Economy
Currency Slump in West Africa Triggers Demand for Dollar Assets
By Aduragbemi Omiyale
The Head of Custody Services for RMB West Africa, Mr Abiodun Adebimpe, has attributed an increase in the demand for Dollar assets in West Africa to a slump in the currencies of countries in the region.
In recent times, most West African currencies, such as the Nigerian Naira (NGN) and the Ghanaian Cedis (GHC), have significantly weakened against the United States currency.
This has been blamed on the Russian-Ukraine war and the lingering impact of the COVID-19 pandemic, as the region relies heavily on importation.
The import-dependent nature of most West African markets implies huge demand for foreign exchange to pay import bills, and due to declining external reserves, the central banks are not able to promptly and adequately meet these demands, forcing businesses and investors to look for dollar assets to mitigate the damage.
Also, most West African economies are commodity-driven, and any development within the global economy that affects the supply and/or demand of commodities imports and exports portends significant currency weakening effects on the economies.
Mr Adebimpe noted in an opinion piece that there is also massive fiscal debt overhang in most West African markets, stressing that one of the effects is the need to borrow from bilateral and multilateral global lenders who demand deliberate local currency weakening by the local authorities by adjusting their official exchange rates accordingly to fight the demand for foreign currencies.
According to him, weaker local currencies make it more expensive and less attractive to convert to hard currencies.
He stated that these factors together have conspired to weaken West African currencies, and the outlook remains negative in short to medium term.
The loss of confidence in the local currencies means that they are no longer considered a stable store of value, he added.
Mr Adebimpe noted that these issues had pushed businesses and investors to hedge themselves and protect the value of their earnings and holdings in fast-depreciating local currencies.
According to him, investments in dollar-denominated securities such as Eurobonds, dollar and other hard currency equities, debt instruments in the form of government and corporate bonds, as well as interest-bearing US treasury instruments, have become the preferred holdings for investors. And demand is expected to grow.
However, he disclosed that most West African governments have started to adjust their official exchange rates and, in some cases, borrow in United States Dollars to shore up their external reserves though it may take some time to materialise.
But he stressed that there is a risk the Naira will continue to depreciate in the next few months because of the major difficulties in turning around through economic reforms in an economy of its size, adding that the expectation of weaker crude oil and natural gas prices will likely continue to pressure the currency.
“There is also the challenge of remittances flow to Nigeria: many companies are no longer supporting these transactions. Most importantly, tech investments which represented a significant increase in foreign direct investments (FDI), have all but reduced drastically.
“As a result of turbulent economic conditions, businesses are increasingly turning to advisors with extensive global know-how for expert advice,” he said.
By Dipo Olowookere
The Nigerian Exchange (NGX) Limited suffered a 0.25 per cent hair cut on Friday after investors offloaded some stocks, including Tantalizers, which topped the losers’ chart.
The company was the worst-performing equity during the session after it shed 9.85 per cent to settle at N2.93, Jaiz Bank lost 9.72 per cent to trade at N3.25, Neimeth declined by 9.45 per cent to N2.49, Dangote Sugar tumbled by 7.76 per cent to N35.05, and Lasaco Assurance shrank by 5.96 per cent to N2.68.
On the flip side, Royal Exchange gained 10.00 per cent to finish at 88 Kobo, Linkage Assurance soared by 9.57 per cent to N1.26, Guinea Insurance appreciated by 9.52 per cent to 69 Kobo, Enamelware inflated by 9.05 per cent to N25.30, and Red Star Express rose by 8.41 per cent to N5.80.
Business Post reports that the market breadth was negative on the last trading session of the week, with 24 depreciating shares and 22 appreciating share, showing a weak investor sentiment.
Apart from the insurance index, which closed higher by 0.12 per cent, and the commodity space, which closed flat, every other sector crumbled.
The consumer goods counter deflated by 1.08 per cent, the banking industry went down by 0.22 per cent, the energy sector fell by 0.18 per cent, and the industrial goods counter retreated by 0.03 per cent.
At the close of trades, the All-Share Index (ASI) decreased by 265.81 points to 105,955.13 points from 106,220.94 points and the market capitalisation dropped N166 billion to end at N66.352 trillion compared with Thursday’s value of N66.518 trillion.
A total of 750.6 million stocks worth N11.1 billion exchange hands in 10,584 deals during the session versus the 341.7 million stocks valued at N16.7 billion transacted in 11,233 deals a day earlier, implying a rise in the trading volume by 119.67 per cent, and a decline in the trading value and number of deals by 33.54 per cent and 5.78 per cent apiece.
Champion Breweries topped the activity chart with 350.4 million units worth N1.4 billion, Tantalizers sold 53.1 million units for N157.1 million, Custodian Investment traded 51.1 million units valued at N1.0 billion, Lasaco Assurance transacted 36.5 million units worth N97.7 million, and Access Holdings exchanged 30.7 million units valued at N723.0 million.
By Adedapo Adesanya
There was a 0.6 per cent decline at NASD Over-the-Counter (OTC) Securities Exchange on Friday, March 14, with the Unlisted Security Index (NSI) dropping 20.44 points to close at 3,363.74 points, in contrast to the previous trading day’s 3,384.18 points and the market capitalisation of the bourse losing N11.81 billion at session to settle at N1.942 trillion compared with the preceding day’s N1.954 trillion.
Yesterday, Okitipupa Plc went down by N30.00 to close at N300.00 per share compared with Thursday’s value of N330.00 per share, Central Securities Clearing System (CSCS) Plc shrank by 31 Kobo to trade at N21.69 per unit versus the previous day’s N22.00 per unit, and Geo Fluids slid by 31 Kobo to trade at N2.84 per share, in contrast the N3.15 per share it was traded a day earlier.
However, FrieslandCampina Wamco Nigeria Plc rose by N2.66 to N38.23 per unit from N35.57 per unit, Afriland Properties Plc expanded by 30 Kobo to N23.20 per share from its previous rate of N22.90 per share, and AG Mortgage Bank Plc increased by 5 Kobo to close at 53 Kobo per unit versus 48 Kobo per unit.
During the session, the volume of securities traded at the bourse fell by 72.6 per cent to 652,237 units from the 3.9 million units recorded on Thursday.
But the value of securities traded went up by 40.5 per cent to N33.1 million from the N23.6 million quoted at the preceding session and the number number of deals increased by 11.7 per cent to 37 deals from 17 deals.
Impresit Bakolori Plc was the most active stock by value (year-to-date) with 533.9 million units sold for N520.9 million, the second position was occupied by FrieslandCampina Wamco Nigeria Plc with 13.0 million units valued at N502.4 million, and the third spot was taken by Afriland Properties Plc with 17.4 million units worth N356.2 million.
The most active stock by volume (year-to-date) was also Impresit Bakolori Plc with 533.9 million units valued at N520.9 million, followed by Industrial and General Insurance (IGI) Plc with 69.9 million units sold for N23.7 million, and Afriland Properties Plc with 17.4 million units valued at N356.2 million.
By Adedapo Adesanya
The Naira recorded its first gain against the United States Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEM) this week on Friday, March 14, firming up by 1.19 per cent or N18.31 to close at N1,522.37/$1 compared with the preceding day’s N1.540.68/$1.
This was supported by the injection of FX into the market by the Central Bank of Nigeria (CBN).
Over the last few sessions, the local currency had depreciate following recent pressures in the market as interventions have failed to ease pressure welling in the market with the country’s foreign reserves losing over $2 billion in the last month.
However, there were fresh injections at the session, which boosted the value of the local currency in the official market.
Equally, the domestic currency appreciated against the British Pound Sterling at NAFEM yesterday by N25.93 to sell at N1,640.20/£1 versus the previous day’s N1,990.13/£1 and improved its value against the Euro by N22.30 to quote at N1,653.78/€1, in contrast to the preceding session’s value of N1,676.08/€1.
In the parallel market, the value of the Nigerian Naira remained unchanged against the US Dollar during the trading day at N1,590/$1.
As for the cryptocurrency market, sellers of risk assets took a breather yesterday, with crypto markets posting sizable gains after risk appetite returned to markets.
Solana (SOL) jumped by 6.7 per cent to trade at $133.10, Ripple (XRP) gained 4.1 per cent to finish at $2.39, Cardano (ADA) went up by 3.8 per cent to settle at $0.7356, Dogecoin (DOGE) rose by 2.5 per cent to sell at $0.1723, Bitcoin (BTC) grew by 2.3 per cent to end at $83,987.28, Litecoin (LTC) added 3.0 per cent to quote at $91.48, Binance Coin (BNB) appreciated by 1.8 per cent to $590.92, and Ethereum (ETH) improved its value by 1.4 per cent to sell at $1,919.80, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 each.
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