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Hope rises for Naira over positive dollar inflows, as oil output, foreign reserves, others improve 

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Hope rises for Naira over positive dollar inflow as oil output, foreign reserves, others improve 

The nation’s under-performing currency, the Naira, is set to rebound in coming weeks with key economic indicators and positive developments suggesting that the currency is right on the path to recovery.

This projection is premised on several factors, including the sustained  improvement in Nigeria’s crude oil and gas outputs, forex inflows from Nigerians in the Diaspora, foreign investors,  multilateral agencies and development partners.

These factors, BH projects, could help ease the lingering pressure on the nation’s currency, with the under-performing naira expected to recover in the new year.

The naira closed at N1,652.62 on Friday, November 22, 2024 at the Nigerian Autonomous Foreign Exchange Market (NAFEM), marking a 1.71 per cent or N9.89 appreciation from Thursday’s rate of N1,687.52.

The local currency, however, remained largely unchanged against the US dollar in the parallel market on Friday at an average price of N1,725.

It would be recalled that the nation’s currency had faced sustained depreciation throughout 2024, losing over 50% of its value since the start of the year in the official market.

According to an analysis of data obtained from FMDQ Securities Exchange Limited, naira traded at N838.95/$1 back in January 2024.

It breached the N1,500/$1 mark in February, but a brief rally in March saw it recover to N1,300.43/$1 before reaching a record low of N1,690.37/$1 on November 18th.

Meanwhile, BH checks revealed that since July 2024, the naira has remained largely stable, hovering around the N1,630 to N1,690 range, a marginal price fluctuation of N60 in five months.

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Financial experts, who spoke on the development at the weekend, said the naira has been able to stabilize and hold within the N1,600 plus range in the last few months owing largely to some positive factors like the continued rise in Nigeria’s daily crude oil output, steady inflow of forex from Nigerians in the Diaspora, as well as committed/fulfilled forex inflow from institutional, multilateral and development partners.

The experts all agreed that if sustained, these positive trends will ease the lingering pressure on the naira and boost efforts by the Central Bank of Nigeria (CBN) towards  strengthening it.

Naira’s best path to  recovery is largely hinged on the sustained increase in Nigeria’s crude oil and gas output which accounts for over 90 percent of its forex needs.

According to available reports, Nigeria is headed for a near-record oil export revenue in 2024, thanks to oil output rising from 1.25 million barrels per day in June to 1.808million bpd and natural gas production hitting 7.4 billion standard cubic feet per day (bscfd) as of November 11.

Before the new milestone,  Nigeria had struggled to meet its monthly production quota from the  Organisation of Petroleum Exporting Countries (OPEC).

For instance, the nation recorded a low of 900,000 bpd in 2022 despite getting a production quota of 1.8m bpd from OPEC.

Despite OPEC further cutting her oil production quota to 1.58 million barrels per day in November 2023, Nigeria’s oil export earnings continued to experience  sharp drop, forcing the federal, states and local governments to resort to borrowings to balance their budgets.

According to a CBN data, Nigeria’s crude oil export earnings slumped to $12.1 billion in Q2, 2024, down from $12.4 billion in the preceding Q1, 2023.

The drop in oil revenues, the report stated, reflected the decline in domestic crude oil production from 1.33 million bpd in Q1, 2024 to 1.27 million barrels per day in Q2, 2024, a production deficit of 308,000 bpd.

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However, the country has been able to significantly raise oil output after the  administration of President Bola Tinubu declared total war on oil theft and empowered indigenous firms to snap up onshore oil wells left behind by exiting multinational oil companies.

According to available data, Nigeria’s daily crude oil production (including condensates) was 1.502 million in January 2024, 1.472million in February, 1.501 million in March, 1.420m in April, 1.459m in May, 1.459m in June, 1.526m in July, 1.52m in August, 1.665million in September and 1.808million in October 2024.

With Nigeria now able to produce 1.43million barrels per day (excluding condensates) in October, the latest production figure is just 228,000 barrels shy of OPEC’s 1.58million daily allocation.

Based on BH analysis, Nigeria is now producing about 108,000 barrels more than its 2024 budget target of 1.7 million bpd with the current production level currently standing at over 1.8 million oil barrels per day.

In the same vein, Nigeria has a huge advantage over other oil producing nation’s as her premium oil grades are priced higher in the international oil market.

Nigeria’s premium oil grades, namely Bonny Light, Qua Iboe, Nembe, Brass River and Agbami, have largely held their ground above the 2024 budget benchmark of $77 despite the crash of crude oil prices in the international market.

While international crude benchmarks, Brent and WTI, closed at $75.17 and $71.24 respectively at the end of trading on Friday, November 22, 2024, Nigeria’s Brass River and Qua Iboe sold at $77.09 (23 hour delay) and $77.19 (23 hour delay) respectively.

Also, all of Nigeria’s premium oil grades traded at an average price of $78.34 in October, 38 cents above the 2024 budget oil benchmark of $77.96.

Due to price stability and  improvement in production output, Nigeria earned  $141.638.720 million daily on the extra 108,000 bpd produced in October, BH analysis indicated. This translates to $4.249billiion in 30 days.

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Using the exchange rate of N1,400 to $1 the Federal Executive Council (FEC) approved for the proposed  2025 budget of N47.9 trillion, oil produced in the country will fetch N5,949trillion monthly and N71,383,898.88 yearly if current oil production level and prices hold.

While the Federal Government will be getting N37.6trillion of this oil revenue from its own production share of 51%, oil producers, both international and indigenous firms will retain the remaining 49% totalling N33.784trillion.

Despite the milestone already achieved, the Federal Government is not relenting in its efforts to further raise oil output.

The government projects raising 2.06million barrels per day by December 2024. Consequent upon this expectation, the FEC  pegged crude oil production, price and exchange rate rate at 2.06million barrels per day, $75 and N1,400 respectively in the 2025 budget estimates.

Meanwhile, the nation’s economy has continued to receive boost from the accretions, with her foreign reserves reaching a record high of $40.167billion in almost three years and the three tiers of government getting more allocations from the Federation Account (FAAC).

On November 11, data on the nation’s external reserve movements published by the CBN showed that Nigeria’s foreign reserves has increased to $40.167 billion.

The new figure is a significant increase from the $38.3 billion recorded in September 2024.

The reserves have been on an upward trajectory in the last one year owing to the inflow of more forex.

On a year-to-date basis, the country’s reserves surged by 12 per cent, adding $4.03billion to the $33.28billion recorded on September 18, 2023.

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Speaking on the rise in foreign reserves, Governor of the CBN, Yemi Cardoso, attributed it to the policies introduced by the apex bank.

According to the CBN, sources of accretion to the foreign include remittances from  International Money Transfer Operators (IMTOs) from Nigerians in the diaspora and receipts from dollar oil and gas sales.

“These reforms have started yielding positive results, with notable improvements in the FX market and a stabilisation of foreign reserves”, Cardoso said at a recent symposium in Abuja.

BH reliably gathered that the nation’s foreign reserves was majorly boosted by crude oil receipts, with constant monthly inflow into the account standing at over 60 percent.

This improvement, experts in the oil and gas and financial sectors agreed, had helped to stabilize the naira.

According to the stakeholders, it is practically impossible for the country to earn jumbo revenue from oil sales without the effects bouncing off on the economy.

“With the way funds (foreign exchange) are coming into the country from left, right and centre, it will be foolish to bet against the naira right now.

“As you can see, naira has been stable in the last four to five months. Unlike in the past when we saw massive movements in prices, price movements, both appreciations and depreciations are now negligible.

“Things can only get better. What this means is that government now has more forex to offset demands. As demands for forex are met, naira will surely stabilize, even start to appreciate”, declared Tunji Shonubi, the treasury manager of one of the nation’s Deposit Money Banks (DMBs).

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Positives

Apart from the proceeds from oil that’s helping the naira on its tortuous journey to recovery,  inflows from other quarters like diaspora funds, loans and subventions from multilateral institutions and bilateral agreements.

For instance, Diaspora remittances has already surpassed 2023 figure of $19.5 billion, with inflows in the first 11 months of 2024 topping $20 billion, with about 5 weeks  remaining to go in the year.

This feat, money experts explained, is largely traceable to the decision of the CBN to allow international money transfer operators (IMTOs) access the official foreign exchange trading window, NAFEM.

Under the new guidelines which was announced in June, IMTO operators are now allowed to directly access the CBN window or via their Authorised Dealer Banks (ADBs) to execute foreign exchange transactions in the market. With this new policy, IMTOs are now allowed to pay recipients of international transfers at the going exchange rate.

With customers now able to get competitive rates compared to the ones offered by parallel market operators, patronage of the official forex market has tremendously increased, meaning more FX for the CBN to play with.

A transaction agent with one of the IMTOs operating in the country, who did not want his identity disclosed, said their businesses have recorded a major boost since CBN introduced the policy.

According to him, before now, virtually all recipients of foreign exchange from abroad normally withdraw funds transferred to them through IMTOs partners (DMBs), which they then take to the black market to be exchanged because of the wide margins in the old rates.

“This CBN’s initiative is a master stroke. By allowing IMTOs to pay recipients of international transfers at the going exchange rate, the apex bank has cleverly removed the rug from the feet of black marketers.

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“Due to the unification of the multiple FX windows, and the risks inherent in patronizing the black market, many Nigerians, especially the enlightened and educated ones with more funds in their kitty, have gravitated towards the official market for their forex needs.

“The exodus is also helped by the fact that the rates offered by the official and parallel markets have narrowed.

“When the CBN was still operating different exchange windows, rather than take their forex to the banks, people took it to the black market, where they were making as much as N400 more on each dollar sold.

“But the situation is different today. The rates offered by banks and  parallel market operators are now almost uniform, with a differences of just a few naira.

“In some instances, official rates have been higher than rates quoted by the parallel market”, the source stated.

In a recent report, credit rating agency and research firm, Agusto & Co, projected that foreign exchange remittance flows into Nigeria will rise to $26 billion by 2025.

The rating agency noted that remittances from the diaspora have played an increasingly essential role in Nigeria’s economy, serving as an important source of foreign exchange earnings and a catalyst for economic growth and development.

Naira’s expected rebound will also be helped by the flurry of inflows from foreign partners, especially friendly nations, multilateral agencies and financial institutions, the latest been the $5billion trade facility from oil rich Saudi Arabia.

The Presidency, it would be recalled, had announced early November that President  Tinubu’s recent visit to Riyadh, Saudi Arabia,  yielded a $5 billion trade facility to bolster Nigeria’s economic reform program.

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The deal that culminated in pledged fund was reached after President Tinubu met Crown Prince Mohammed bin Salman in Riyadh on the sidelines of the joint Arab-Islamic Summit.

Though, no further details were given on the facility investment deal which has been in the works since the formation of the Nigeria-Saudi Arabia Business Council over a year ago, our correspondent reliably gathered that Crown Prince Mohammed bin Salman decided to personally sanctioned it after President Tinubu publicly called for an immediate ceasefire and a peaceful resolution of the Israel-Palestinian conflict.

While speaking at the summit, BH recalled that the president reiterated Nigeria’s support for a two-state solution, ensuring self-determination and peace for both Israelis and Palestinians, a position championed by the Saudi crown Prince and other Arab leaders at the conference.

It was further gathered that the fund will be used to build infrastructure, as well as develop Nigeria’s oil and gas and agricultural sectors, among others.

However, the most positive factor for the naira may be the end to fuel import by NNPCL, which used to gulp about 50% of available forex on offer, thus crowding out legitimate demands and putting undue pressure on the currency. The oil agency, at the weekend, said no marketer will be allowed to import products except with the certification by Dangote Refinery of the need for such. NNPCL had a week ago said it had stopped importing products and will depend on local refining to supply the nation.

Experts see this as the game changer for the naira and consequently the economy in 2025.

With more positive fundamental developments, such as the the clearing of the FX forward contracts by the CBN, liquidation of NNPCL’s $4.689billion cash call debt owed five of its joint venture partners, namely Mobil Producing Nigeria, Chevron Nigeria Limited, Shell Petroleum Development Company, Total Exploration and Production Nigeria and Nigeria Agip Oil Company, as well as the naira for crude deal with Dangote Refinery, the naira will strengthen further in the coming weeks and months.

Speaking on the matter, a financial expert, Dr. Peju Beckley, said optimistic economic policies by the government and market conditions  may encourage big currency players to back the naira for the long term, pushing it towards a firmer position.

In his own submission, a source in the Federal Ministry of Finance said further rise in crude oil output will have direct impact on the country’s fiscal stability.

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“No doubt, higher gas and crude oil production levels will enhance revenue. Its  significance extends beyond economic metrics. It underpins various government operations.

“It will enable investments in critical areas such as building critical infrastructures such as roads, health facilities, schools, education, as well as boost the value of the naira.

“However, an appreciable drop in production and price can lead to revenue deficits, further straining an already fragile economy, as witnessed in recent years”, the source stated.

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