Economy

Fragile Balance of Payment Position: Policy Options

Published

6 years ago

21/03/2019

By FSDH Research

The net inflow of money into the Nigerian economy from other countries in Q4 2018 remained fragile and was dominated by oil and gas transactions. Clearly, the Nigerian economy is vulnerable to movements in the oil and gas market.

FSDH Research makes this conclusion based on the latest report of the Central Bank of Nigeria (CBN) on the estimate of Balance of Payment (BOP) position of Nigeria as at Q4 2018. The weak BOP position buttresses the urgent need to create multiple sources of revenue and foreign exchange earnings for Nigeria.

Most countries around the world do business and financial transactions with other countries that require exchanges of money. These transactions are usually carried out by individuals or businesses, or by governments on behalf of their countries. The record of these transactions with other countries is known as BOP and is made up of three major components: Current Account, Financial Account and the Capital Account.

The Current Account is usually the largest component of the BOP and it measures a country’s trade balance plus the effects of net income and direct payments. The Financial Account measures the changes in domestic ownership of foreign assets and foreign ownership of domestic assets. The Capital Account is usually the smallest component of the BOP and it measures the financial transactions that do not affect a country’s income, production, or savings.

In some cases, Capital Account may be added to the Financial Account Transitions.

Just like the financial accounts of individuals and businesses, a country’s BOP could be in a surplus or in deficit. Surplus means the country receives more money from other countries than it pays out. In Q4 2018, Nigeria recorded a surplus of US$2.8million lower than the surplus of US$6.18billion it recorded in the corresponding period of 2017 but higher than the deficit of US$4.52billion recorded in Q3 2018. Between Q3 2018 and Q4 2018, Nigeria was able to reduce its imports and increased its export of goods. The effect of these actions led to a significant reversal of Nigeria’s Current Account balance with its positive impact on the BOP.

As in previous years, the main drivers of exports were crude oil and gas, representing 93.79% of total exports.

The Financial Account balance was in deficit during the period as more investments moved from Nigeria to other countries than they moved to Nigeria. Investments from other countries to Nigeria were dominated by portfolio investments attracted by good return in the financial sector, particularly in fixed income securities.

FSDH Research stresses the need to improve the business environment in Nigeria to attract direct investment. This will create jobs, and ensure foreign currency stability and prosperity of the Nigerian economy.

In the March 2019 edition of our Monthly Economic and Financial Market report entitled ‘Economic Realities: Policy Options’, we discussed strategies to improve the Nigerian business environment. Some of the policies we suggested include: reduction in administrative delays in obtaining licences and approvals, investment in infrastructure through partnership with the private sector, and removal of multiple exchange rate systems.

The CBN report shows that the position of external reserves as at Q4 2018 at US$42.59 billion was enough to cover 13 months of imports. This is higher than the 3 months global benchmark and 6 months West African Monetary Zone (WAMZ) benchmark. This also provides temporary stability for the value of the Naira.

However, the long-term stability of the value of the currency will depend on the ability of the country to generate foreign exchange from multiple sources and to build domestic capacity to save, invest and consume goods and services that are produced locally.

Economy

Okitipupa Plc, Two Others Lift Unlisted Securities Market by 0.65%

Published

4 hours ago

14/12/2024

Adedapo Adesanya

By Adedapo Adesanya

The NASD Over-the-Counter (OTC) Securities Exchange recorded a 0.65 per cent gain on Friday, December 13, boosted by three equities admitted on the trading platform.

On the last trading session of the week, Okitipupa Plc appreciated by N2.70 to settle at N29.74 per share versus Thursday’s closing price of N27.04 per share, FrieslandCampina Wamco Nigeria Plc added N2.49 to end the session at N42.85 per unit compared with the previous day’s N40.36 per unit, and Afriland Properties Plc gained 50 Kobo to close at N16.30 per share, in contrast to the preceding session’s N15.80 per share.

Consequently, the market capitalisation added N6.89 billion to settle at N1.062 trillion compared with the preceding day’s N1.055 trillion and the NASD Unlisted Security Index (NSI) gained 19.66 points to wrap the session at 3,032.16 points compared with 3,012.50 points recorded in the previous session.

Yesterday, the volume of securities traded by investors increased by 171.6 per cent to 1.2 million units from the 447,905 units recorded a day earlier, but the value of shares traded by the market participants declined by 19.3 per cent to N2.4 million from the N3.02 million achieved a day earlier, and the number of deals went down by 14.3 per cent to 18 deals from 21 deals.

At the close of business, Geo-Fluids Plc was the most active stock by volume on a year-to-date basis with a turnover of 1.7 billion units worth N3.9 billion, followed by Okitipupa Plc with the sale of 752.2 million units valued at N7.8 billion, and Afriland Properties Plc with 297.3 million units sold for N5.3 million.

In the same vein, Aradel Holdings Plc remained the most active stock by value on a year-to-date basis with the sale of 108.7 million units for N89.2 billion, trailed by Okitipupa Plc with 752.2 million units valued at N7.8 billion, and Afriland Properties Plc with a turnover of 297.3 million units worth N5.3 billion.

Economy

Naira Trades N1,533/$1 at Official Market, N1,650/$1 at Parallel Market

Published

4 hours ago

14/12/2024

Adedapo Adesanya

By Adedapo Adesanya

The Naira appreciated further against the United States Dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM) by N1.50 or 0.09 per cent to close at N1,533.00/$1 on Friday, December 13 versus the N1,534.50/$1 it was transacted on Thursday.

The local currency has continued to benefit from the Electronic Foreign Exchange Matching System (EFEMS) introduced by the Central Bank of Nigeria (CBN) this month.

The implementation of the forex system comes with diverse implications for all segments of the financial markets that deal with FX, including the rebound in the value of the Naira across markets.

The system instantly reflects data on all FX transactions conducted in the interbank market and approved by the CBN.

Market analysts say the publication of real-time prices and buy-sell orders data from this system has lent support to the Naira in the official market and tackled speculation.

In the official market yesterday, the domestic currency improved its value against the Pound Sterling by N12.58 to wrap the session at N1,942.19/£1 compared with the previous day’s N1,954.77/£1 and against the Euro, it gained N2.44 to close at N1,612.85/€1 versus Thursday’s closing price of N1,610.41/€1.

At the black market, the Nigerian Naira appreciated against the greenback on Friday by N30 to sell for N1,650/$1 compared with the preceding session’s value of N1,680/$1.

Meanwhile, the cryptocurrency market was largely positive as investors banked on recent signals, including fresh support from US President-elect, Mr Donald Trump, as well as interest rate cuts by the European Central Bank (ECB).

Ripple (XRP) added 7.3 per cent to sell at $2.49, Binance Coin (BNB) rose by 3.5 per cent to $728.28, Cardano (ADA) expanded by 2.4 per cent to trade at $1.11, Litecoin (LTC) increased by 2.3 per cent to $122.56, Bitcoin (BTC) gained 1.9 per cent to settle at $101,766.17, Dogecoin (DOGE) jumped by 1.2 per cent to $0.4064, Solana (SOL) soared by 0.7 per cent to $226.15 and Ethereum (ETH) advanced by 0.6 per cent to $3,925.35, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 each.

Economy

Index Gains 0.63% as Value of Nigerian Exchange Crosses N60trn

Published

5 hours ago

14/12/2024

Dipo Olowookere

By Dipo Olowookere

For the fourth consecutive trading session, the Nigerian Exchange (NGX) Limited closed higher on Friday by 0.63 per cent on sustained renewed buying pressure.

Apart from the energy and industrial goods sectors which closed flat, every other sector ended in the green territory, according to data obtained from the bourse.

Business Post reports that the insurance index appreciated by 1.52 per cent, the banking space improved by 0.63 per cent, and the consumer goods counter expanded by 0.46 per cent.

As a result, the All-Share Index (ASI) gained 617.47 points to settle at 99,378.06 points compared with the preceding day’s 98,760.59 points and the market capitalisation went up by 375 billion to close at N60.242 trillion, in contrast to Thursday’s closing value of N59.867 trillion.

The volume of transactions on Customs Street yesterday grew by 11.13 per cent to 544.2 million shares from the 489.7 million shares transacted a day earlier.

The value of transactions increased during the session by 49.30 per cent to N10.6 billion from N7.1 billion and the number of deals went up by 1.93 per cent to 8,464 deals from the 8,304 deals posted in the previous trading session.

The busiest equity for the trading day was Japaul with the sale of 71.7 million units valued at N158.0 million, eTranzact exchanged 70.7 million units worth N477.5 million, Tantalizers sold 57.3 million units for N101.2 million, FCMB traded 33.0 million units worth N297.3 million, and Universal Insurance transacted 27.1 million units valued at N9.6 million.

A total of 36 stocks ended on the gainers’ chart, while 15 stocks finished on the losers’ table, indicating a positive market breadth index and strong investor sentiment.

The trio of Aradel Holdings, Ikeja Hotel and Caverton gained 10.00 per cent each to trade at N550.00, N8.80, and N1.98, respectively, as Africa Prudential rose by 9.87 per cent to N17.25 and Golden Guinea Breweries soared by 9.64 per cent to N8.64.

On the flip side, Austin Laz lost 10.00 per cent to close at N1.62, ABC Transport crashed by 8.00 per cent to N1.15, Royal Exchange slumped by 7.69 per cent to 60 Kobo, Secure Electronic Technology plunged by 5.26 per cent to 54 Kobo, and The Initiates crumbled by 4.26 per cent to N2.25.