Economy
Impact of Nigeria-South Africa Trade on NGN and ZAR Exchange Rates
Nigeria and South Africa are two of the largest economies in Africa. Their trade interactions hold a significant influence on the continent’s economic landscape. Notably, their bilateral trade relationship greatly impacts their respective currencies, the Nigerian Naira (NGN) and the South African Rand (ZAR). In this article, we will explore the impact of the Nigeria-South Africa trade on the NGN and ZAR exchange rates. Let’s jump in.
A Brief Look at the Trade Relations Between Nigeria and South Africa
Trade between Nigeria and South Africa has evolved significantly over the past few decades. Historically, Nigeria’s economy has been heavily reliant on oil exports, which account for a substantial portion of its GDP and foreign exchange earnings. Understandably, Nigeria is one of South Africa’s key suppliers of crude oil. In contrast, South Africa’s economy is more diversified, with strong mining, manufacturing, and agricultural sectors. South Africa exports manufactured goods and fruits to Nigeria.
Historically, trade volume has been skewed in favour of South Africa due to the diversity of its exports. However, Nigeria’s oil exports are significant in value and the trade volume is turning in favour of Nigeria. In 2022, Nigeria exported $1.72 billion to South Africa, while South Africa only exported $447 million to Nigeria. Notably, this is one of the biggest factors that impacts the exchange rate between the Naira and the Rand. Let’s take a look at other exchange rate dynamics between the Naira and the Rand.
Exchange Rate Dynamics Between NGN and ZAR
Exchange rates are influenced by a variety of factors. For Nigeria and South Africa, bilateral trade plays a crucial role in influencing the exchange rates of NGN and ZAR. Here is a brief look at how this works.
Trade Balance and Currency Valuation
The trade balance is the difference between exports and imports. It directly impacts the demand and supply of currencies. A trade surplus, where exports exceed imports, leads to higher demand for the exporting country’s currency, thereby appreciating its value. Conversely, a trade deficit can depreciate the currency.
In the context of Nigeria-South Africa trade, Nigeria currently experiences a trade surplus due to its oil exports to South Africa. This surplus increases demand for the Naira, contributing to its appreciation. On the other hand, South Africa’s importation of Nigerian oil increases the supply of Rands in exchange for Naira. This potentially leads to a depreciation of the Rand.
Currency Valuation Policies
Monetary policies set by the Central Bank of Nigeria (CBN) and the South African Reserve Bank (SARB) are critical in managing exchange rates. Their central banks intervene in the market to maintain some degree of control over currency fluctuations. Different monetary policies can influence currency values. For instance, if the CBN adopts a tighter monetary policy compared to the SARB, it could lead to higher interest rates in Nigeria. This can attract foreign capital and lead to an appreciation of the Naira.
Commodity Prices
Nigeria is a major oil exporter, and fluctuations in global oil prices can significantly impact its economy and currency. Higher oil prices tend to strengthen the Naira due to increased export revenues. On the other hand, South Africa is a major exporter of gold and other minerals. The prices of these commodities can influence the Rand. Higher gold prices usually strengthen the Rand.
Political and Economic Events
Political stability and significant economic events in Nigeria and South Africa have a direct bearing on their currencies. Elections, policy changes, and economic reforms can lead to fluctuations in the NGN and ZAR exchange rates. For example, political instability, corruption, and militant activities in oil-producing regions have historically affected investor confidence in Nigeria.
On the other hand, economic challenges, such as power shortages and high unemployment, also affect investor confidence in South Africa. Positive developments, such as successful economic reforms and political stability, can enhance the value of the Rand.
Beyond Bilateral Trade: External Factors
Several external factors can also influence the NGN and ZAR exchange rates beyond the Nigeria-South Africa trade. Here is a brief look at some of these factors:
- Speculative Trading – Currency markets are influenced by traders’ expectations about future movements in exchange rates. Both in Nigeria and South Africa, traders are always exchanging currencies and pushing their value. Notably, brokers with low ZAR minimum deposits and low NGN deposits are popular in these countries.
- Global Economic Conditions – A strong global economy can lead to increased demand for South African manufactured goods, boosting the Rand. Conversely, a global slowdown can have a negative impact.
- Foreign Investment Flows – Foreign investments in Nigeria’s oil sector can strengthen the NGN. Similarly, foreign direct investment (FDI) in South Africa can influence the Rand’s value.
- Market Sentiment – Sentiment about economic prospects in Nigeria and South Africa affects investor behaviour. Positive sentiment, driven by factors such as economic reforms or favourable economic data, can attract investment and strengthen currencies. Conversely, negative sentiment can lead to capital flight and currency depreciation.
Conclusion
Nigeria-South Africa trade presents a multifaceted relationship impacting their exchange rates. For Nigeria, oil exports remain a dominant force influencing the Naira, while South Africa’s diversified economy provides a broader base for the Rand. While the trade structure creates a demand-driven influence, external factors and policy interventions play a crucial role. Nigeria and South Africa will continue to strengthen their trade ties and each will navigate the complexities of the global economy. Either way, their exchange rates will remain sensitive to a multitude of factors.
By Adedapo Adesanya
The duo of Geo-Fluids Plc and Afriland Properties Plc propelled the NASD Over-the-Counter (OTC) Securities Exchange up 0.13 per cent on Friday, January 10.
Investors gained N1.4 billion during the trading session after the market capitalisation of the bourse ended at N1.053 trillion compared with the previous day’s N1.052 trillion, and the NASD Unlisted Security Index (NSI) increased at the close of business by 4.07 points to wrap the session at 3,073.93 points compared with 3,069.86 points recorded at the previous session.
Geo-Fluids added 25 Kobo to its value to close at N4.85 per unit compared with the previous session’s N4.60 per unit, and Afriland Properties Plc gained 24 Kobo to close at N16.25 per share versus Thursday’s closing price of N16.01 per share.
There was a 35.4 per cent fall in the volume of securities traded in the session as investors exchanged 4.3 million units compared to 6.6 million units traded in the preceding session, the value of shares traded yesterday went down by 37.4 per cent to N17.2 million from the N27.5 million recorded a day earlier, and the number of deals decreased by 47.2 per cent to 19 deals from the 36 deals recorded in the preceding day.
FrieslandCampina Wamco Nigeria Plc remained the most active stock by value (year-to-date) with 1.9 million units worth N74.2 million, followed by 11 Plc with 12,963 units valued at N3.2 million, and Industrial and General Insurance (IGI )Plc with 10.7 million units sold for N2.1 million.
IGI Plc closed the day as the most active stock by volume (year-to-date) with 10.6 million units sold for N2.1 million, trailed by FrieslandCampina Wamco Nigeria Plc with 1.9 million units valued at N74.2 million, and Acorn Petroleum Plc with 1.2 million units worth N1.9 million.
By Adedapo Adesanya
The Naira witnessed a depreciation on the US Dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM) on Friday, January 10.
According to data from the FMDQ Exchange, the local currency weakened against the greenback yesterday by 0.12 per cent or N1.80 to sell for N1,543.03/$1 compared with the preceding day’s N1,541.23/$1.
The pressure on the domestic currency came as the access granted to the Bureaux de Change (BDC) operators by the Central Bank of Nigeria (CBN) to purchase FX from the official market through the Electronic Foreign Exchange Matching System (EFEMS) platform prepares to end next week, precisely on January 19.
The CBN had given a 42-day window to the operators to access the platform to help stabilise the Naira in December, and this expires next week.
On Friday, the Nigerian currency tumbled against the Pound Sterling in the official market by N30.78 to sell for N1,889.29/£1 compared with the previous day’s N1,858.51/£1, but gained N5.48 against the Euro to finish at N1,583.81/€1, in contrast to Thursday’s rate of N1,589.29/€1.
As for the parallel market, the Nigerian Naira remained stable against the US Dollar during the trading session at N1,650/$1, according to data obtained by Business Post.
In the cryptocurrency market, it was bearish as the US economy added 256,000 jobs last month, the Bureau of Labor Statistics reported on Friday, topping forecasts for 160,000 and up from 212,000 in November (revised from an originally reported 227,000).
However, the readings came after a number of recent economic reports triggered a broad-market pullback across asset classes such as crypto as investors quickly scaled back the idea of a continued series of Federal Reserve rate cuts in 2025.
Cardano (ADA) fell by 3.6 per cent to trade at $0.921, Solana (SOL) slumped by 2.8 per cent to $185.93, Ethereum (ETH) depreciated by 1.4 per cent to $3,233.27, Litecoin (LTC) lost 1.3 per cent to finish at $103.62, Dogecoin (DOGE) shed 0.5 per cent to sell at $0.3315, Bitcoin (BTC), waned by 0.2 per cent to $94,154.43, and Binance Coin (BNB) went south by 0.1 per cent to $693.30.
On the flip side, Ripple (XRP) jumped by 1.5 per cent to settle at $2.34, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) sold flat at $1.00 each.
By Dipo Olowookere
Profit-takers took control of Customs Street on Friday, plunging it by 0.08 per cent at the close of trading activities.
The sell-offs were across all the key sectors of the Nigerian Exchange (NGX) Limited on last trading session of the week.
The insurance space went down by 1.53 per cent, the banking index depreciated by 0.41 per cent, the consumer goods sector weakened by 0.16 per cent, and the energy counter slumped by 0.08 per cent, while the industrial goods sector closed flat.
At the close of business, the All-Share Index (ASI) tumbled by 79.68 points to 105,451.06 points from 105,530.74 points and the market capitalisation retreated by N48 billion to N64.303 trillion from N64.351 trillion.
Yesterday, investors traded 1.5 billion shares worth N19.4 billion in 12,877 deals compared with the 489.5 million shares worth N13.1 billion transacted in 13,010 deals in the preceding day, indicating a decline in the number of deals by 1.02 deals and a rise in the trading volume and value by 203.14 per cent and 48.09 per cent, respectively.
Wema Bank was the busiest stock with 976.2 million units valued at N9.8 billion, Tantalizers traded 53.0 million units worth 129.6 million, Universal Insurance sold 34.8 million units for N26.8 million, Access Holdings exchanged 33.9 million units valued at N843.8 million, and Nigerian Breweries traded 27.3 million units worth N873.3 million.
The heaviest loss was suffered by Sunu Assurances with a decline of 9.99 per cent to trade at N7.30, Eunisell shed 9.96 per cent to N17.35, SAHCO crumbled by 9.87 per cent to N30.15, DAAR Communications plunged by 9.28 per cent to 88 Kobo, and Sovereign Trust Insurance went down by 7.04 per cent to N1.32.
On the flip side, C&I Leasing gained 10.00 per cent to close at N4.51, Honeywell Flour appreciated by 9.99 per cent to N10.02, Trans Nationwide Express jumped by 9.89 per cent to N2.00, RT Briscoe rose by 9.83 per cent to N2.57, and Secure Electronic Technology grew by 9.46 per cent to 81 Kobo.
Business Post reports that the bourse ended with 33 price gainers and 25 price losers, indicating a positive market breadth index and strong investor sentiment.
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