Only the Algerian Dinar, down 1.22 percent, has lost more value than the Nigerian naira among the currencies of countries in the Organisation of Petroleum Exporting Countries (OPEC) this year.
The Central Bank’s official naira/dollar exchange rate is down 1.10 percent this year (from N411.95 on January 1, 2022 to N416.5 on February 17). That compares with a 0.9 percent average gain for the currencies of OPEC members, according to Bloomberg data.
It gets worse for the naira when the unofficial rate- which is the more accessible rate- is considered. The naira weakened this week to N577 per USD in the unofficial market, a 3 percent decline compared to the N560 level it was at the beginning of the year.
The currency of Africa’s top oil producer is declining against the US dollar when currencies of the majority of OPEC members are appreciating on the back of the rally in oil prices, worsening the pain of millions of individuals and businesses who need dollars to pay tuition and import raw materials.
Traders expect the naira to come under even more pressure as Nigeria struggles with dwindling dollar inflows even when oil prices are at the highest since 2014.
Nigeria’s low oil production and the small matter of a growing petrol subsidy bill have wiped out the gains of the oil rally while other oil exporting countries are benefitting.
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A senior banking source who did not want to be named said the government is considering issuing a Eurobond before the end of February to shore up the CBN’s ailing foreign reserves.
“There aren’t many options on the table in terms of how we can get dollars in the short-term, so it’s no surprise a Eurobond issuance is coming to the fore,” the source said.
Nigeria was pumping about 1.5 million barrels per day in January according to OPEC data. That’s lower than the country’s OPEC+ quota, which covers only crude oil and not condensates, of around 1.614 million barrels per day.
Nigeria’s petrol subsidy bill is also growing and eating into the government’s already thin dollar earnings. After backtracking on plans to ditch the subsidy regime in June, the government will spend N3 trillion subsidising petrol this year, pushing its budget deficit to nearly N9 trillion and 4 percent of GDP.
The subsidy burden and low oil production means there has been no external reserve accretion for Nigeria despite high oil prices. The external reserves have dipped below $40 billion and now sit at a three-month low.
Also, low capital inflow into Nigeria has not helped. With investors’ weak confidence in Nigeria’s macroeconomy, it is not surprising that they have reduced funds flow into the real sector as well as the capital market. Data from the National Bureau of Statistics (NBS) puts total capital inflow into Nigeria as at the first nine months of 2021 at USD4.51 billion, down 47.6 percent.
The last time the external reserve got a major boost was after inflows from the last Eurobond proceeds and the Special Drawing Rights (SDR) allocation by the International Monetary Fund (IMF) last year.
Nigeria seems to be shifting its attention to non-oil exports to boost its dollar earnings. Currently, non-oil exports are relatively low and account for less than 20 percent of total export earnings.
A non-oil fx programme (RT200) was announced by Godwin Emefiele, Governor of Nigeria’s central bank after the conclusion of February’s bankers’ meeting.
The programme, according to the governor, is targeted at raising USD200bn from non-oil exports over the next 3 to 5 years.
The “RT200 FX Programme” stands for “Race to USD200 billion in FX Repatriation”
With oil receipts – the major source of Nigeria’s fx earnings – under pressure due to evacuation challenges in Nigeria’s oil sector, the governor sees the RT200 as a major route to raising non-oil fx earnings.
“Nigeria needs to boost exports and open up other avenues for dollar inflows if we want the naira to strengthen sustainably,” said Wakeel Ishola, a professor of economics at the University of Lagos.
“We don’t add value to the raw materials we export, we need a shift in mindset to be a production-based economy, rather than purely consumption-driven,” Ishola told BusinessDay.
