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Expected $6.4bn Inflow Raises Optimism about Naira’s Appreciation

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  • Expected $6.4bn Inflow Raises Optimism about Naira’s Appreciation

The anticipated $6.4 billion inflow to Nigeria from different sources in the next few weeks is expected to boost Dollar liquidity and help strengthen the Naira against the United States currency.

The $6.4 billion inflow is expected to come from three sources.

A breakdown of the aforementioned amount showed that a total of $4.5 billion is expected into the country following the directive by President Muhammadu Buhari to the Ministries of Finance, Budget and Planning, as well as the Central Bank of Nigeria (CBN) to address outstanding issues in securing the loan from the Peoples’ Republic of China.

There is also the balance of the $1 billion African Development Bank (ADB) loan. Of this amount, $600 million had been drawn, leaving a balance of $400 million, which is a potential booster to Nigeria’s forex reserves when it flows into the country.

In addition to this, another $500 million is being expected from the Global Medium Term Note Programme which was issued recently and attached to the $1 billion earlier offered and over-subscribed.

The Chinese loan, which is meant for the procurement of strategic machinery needed to boost agricultural development in the country, has a repayment period of 20 years with five-year moratorium and an interest rate of one per cent per annum.

Analysts believe that the receipt of these loans will boost the armoury of the CBN in bolstering the value of the naira.

They also opine that even without the loan, a combination of oil receipts with price stabilising at between $49 – $55 per barrel, as well as the improved production occasioned by the relative peace in the Niger Delta, would give the CBN some fighting power and enhanced its ability to supply the market with liquidity.

One of the global rating agencies, Moody’s Investors Service also held similar view, saying that Nigeria would easily achieve its target of foreign borrowing in 2017 as improved oil output helps the economy to recover from last year’s contraction, the first since 1991.

“The international financial institutions are ready to support Nigeria,” a vice president and senior analytical adviser for Africa at the ratings company, Aurelien Mali, told Bloomberg.

“As long as its project-based lending, the funding will be available from lenders such as the African Development Bank, and the budget support from the World Bank will come on top of that.”

The federal government had proposed a record N7.3 trillion budget for this year to boost infrastructure investment and help its economy recover from a contraction of 1.5 per cent in 2016, the first such slump in 25 years.

The economy was weighed down by a drop in the price and output of oil, its biggest export, which led to a shortage of dollars.

The government has also been negotiating $1.25 billion in budget support from the World Bank and expects to get the remaining $400 million of a $1 billion credit facility from the African Development Bank, Mali said. It can raise the rest from bilateral and multilateral partners and also from lenders through commercial loans and or even a sukuk bond, he said.

Meanwhile, another global rating agency, Fitch has stated that the regulatory stress test results on Nigerian banks conducted recently highlighted disparities in capital strength across the Nigerian banking sector, with large banks collectively much more resilient to stresses than small ones.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

Oil Posts 2% Gain for the Week Despite India Virus Surge

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Oil prices steadied on Friday and were set for a weekly gain against the backdrop of optimism over a global economic recovery, though the COVID-19 crisis in India capped prices.

Brent crude futures settled 0.28% higher at $68.28 per barrel and U.S. West Texas Intermediate (WTI) crude advanced 0.29% to $64.90 per barrel.

Both Brent and WTI are on track for second consecutive weekly gains as easing restrictions on movement in the United States and Europe, recovering factory operations and coronavirus vaccinations pave the way for a revival in fuel demand.

In China, data showed export growth accelerated unexpectedly in April while a private survey pointed to strong expansion in service sector activity.

However, crude imports by the world’s biggest buyer fell 0.2% in April from a year earlier to 40.36 million tonnes, or 9.82 million barrels per day (bpd), the lowest since December.

In the United States, the world’s largest oil consumer, jobless claims have dropped, signalling the labour market recovery has entered a new phase as the economy recovers.

The recovery in oil demand, however, has been uneven as surging COVID-19 cases in India reduce fuel consumption in the world’s third-largest oil importer and consumer.

“Brent came within a whisker of breaking past $70 a barrel this week but failed at the final hurdle as demand uncertainty dragged on prices,” said Stephen Brennock at oil brokerage PVM.

The resurgence of COVID-19 in countries such as India, Japan and Thailand is hindering gasoline demand recovery, energy consultancy FGE said in a client note, though some of the lost demand has been offset by countries such as China, where recent Labour Day holiday travel surpassed 2019 levels.

“Gasoline demand in the U.S. and parts of Europe is faring relatively well,” FGE said.

“Further out, we could see demand pick up as lockdowns are eased and pent-up demand is released during the summer driving season.”

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Commodities

Lagos Commodities and Futures Exchange to Commence Gold Trading

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With the admission of Dukia Gold’s diversified financial instruments backed by gold as the underlying asset, Lagos Commodities and Futures Exchange is set to commence gold trading.

According to Dukia Gold, the instruments will be in form of exchange-traded notes, commercial papers and other gold-backed securities, adding that it will enable the company to deepen the commodities market in Nigeria, increase capacity, generate foreign exchange for the Nigerian government to better diversify foreign reserves and create jobs across the metal production value chain.

Tunde Fagbemi, the Chairman, Dukia Gold, disclosed this while addressing journalists at Pre-Listing Media Interactive Session in Lagos on Thursday.

He said, “We are proud to be the first gold company whose products would be listed on the Lagos Futures and Commodities Exchange. The listing shall enable us facilitate our infrastructure development, expand capacity and create fungible products.

“This has potential to shore up Nigeria’s foreign reserve and create an alternative window for preservation of pension funds. A gold-backed security is a hedge against inflation and convenient preservation of capital.”

“As a global player, we comply with the practices and procedures of London Bullion Market Association and many other international bodies. Our refinery will also have multiplier effects on the development of rural areas anywhere it is located,” he added.

Mr Olusegun Akanji, the Divisional Head, Strategy and Business Solutions, Heritage Bank, said the lender had created a buying centre for verification of quality and quantity of gold and reference price to ensure price discovery in line with the global standard.

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Crude Oil

Oil Nears $70 as Easing Western Lockdowns Boost Summer Demand Outlook

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Oil prices rose for a third day on Wednesday as easing of lockdowns in the United States and parts of Europe heralded a boost in fuel demand in summer season and offset concerns about the rise of COVID-19 infections in India and Japan.

Brent crude rose 93 cents, or 1.4%, to $69.81 a barrel at 1008 GMT. U.S. West Texas Intermediate (WTI) crude rose 85 cents, or 1.3%, to $66.54 a barrel.

Both contracts hit the highest level since mid-March in intra-day trade.

“A return to $70 oil is edging closer to becoming reality,” said Stephen Brennock of oil broker PVM.

“The jump in oil prices came amid expectations of strong demand as western economies reopen. Indeed, anticipation of a pick-up in fuel and energy usage in the United States and Europe over the summer months is running high,” he said.

Crude prices were also supported by a large fall in U.S. inventories.

The American Petroleum Institute (API) industry group reported crude stockpiles fell by 7.7 million barrels in the week ended April 30, according to two market sources. That was more than triple the drawdown expected by analysts polled by Reuters. Gasoline stockpiles fell by 5.3 million barrels.

Traders are awaiting data from the U.S. Energy Information Administration due at 10:30 a.m. EDT (1430 GMT) on Wednesday to see if official data shows such a large fall.

“If confirmed by the EIA, that would mark the largest weekly fall in the official data since late January,” Commonwealth Bank analyst Vivek Dhar said in a note.

The rise in oil prices to nearly two-month highs has been supported by COVID-19 vaccine rollouts in the United States and Europe.

Euro zone business activity accelerated last month as the bloc’s dominant services industry shrugged off renewed lockdowns and returned to growth.

“The partial lifting of mobility restrictions, the expectation that tourism will return in the near future, and the lure of the psychologically important $70 mark are all likely to have contributed to the price rise,” Commerzbank analyst Eugen Weinberg said.

This has offset a drop in fuel demand in India, the world’s third-largest oil consumer, which is battling a surge in COVID-19 infections.

“However, if we were to eventually see a national lockdown imposed, this would likely hit sentiment,” ING Economics analysts said of the situation in India.

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