. The prices of everything from food to household items increase daily.

"Even to eat now is a problem," said Ahmed in Abuja. "But what can we do?"

AP

Related stories: Naira hits record lows, stocks sink

Nigeria's latest devaluation may be 'turning point' in currency reform drive

Authorities in Nigeria Voice Worry as Rising Cost of Living Sparks Protests

Unemployment rate in Nigeria surges to 5% amidst rising cost of living

This information was disclosed in the Nigeria Labour Force Survey (NLFS) report for Q3 2023, released on Monday. Per the NBS, this rate represents a 0.8% increase from the second quarter of 2023, where the unemployment rate stood at 4.2%.

The unemployment rate among men was 4.0% and 6.0 among women. By location, the unemployment rate was 6.0% in urban areas and 4.0% in rural areas. Focusing on young people, the youth unemployment rate was 8.6%.

In Q3 2023, 75.6% of Nigeria's working-age population were employed. When examining the data by gender, the employment-to-population ratio was 77.7% for males and 73.5% for females.

Further disaggregation by location revealed an employment-to-population ratio of 71.1% in urban areas and 80.7% in rural areas.

The report noted that 87.3% of employed Nigerians were predominantly self-employed, while the remaining 12.7% were primarily engaged as employees. 80.3% of employed people in urban areas were self-employed this is lower when compared with 94.5% of employed people in rural areas.

Informal employment

Informal employment in Nigeria and other developing countries seems to be very high when compared to the developed countries.

The percentage of employed individuals engaged in informal work was 92.3%, a slight decrease from the previous quarter's 92.7%. Interestingly, the rate of women involved in informal employment exceeded that of men.

"The rate of informal employment among people living in rural areas was 97.2% while the urban informality rate was estimated at 87.5%. Females are more likely to be in informal employment than males," the report said.

By Adekunle Agbetiloye, Business Insider Africa

Related story: Video - Graduates from Nigeria turn to creating jobs instead of looking for them

Monday, February 19, 2024

Naira hits record lows, stocks sink

The Nigerian naira fell to record lows on both the official and unofficial markets on Monday, while stocks posted their biggest one-day fall in more than a year, as jittery investors sold off local assets.

The currency dropped to 1,712 naira per dollar in late trades on the official market and to around the same level on the unofficial market after extending losses.

Africa's largest economy has been experiencing crippling dollar shortages that have pushed its currency to record lows, though central bank Governor Olayemi Cardoso has said that foreign exchange liquidity is improving.

The latest fall on the currency and stock markets comes after data showed on Thursday that the country's inflation rate had accelerated further in January, reaching almost 30% in annual terms, driven by soaring food costs.

"Without policy moves in sight to rein in inflation, the naira will continue to devalue simply on a purchasing power basis. There are also risks that it could further deter foreign investors, given the increasingly negative real yield found in Nigerian debt securities," said Kyle Chapman, FX markets analyst at London-based Ballinger & Co.

Stocks on Nigeria's All-Share Index fell 3.15% on Monday after banking, consumer goods and industrial shares dropped, to post their single biggest fall since Oct. 2022.

Heavyweight Dangote Cement and MTN each fell the maximum 10% allowed on the bourse, to help drag the index to 102,395.21 points.

Stocks had been acting as a hedge against inflation for investors.

Cardoso has hiked open market rates to draw investors to bills which had lost their shine to equities as inflation climbed, but treasury rates still lag the benchmark policy rate and the fall in the naira means yields would have to rise further. 

By Chijioke Ohuocha, Reuters

Related stories: Nigeria's latest devaluation may be 'turning point' in currency reform drive

Video - Nigeria caps foreign exchange position for banks

Thursday, February 15, 2024

Nigeria to clear debt, fix gas shortages in plan to end power woes

Nigeria plans to fix its chronic power woes by settling outstanding debts of about $2.16 billion to energy producers and tackling gas supply shortages to generating firms, the power minister said on Wednesday.

Africa's largest economy has 12,500 megawatts of installed capacity but only produces about a quarter of that, forcing households and businesses, including manufacturers to resort to diesel and petrol generators.

Power Minister Adebayo Adelabu told reporters on Wednesday that outstanding debts, inadequate gas supplies and ageing equipment were the key barriers hampering optimal power output.

Adelabu said power generators are currently owed 1.3 trillion naira ($858.65 million), in addition to a $1.3 billion legacy debt from a decade ago.

"Part of preparation to turn around and transform the sector is the settlement of existing outstanding debt obligations to the gas supply and power generation companies using partly cash payments and guaranteed debt instruments," he said.

Last week, Adebalu proposed a naira payment for gas sales to power plants as a solution to solve dollar shortages as costs are expected to balloon after a second currency devaluation in less than a year.

Natural gas is sold in dollars to power plants because investments tied to building gas processors and pipelines are priced and paid for in dollars.

Grid power is erratic in Nigeria, Africa's most populous nation. The grid collapsed on Feb. 4, causing a national blackout, and at least three times in 2023, which authorities blamed on technical problems. 

By Camillus Eboh, Reuters 

Related stories: Video - Nigeria suffers from most power cuts in the world

Video - Nigeria grapples with higher electricity prices amid supply constraints

Wednesday, February 14, 2024

Video - Nigerians adopt unbanked saving system amid mounting economic challenges



Thrift saving, commonly known as Ajoo in Nigeria, is deeply ingrained in the country's informal community culture. Participants contribute a fixed amount every month. The entire sum is then handed to one member until the cycle completes, empowering them to pursue their financial aspirations without going through the bank.

CGTN

Related story: Video - Inflation, shortage of foreign exchange causing multinational firms to leave Nigeria

 

 

Friday, February 9, 2024

Nigeria to propose naira payment for local gas sale

Nigeria is proposing for gas producers to sell gas to local power plants in naira to solve problems of dollar shortages after a second currency devaluation in less than a year is expected to balloon costs and make it hard for firms to pay.

Nigeria has 24 gas power plants with a combined output capacity of 11,434 megawatts, but it only delivers around a third of its capacity to the grid due to issues with gas supply.

"Proposing domestic gas payment in naira is a key step toward stability, aligning with our economy's needs and promoting sustainable energy production," Power Minister Adebayo Adelabu said in a post on X.

Adelabu added that he plans to create legislative measures that will mandate naira payments for domestic gas supply.

Natural gas is sold in dollars to power plants because investments tied to building gas plants and pipelines are priced and paid for in dollars.

However, local operators have had difficulties making dollar payments since a currency crisis which has seen the naira lose significant value. The currency weakness is expected to force the price of gas in the domestic market sharply higher.

Nigeria has proven gas reserves of 206 trillion cubic feet which it has struggled to tap due to capital constraints. The government hopes it can fix the challenges by switching to naira payments and capping dollar prices.

The Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), the local gas regulator, has asked producers to keep gas prices at $2.18 per million British Thermal Units (MMBtu) as per agreement with unions three-years ago. 

By Isaac Anyaogu, Reuters

Related stories: No More Dollars: Banks in Nigeria to Pay Customers' Money from Abroad in Naira

Video - Nigeria caps foreign exchange position for banks

 

Naira at record low despite improving FX liquidity

Nigeria's naira dropped to a record intra-day low against the dollar on Friday, LSEG data showed, following a devaluation last week, its second adjustment in less than a year, despite the central bank saying liquidity was improving.

Central bank governor Olayemi Cardoso said on Friday that over $1 billion had come into the economy in the last few days to buy Nigerian Treasury bills after it auctioned one trillion naira ($678.60 million) worth of notes that were oversubscribed.

He told lawmakers on Friday that the measures taken by the bank to improve dollar supply have tamed currency volatility. But he added that forex demand had to be moderated for these measures to be sustainable.

The central bank this week hiked open market rates to 19% from under 12% to draw investors to bills which had lost their shine to equities as inflation climbed to a nearly three-decade high and lagged behind the benchmark policy rate of 18.75%.

It also scrapped caps on interbank forex spreads.

"These measures, aimed at ensuring a more market-oriented mechanism for exchange rate determination, will boost foreign exchange inflows, stabilize the exchange rate, and minimize its pass-through to domestic inflation," he said.

Africa's largest economy has been experiencing a crippling dollar shortage that has pushed its currency to record lows in recent weeks, though Cardoso has said that dollar liquidity was improving.

The official naira exchange rate last week plunged to as low as 1,531 per dollar from 900, well below black market levels, after the market regulator changed its closing rate calculation methodology, in a de facto devaluation.

The naira fell to as low as 1,540 intra-day on Friday, dropping lower than the 1,449.27 naira quoted on the unofficial parallel market.

The central bank is due hold its first rate-setting meeting under Cardoso on Feb. 26, six months after the last one, with several analysts expecting the bank to tighten rates by at least 200 basis points to 20.75%.

"Indeed, they (central bank measures) have already started yielding early results with significant interest from foreign portfolio investors that have already begun to supply the much-needed foreign exchange to the economy," Cardoso said. 

By Chijioke Ohuocha, Reuters

Thursday, February 8, 2024

NNPC has no plans to raise petrol prices after devaluation

Nigerian state-oil company NNPC said on Thursday it has no plans to raise petrol prices after a second devaluation of the local naira currency in less than a year, following speculation that it could increase prices to recover some of its import costs.

The official naira exchange rate last week plunged to as low as 1,531 per dollar from 900, well below black market levels, after the market regulator changed its closing rate calculation methodology, in a de facto devaluation.

The official rate had been drifting towards parallel market levels as forex shortages funnelled demand to unofficial sources.

The Nigerian National Petroleum Corporation (NNPC), -- the sole importer of petrol because local private firms are unable to obtain foreign currency -- urged Nigerians to disregard the speculation about price rises, adding that "there are no plans for an upward review of the (petrol) price."

Petrol prices have not budged since last July when President Bola Tinubu scrapped a popular but costly fuel subsidy and lifted restrictions on currency trading which more than tripled petrol prices.

This was a move the president hoped would revive sluggish economic growth, but the reforms pushed inflation to a nearly three-decade high in December, worsening a cost of living crisis.

Tinubu has been under pressure from unions to offer relief to households and small businesses after he scrapped the subsidy that kept petrol prices low but cost the government $10 billion in 2022.

The president has said he was aware of the hardship caused by removing the subsidy and was monitoring the effects of the exchange rate and inflation on gasoline prices, adding that he would intervene if and when necessary.

Nigeria's main unions on Thursday gave a two-week ultimatum to the government to meet demands ranging from a wage increase to improved access to public utilities among others, and said it regretted government's failure to uphold pledges to cushion the effects of reforms. 

By Camillus Eboh, Reuters

Wednesday, February 7, 2024

Authorities in Nigeria Voice Worry as Rising Cost of Living Sparks Protests

Nigerian authorities say they are worried after hundreds of people took to the streets of central Niger state and northwest Kano state Monday to protest the rising cost of food.

Finance Minister Olawale Edun, speaking in Abuja on Monday during a meeting with a visiting German delegation, said the government is concerned about the surge in prices and working to fix the problem.

He blamed the recent increase in food prices on rising demand, saying the only way to address the situation is to boost agricultural production.

"The president has intervened in that sector to provide grain, fertilizers to farmers and to bring rice, wheat, maize, and cassava under additional acreage, additional production in order to increase the output and thereby bring down prices and that will help bring down the inflation," Edun said.

Police authorities in the Niger state capital, Minna, said they dispersed the protesters using "minimum force," but the demonstrators threatened to reconvene.

For months, Nigerians have complained over the state of the economy, which has remained sluggish amid the government's reform policies.

President Bola Tinubu announced bold economic reforms last May, including the scrapping of subsidies on fuel and the floating of the national currency, the naira.

Authorities say the policies will help restore Nigeria's economy in the long term, but acknowledged that there will be challenges.

Economic analyst Isaac Botti agreed.

"I feel that it will take some time, policies don't yield results immediately," he said. "When we look at some of the programs and policies that the government is rolling out, within the next six months, if they're truthful with their plans, Nigeria should see some changes. Within the next six months, if government is able to achieve its benchmark on local fuel production, it will bring down the cost of goods and services, transportation."

In December, inflation reached a 27-year high, triggered by the rising cost of food items, a side effect of the increase in fuel prices.

Nigeria's economy is heavily dependent on proceeds from oil sales. But for years, the country has struggled with massive crude oil theft. The country's four refineries are moribund, and so it also relies on imports of fuel and other petroleum products.

On Tuesday, Tinubu's ruling All Progressives Congress party said in a statement that the administration was "solidly committed to doing everything in its power to mitigate the transient pains of reforms that are crucial to economic recovery."

Felix Morka, the national publicity secretary of the APC, said: "This is a mono product economy for a population of over 200 million people. We can't simply put all of our eggs in the basket of crude oil sales, especially when we're not able to sustain the kind of productive levels that can support our economy and our naira. To come out of the situation we're in for a more sustainable future requires also some level of endurance. At the end of the day, the benefits of reforms will far outweigh the transient difficulties."

Nigeria is working to resume local refining of fuel. In December, authorities announced that all four refineries will undergo rehabilitation to restart operations by the end of 2024.

Experts say if that happens, it will address Nigeria's problems significantly.

By Timothy Obiezu, VOA 

Related stories: Central bank of Nigeria to replace policymakers as shakeup continues

Video - Expectant mothers in Nigeria turning to home births amid high cost of maternal Care

Tuesday, February 6, 2024

Nigeria's latest devaluation may be 'turning point' in currency reform drive

Nigeria's second currency devaluation in less than a year and new forex rules suggest the central bank is gearing up to let the naira float freely, but a huge backlog of orders for dollars and low liquidity may stall reform momentum, investors and analysts said.

Foreign investors in particular will need more convincing that Africa's biggest economy is finally ditching the controls that have for long distorted its currency market, making the country of 200 million people less attractive to foreign capital.

The official naira exchange rate last week plunged to as low as 1,531 per dollar from 900, well below black market levels, after the market regulator changed its closing rate calculation methodology, in a de facto devaluation. The official rate had been drifting towards parallel market levels as forex shortages funnelled demand to unofficial sources.

Also last week, the Central Bank of Nigeria (CBN) announced limits on how much banks can hold in foreign currencies and eased rules on international money transfer operators, allowing them to quote the naira at prevailing market rates.

"You could call this a turning point," said Kyle Chapman, FX markets analyst at London-based Ballinger & Co.
"Now that there is no longer a more favourable (exchange) rate, the lack of incentives to take part in the official markets may turn into a tipping point that sees a true free float emerge if the central bank does not intervene," Chapman added.

Nigeria is struggling with a record amount of government debt, high unemployment and power shortages that have contributed to years of anaemic economic growth. Oil output is shrinking, and rampant insecurity means swathes of the countryside are outside government control.

In his first days in office last year, President Bola Tinubu scrapped a costly fuel subsidy and lifted some forex controls.

But the reform drive appeared to lose steam as the naira continued to weaken without central bank intervention.

Andrew Matheny, senior economist with Goldman Sachs, said the latest devaluation made the naira look "cheap."

"This makes foreign portfolio inflows potentially appear attractive, however only in the circumstance that other aspects of monetary policy come together," said Matheny.

These include ending financing the budget deficit through central bank overdrafts, which increases the money supply and helped propel inflation to 28.92% in December, the highest level in nearly three decades.


FOREX BACKLOG

Years of forex controls have created pent-up demand for dollars while the country struggles to raise its production of oil, its single largest export earner.

Foreign currency shortages have created a large backlog of unpaid dollar transactions, which the CBN last year put at nearly $7 billion.

On Monday, CBN governor Yemi Cardoso told broadcaster Arise TV that $2.2 billion remained outstanding and that $2.4 billion would not be honoured after an audit found irregularities.

Goldman put the backlog at $12 billion, which has kept foreign investors away due to worries they will not be able to take their money out.

"The economy is severely starved of dollars. The (forex)injections so far appear to have not made a dent," said David Omojomolo, Africa economic at Capital Economics.

"The FX backlog to my knowledge is still large, and the pronouncements that it will be cleared 'soon' made for months now appear to encourage speculation rather than stabilisation."

The CBN will later this month hold its first monetary policy meeting since last July and it is under pressure to deliver a big hike in its benchmark interest rate from the current 18.75%.

"For us to take a more active position in the local currency market we would still need greater clarity on the direction... and exactly how they're going to support the operations on the forex side with ... the monetary policy side," said Yvette Babb, a hard and local currency debt portfolio manager at William Blair.

The central bank's one-year treasury bill, for example, was selling at 17% while the government's bill sold at 11% as the government seeks to keep its borrowing costs low.

As long as big downside risks to local bond prices remain due to the unanchored nature of short-term yields with regard to the policy rate - reflected in the significant gap between the two - foreign investors will avoid local debt, said Gergely Urmossy, emerging markets strategist at Societe Generale.

"To restore the anchoring role of the policy rate, the CBN will have to deliver money market reforms," Urmossy said.

By Macdonald Dzirutwe, Reuters

Related story: Video - Nigeria caps foreign exchange position for banks

Friday, February 2, 2024

Video - Nigeria caps foreign exchange position for banks



Nigeria's central bank has announced limits on how much banks can hold in foreign currency. The move comes after the apex bank expressed concern about the growth of forex exposure on the balance sheets of commercial banks. The naira has tumbled against the U.S. dollar affecting dollar-denominated sovereign bonds that have suffered sharp falls.

CGTN