Godwin Emefiele, CBN governor

By FELIX OLOYEDE

Portfolio investors in Nigeria are having a hard time repatriating their funds due to the paucity of a dollar in the country caused by the coronavirus pandemic, which has crippled global economy and the oil cut agreed by members of the Organisation of Petroleum Exporting Countries (OPEC) and their allies.
The volume of transactions in the Investors and Exporters (I&E) forex window, which is believed to be market-driven, has dipped by almost 90 per cent from this year to $25.17 million as of Friday, July 10 as the Central Bank of Nigeria slowed down in its weekly intervention in the market.
The problem is that the official rate in the market at the I&E window is N387/$, but the reality is that investors cannot get dollars at the price when they want to exit. The real value of the dollar in the market is about N450,” explained Dayo Amzat, of Zedcrest Capital.
He further stated that although the CBN has taken investors whose investment in the fixed income securities have matured the differentials in the exchange rate between when they entered the market and the current market rate is not enough to get the dollar.
“CBN, which is the primary seller of dollars, is not selling dollars aggressively because they do not have enough dollars. They said they want to have a plan to sell dollars to everybody, but we sense that they want the reserves to grow more before they start to sell. They are expecting $1.5 billion from the World Bank, they want that money to come in first,” Amzat added.
The pressure in the Nigerian forex market has forced the CBN to devalue the naira from N306/$ to N360 and then to N381/$ this month, though it claimed it was done in a bid to unify the country’s multiple exchange rate. Also, the naira depreciated to a three-year low of N465/$ on Friday, and it has also weakened from N360/$ on July 2 to N387/$ at the as of Friday as investors scramble for scarce dollars.
“Portfolio investors are reading the impact of this season of uncertainty on the market that the market is in a crisis, meaning that the prospect does not look good to them. So they want to move because the world is a global village. The reading of our economy shows that there is uncertainty,” Marcel Okeke, former Chief Economist at Zenith Bank Plc, consulting economist and public affairs analyst, told BusinessHallmark.
He argued that the drop in oil revenue has compelled the government to ration available dollars while working on the diversification of the economy. The implication is that it sends a signal to existing and prospective investors to run away from this environment because if you want to pull out as an investor, this forex debacle would prevent you,” Okereke added.
He said investors are worried about the state of the Nigerian economy, which indicates that it would not do well in a short while.
Offshore portfolio investment into the Nigerian equity market thinned out by 33.73 per cent from N53.18 billion to N35.24 billion between April and May 2020 as many investors have taken flight to safety due to the slump in the global economy.
Nigeria like many other oil producers has been hit by the drop in oil price, which has seen its external reserves dip by 6.25 per cent to $36.13 billion this year as OPEC+ commit to a 10 million barrels output cut in March.
The country has scaled down production output from 2.1 million barrels per day in 2019 to 1.4 million this year, and oil price now hovers around $40, which has impacted government revenue significantly. The Nigerian government was forced to lower its crude oil price benchmark for the 2020 budget from $30 to $20, having earlier cut it from $57 per barrel. But the new Medium Term Expenditure Framework, MTEF, for the 2021-2023 budget years adopted $40 per barrel benchmark.
The five-week lockdown imposed by the government in March has taken a serious toll on the economy, which made the International Monetary Fund (IMF) project that the Nigerian economy would contract 5.4 per cent this year.
Meanwhile, the economy grew at a slower pace of 1.87 per cent in the first quarter of 2020, compared to 2.27 per cent growth it achieved in December, but experts expect the economy to record negative growth in the second and third quarters of the year and enter another recession, having just recovered from one in 2017.
To alleviate the economic contraction, the government has planned an N2.3 trillion stimulus package to help reflate the economy, though the analysts believe this would have little effect as it seems to becoming too late to stem the economic tumble.
Consequently, President Mohammedu Buhari administration was forced to revise the 2020 budget upward to N10.59 trillion from the N10.33 trillion earlier approved in December.