Nigeria’s External Reserves Rise to $40bn

In November 2017, the Governor of the Central Bank of Nigeria at a speech he delivered during dinner of the Chartered Institute of Bankers’ of Nigeria, predicted that the Nation’s external reserves will hit $40bn by January 2018. The Acting Director of Corporate Communications for the Apex Bank reports that on Friday the 5th January 2018, the external reserves did infact hit $40.4bn, which represents a $1bn increase in the value of the external reserves within one month. In a statement explaining the reasons for the steady and consistent rise in the value of the reserves (which is a fiscal buffer established to stabilise the foreign exchange rate between the naira and other major currencies), he says the decision of the Central Bank to restrict access to foreign exchange on 41 imported items has seen a drop of 70% from $5bn to $1.5bn monthly in the amount of currency needed to import these items. He further says that the determination of the apex bank and cooperation of fiscal authorities will lead to further rise in the external reserves.

The Central Bank on Monday in an effort to supply the liquidity wholesale, small and medium scale enterprises need, injected $210m into the Interbank markets. A breakdown of the figures shows that the apex bank supplied $100m to the wholesale interbank market, gave $55m to the invisibles market and another $55m to the small and medium scale enterprises market. The Central Bank has for nearly 12months being pursuing a strategy of exchange rate confluence in the currency markets; An alignment between the official window and the parallel markets. The Central Bank believes that by maintaining ample liquidity, it will edge towards a confluence which will boost the amount of foreign direct investment into the Nigerian economy.

It would be recalled that in November of 2016, the official market dropped to its lowest level yet at 375 to the dollar on the official window and 510 to the dollar on the parallel market window. The Central responded by raising the monetary policy rate to 14% to catch up with an inflation level that was at 18%, it also took an unpopular decision to switch from a fixed exchange rate regime of +-3 naira daily band to a floating exchange rate regime with a room for Central Bank intervention in the event of major market moves. That decision saw the naira gain significantly bringing it back to the current levels of 360-365 for the parallel markets and 306-307 for the official markets, a level it has maintained since January 2017.

Kelvin Emmanuel

About Kelvin Emmanuel

The Oil producing Angola in the Southern part of Africa faces what Nigeria faced 12months ago; a distortion in its exchange rate with a difference between the official markets and the parallel black markets. One dollar through the official window buys you 166 kwanza, while one dollar through the black market buys you 400 kwanza. Nigeria faced the same challenge 12months ago, when the distortion between the official and black markets was as much as the official markets trading at 306 with the parallel market ranging from 450 through to 510. The Central Bank Governor of Angola, Jose de Massano Junior announced in Luanda “We will stop having a fixed foreign exchange, we will adopt a floating regime of foreign exchange”. Angola faces exactly the same challenges and has been applying the exact same responses to an exchange rate crisis like using its foreign reserves that was sitting at $26bn to defend the currency kwanza, with no success so far, even though the external reserves has dropped to $14bn. Angola relies on Oil receipts for 80% of its government revenue, 90% of its inflow and 50% of its GDP. Angola is a $194bn economy that has been growing at an average of 10% on the back of rising oil prices since 2002 when its 27 year old civil war that started in 1975 ended. The state national oil company Sonangol reports that it produces up to 1.8m barrels of crude oil daily, however the government that until now has being led by the family dynasty Jose Eduardo dos Santos until recently when succession saw power transferred to Joao Lourenco, reports that the oil price rout in 2015/2016 that saw prices drop to as low as $28 per barrel caused ripples across the economic structures of the government, upsetting government revenues, its ability to fund its budget, capital project funding, foreign direct investments into the economy as a result of a currency crisis that was driven by the widening of gap between the official and street window of the kwanza, that until now has been pegged in a fixed exchange rate regime to the US Dollar.