Economy
Foreign Investors Boost Foreign Exchange Supply
By FSDH Research
The foreign exchange supply into the Nigerian economy received a major boost in the second quarter of 2017 (Q2, 2017) from foreign investors.
According to the data on Nigerian Capital Importation that the National Bureau of Statistics (NBS) released for Q2, 2017, the total capital imported into the country increased to $1.79 billion in Q2, 2017 from $908 million in Q1, 2017.
The capital importation figure in Q2, 2017 represents a growth of 97.34 percent over the figure reported in Q1, 2017 and a growth of 71.98 percent over the $1.04 billion recorded in Q2, 2016.
Cumulatively, a total of $2.70 billion capital was imported into the country in the first half of 2017 (HY1, 2017), representing a growth of 54 percent over the $1.75 billion imported in the corresponding period of 2016.
Looking at the developments in the HY1, 2017 and based on historical trend, our forecast shows that capital importation for the full year 2017 (FY 2017) should increase to $5.82 billion, representing a growth of 11.35 percent over the capital of $5.22 billion imported into the country in 2016.
Although our forecast represents the second lowest figure since 2010, it signifies an improvement in the foreign investors’ perception about the short-to-medium term outlook of the Nigerian economy.
A further analysis of the total capital imported into the Nigerian economy in Q2, 2017 shows that the highest figure occurred in May 2017 ($616.5 million); followed by June ($612.6 million) and April ($563.3 million).
Foreign Portfolio Investment (FPI) was the main driver of the growth in capital importation in Q2, 2017. FPI represented 42.99 percent of capital importation at $771 million; Foreign Direct Investment (FDI) contributed 15.31 percent ($274 million); while Other Investments (Trade Credits, Loans, Currency Deposits, and Other Claims) contributed 41.70 percent ($747 million).
The breakdown of the capital importation by instrument shows that equity investment accounted for the highest portion of both FPI and FDI in Q2 2017. Equity investment accounted for 79.7 percent and 99.9 percent of the FPI and FDI, respectively.
Other sectors that attracted foreign capital in Q2, 2017 are oil and gas, servicing and production/manufacturing.
The initiative of the Central Bank of Nigeria (CBN) to create the Investors’ and Exporters’ Foreign Exchange Window (I&E Window) boosted foreign investors’ confidence in the Nigerian economy and helped to attract foreign capital.
We observed that the monthly average external reserves increased to $30 billion in March 2017, and has not dropped below that level. A combination of an increase in foreign investments in Nigeria, and improvement in crude oil production and price have had positive impact on the country’s external reserves.
Consequently, the CBN has been able to increase the supply of foreign exchange in the various foreign exchange markets, leading to foreign exchange rate stability and appreciation. The equity market has also received a major lift, with the Nigerian Stock Exchange All Share Index (NSE ASI) recording the best Year-to-Date (YTD) performance in three years. In another development, the Consumer Price Index (CPI) report that the NBS released on August 28, 2017 shows that inflation rate (Year-on-Year) dropped marginally to 16.05 percent in July 2017, from 16.10% in June 2017.
This is the sixth consecutive month of decline in the inflation rate in 2017. There was also a further deceleration in the rate of increase in the Month-on-Month inflation rate in July 2017, compared with the rate in June 2017.
The month-on-month change in the Consumer Price Index (CPI) stood at 1.21 percent in July 2017, lower than 1.58 percent recorded in June 2017.
Our forecast shows that the inflation rate will remain in the range of 15.5 percent – 16.2% for the remainder of 2017.
With better policy initiatives and implementation, we believe the Nigerian economy can attract more foreign capital up to the levels attained in the year 2013.
By Adedapo Adesanya
The last trading session of the week at the Nigerian Autonomous Foreign Exchange Market (NAFEX) ended on a negative note for the Naira on Friday, May 15, as it lost N15 Kobo or 0.1 per cent against the Dollar to trade at N1,371.04/$1 compared with the previous day’s N1,370.89/$1.
However, it further appreciated against the Pound Sterling in the same market segment yesterday by N20.77 to close at N1,830.61/£1 versus Thursday’s value of N1,851.38/£1, and gained N7.91 against the Euro to settle at N1,595.07/€1 versus N1,602.98/€1.
At the GTBank FX desk, the Naira lost N2 against the US Dollar during the session to sell at N1,383/$1 compared with the preceding session’s N1,381/$1, and at the black market, it remained unchanged at N1,385/$1.
The Naira is forecast to be broadly stable, supported by Dollar sales by the Central Bank of Nigeria (CBN) amid steady, higher oil receipts, with the market settling into a balance.
Policy direction is also expected to give the market some boost as the CBN said the new edition of the FX market guidelines will deepen liquidity, improve transparency and strengthen confidence in the country’s foreign exchange market.
According to the Governor of the CBN, Mr Yemi Cardoso, the update is due to changing global economic realities, domestic reforms and the need for a more coherent and forward-looking regulatory framework. According to him, the last edition of the FX manual was issued in 2018, making the latest review both timely and necessary.
Meanwhile, the cryptocurrency market plunged into the red zone as rising bond yields hit risk assets across markets, while traders are increasingly betting the Federal Reserve may need to raise rates again. Rising energy prices and resurging inflation could force central banks back into tightening mode.
Cardano (ADA) shrank by 4.4 per cent to $0.2557, Dogecoin (DOGE) slid by 3.7 per cent to $0.1104, Ripple (XRP) depreciated by 3.5 per cent to $1.41, Solana (SOL) crashed by 3.5 per cent to $87.81, and Binance Coin (BNB) slumped by 3.4 per cent to $659.64.
Further, Bitcoin (BTC) declined by 2.6 per cent to $78,547.49, Ethereum (ETH) lost 2.1 per cent to quote at $2,209.19, and TRON (TRX) tumbled by 0.7 per cent to $0.3509, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) traded flat at $1.00 each.
By Adedapo Adesanya
Oil prices gained more than 3 per cent on Friday, after comments by US President Donald Trump and Iran’s foreign minister further dented hopes of a deal.
Brent crude settled at $109.26 a barrel after chalking up $3.54 or 3.35 per cent, and the US West Texas Intermediate (WTI) finished at $105.42 a barrel, up $4.25 or 4.2 per cent. Over the week, Brent has climbed 7.84 per cent and WTI 10.48 per cent on uncertainty over the shaky ceasefire in the Iran war.
President Trump said he was running out of patience with Iran and has agreed with Chinese President Xi Jinping that the Middle East nation cannot be allowed to have a nuclear weapon and must reopen the Strait of Hormuz, which is the waterway where about a fifth of the world’s oil and liquefied natural gas normally passes.
On his part, Iran’s Foreign Minister Abbas Araqchi said on Friday that it does not trust the US and is interested in negotiating only if the US is serious, adding that Iran is prepared to go back to fighting but also prepared for diplomatic solutions.
On the US-China front, while the Chinese President did not directly make a comment on Iran, a statement from the foreign ministry spoke out against the conflict.
Among the deals the market was looking for from the US-China summit, President Trump said China wants to buy oil from the US, also saying he could lift sanctions on Chinese companies that buy Iranian oil.
Iran’s Revolutionary Guards said 30 vessels had crossed the strait between Wednesday evening and Thursday, far from 140 a day that was typical before the war. Two of the 30 vessels that reportedly cleared the Strait of Hormuz earlier this week were tankers, one en route to Japan and the other headed to China.
A prolonged closure of the Strait of Hormuz points toward tighter physical markets, potential refined product shortages, and upward pressure on prices in the coming weeks and months.
Even though the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) announced production increases in recent weeks, traders saw little immediate benefit because many barrels still cannot move efficiently through the Gulf region.
By Adedapo Adesanya
Nigeria received its first credit rating upgrade since 2012 from S&P Global Ratings, driven by improved oil market conditions and the country’s growing ability to refine and export crude locally.
The credit ratings agency upgraded the country’s rating by one notch to B, five levels below investment grade, according to a statement on Friday.
It raised its long-term foreign and local currency sovereign credit ratings on Nigeria to ‘B’ from ‘B-‘ and affirmed its ‘B’ short-term ratings. It also raised its long- and short-term Nigeria national scale ratings on the sovereign to ‘ngA+/ngA-1’ from ‘ngBBB+/ngA-2’.
S&P also cited Nigeria’s decision to liberalise the exchange rate as crucial to the development, and changed the outlook to stable.
The decision also comes as the federal government ruled out the reintroduction of subsidies on refined petroleum products, in order to avoid a return to larger budgetary deficits and drains on foreign currency (FX) liquidity.
S&P projected the general government deficit will widen to over 4 per cent of GDP on average during 2026 and 2027, a year of a general election.
It added that the implementation of reforms to broaden the tax base from very narrow levels is underpinning a steady decline in Nigeria’s debt-to-revenue ratio to 338 per cent in 2026 versus 500 per cent in 2023.
The agency said it could raise ratings over the next two years if fiscal outcomes improve significantly, either due to fiscal consolidation or structurally higher revenue, resulting in lower debt service costs.
It, however, warned that it could also lower the ratings if the implementation of Nigeria’s reform programme, particularly the series of critical steps taken to liberalise the exchange rate in 2023, reverses.
On the oil production forecast, S&P expects 2026 production to average approximately 1.66 million barrels per day, including condensates.
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