Analysis and Reporting by: Tom Okure, Ph.D
Date January 14, 2016
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Nigeria, the largest economy in Africa is facing major economic
and financial challenges as a result of the sustained decline in world oil
prices. Oil on Thursday January 14, 2016 traded at below $30 a barrel for Brent
crude oil compared to $125 to $140 just two years ago. The Naira is losing its
exchange value daily with major world currencies like the pound and dollar. The
nation’s currency, the Naira exchanged at $1 to N300 in the parallel market today
while the government unrealistically continues to peg the official government
exchange rate at $1 to N197.
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| Nigerian Central Bank |
Nigerian policy makers are desperately attempting to diversify
the country’s revenue sources. The
impact of the falling oil prices is reflected everywhere in the economy and the
foreign reserves of the country has fallen significantly to $28.bn. Today, the country’s
foreign reserves is 18% lower than it was one year ago. This foreign reserve
loss is supposedly the largest drop according to the Central Bank of Nigeria since
the central bank began to implement the use of Bank Verification Number (BVN)
in forex trading.
During the festive holiday season in December 2015, the
central bank was forced to close the interbank foreign exchange market on December
21, 2015 in order to conserve forex for an opening on January 4, 2016. This left the parallel market as the main
avenue for forex during the holiday period.
A couple of days ago the CBN announced plans to stop the sales
of foreign exchange (forex) to Bureau de Change (BDC) operators accusing the BDC
operators of causing the draining of scarce foreign exchange reserves of the
country. According to CBN governor, Godwin Emefiele, the BDC’s were profiteering
from the forex market, Irrespective of prevailing official and interbank rates,
and were equally financing unauthorized transactions with foreign exchange
procured from the CBN. Apparently, according to experts, Nigeria is alleged to
be one of the few countries in the world that sells dollars to BDC’s and such practice should
have been stopped a long time ago. The
immediate direct consequences of the CBN action to stop sales of forex to BDC operators
will most likely be an increased pressure on the parallel market which will
increase the exchange rate of dollar to naira even above 300 Naira. ...Read
more
Links:
Nigeria’s external reserves now $29.1bn
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All rights reserved by Inter-Continental Mgt. Systems, Inc (ICMS, Inc). The information included in this publication may not be used, reproduced, transmitted, rewritten or redistributed without the prior written permission of ICMS, Inc.
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