April 3, 2017
By Kayode Tokede
Nigeria's foreign reserves appreciated by $4.45 billion in the first three months (Q1) of 2017 as the Central Bank of Nigeria (CBN) sustained pressure in bridging the gap between official foreign exchange and parallel market rates.
Statistics on the CBN website at the weekend revealed that the foreign exchange reserves increased by 17.2 per cent to $30.29 billion on March 30, 2017 from $25.84 billion it opened this year.
Specifically, the foreign reserves, for the first time in 2017, hit $30 billion on March 8, though it hovered around $29 billion and $28 billion in February.
The data also showed that between January and February, the reserves increased by $1.47billion or 5.2 per cent from $28.17billion it opened on January 1, 2017 to $29.6billon on February 28, 2017.
In the same vein, the reserves increased by $650.99 million or 2.2 per cent from $29.6 billion to $30.29 billion between February and March.
The growth in the reserves derived majorly from the proceeds of crude oil sales as Benchmark Brent crude oil, according to Nigerian National Petroleum Corporation (NNPC), as at March ending was trading at $52.86 per barrel.
At the Organization of Petroleum Exporting Countries (OPEC), the price dropped by $3.1 to $50.20 per barrel as at March 30 from $53.3 per barrel it opened in January.
It was also indicative that the drop in militancy in the Niger Delta and rising oil exports led to the accretion in the foreign reserves recently.
According to OPEC, crude oil price rose significantly by 47.3 per cent, from $31.37 per barrel at end-December 2015 to $53.3 per barrel by end-December 2016.
But the disruption in the Niger-Delta mounted pressure on Nigeria's external reserves that declined from $29.07 billion in 2015 to $25.84 billion in 2016.
Last week, the apex bank set a new naira rate of N362/Dollar, an 11 per cent increase from the rate set in January, for retail exchange bureaus to sell dollars to customers, thus allowing a N2 profit margin and increasing the amount auctioned to each BDC from $8,000 to $10,000 this week.
Aside the development, the CBN continued its daily intervention of $1.5 million on the spot market and also sold a total of $200 million in 60-day currency forward contracts late last month, in its continued bid to boost liquidity
With the oil market entering 2017 with prices above $50 per barrel, analysts are optimistic about high prices this year.
Experts, however, said the slowdown in foreign exchange allocation to foreign exchange markets by the CBN might have contributed to the reserves' accumulation in recent weeks.
The Chief Executive Officer, Economic Associates, Mr. Ayo Teriba attributed the increase to federal government's intervention in the Niger-Delta region of the country and improvement in global oil prices.
Teriba said, "October last year, the foreign reserves reached the bottom of about $24 billion. But since November last year, it has appreciated steadily on a monthly basis and it has been underpinned by improvement in the global oil prices and improvement in Oil production.
"The federal government deserves credit for both improvement in price and production. The government must be commended for engaging the Niger-Delta nationalist. The outlook of reserve is dependent on stability of oil price and stability of Nigeria's oil production.
"With improved reserves, we have seen the impact on the foreign exchange rate. The gap between the parallel market and official market rates has started closing. As reserves approach $36 billion, Nigeria likely to have adequate foreign exchange supply to meet demand, we might expect the two rates to converge.
"If reserves rise above $36 billion, we might expect the Naira to appreciate. Key variable to focus on is foreign reserve because it shows Nigeria strength to supply foreign exchange. We need foreign exchange to meet supply for the Naira to be stable".
He further noted that Nigeria needed to look beyond oil exports as a source of foreign reserves, but boost foreign investment inflows.
He continued: "Nigeria is currently very closed to foreign investment as many large infrastructure sectors that could be major investment destinations remain under government monopoly. Nigeria needs to break government monopoly across all infrastructure sectors, including rail transportation, power transmission, gas pipelines, oil refining, education and health, among others and take immediate practical steps to open them up to foreign investment now.
"Weaknesses in rail transportation and energy infrastructure makes agriculture, mining and manufacturing uncompetitive in Nigeria. Rebuilding rail transport and energy infrastructure by opening them up to foreign investment now will revive agricultural, mining and manufacturing production and exports in the medium term, and make the Nigerian economy more resilient to global shocks.
"Although the cyclical tide has turned upward to brighten the outlook in 2017, boosting foreign investment inflows and rebuilding nationwide rail transport and energy infrastructure immediately is still required to ensure stability in the future", he further explained.
Also lending his voice, the Managing Director, Financial Derivatives Company Limited, Mr. Bismarck Rewane, said steady oil revenue has been driving the foreign reserves recently.
"When the oil revenue continued to increase, the reserves was expected to appreciate further but my concern is CBN's sustained intervention in the foreign exchange", he said.