The former Acting Governor of the Central Bank of Nigeria, Adebisi Shonubi, promised to clear the foreign exchange backlogs within ‘one or two weeks.’
However, two weeks later, the situation remains dire, with forex shortages wreaking havoc on the Nigerian economy.
At the time of Shonubi’s promise, forex backlogs, primarily comprising unmet demands from investors and exporters, amounted to a staggering $10 billion. The most affected were manufacturers and importers relying on foreign currency to purchase finished goods and raw materials from abroad.
Startling data from the National Bureau of Statistics (NBS) revealed that in the first half of 2023, Nigeria spent approximately $6.7 billion on the importation of manufactured goods. Meanwhile, exports of manufactured goods accounted for a mere $285 million during the same period, highlighting the alarming trade imbalance.
In the second quarter, the value of manufactured goods traded reached N3.2 trillion, but only 93% of total trade was exports, amounting to N212 billion. Imports, on the other hand, stood at N3 trillion, translating to $3.8 billion spent on manufactured imports versus just $461 million earned through exports.
This data underscores the nation’s failure to achieve backward integration and promote locally made products.
It also reveals that the forex scarcity plaguing Nigeria is partly self-inflicted due to low productivity and a lack of infrastructure.
The Manufacturers Association of Nigeria reported a concerning decline in capacity utilization, falling from 59% in 2021 to 54.9% in 2023. The report cited difficulties in sourcing forex, which pushed manufacturers to seek local raw materials, albeit at a higher cost.
Unsold inventories also surged, reflecting declining purchasing power, rising inflation, and government policies such as the Naira Redesign.
The situation has been exacerbated by unfavorable macroeconomic conditions, including a cash crunch, high energy costs, and soaring transportation expenses.
Dollar Sees Uptick, But November Nears Steepest Monthly Decline in a Year
Euro Weakens as Weak French Data Fuels Rate Cut Speculation
The euro faced a decline and German government bonds experienced an upswing following disappointing French economic data, intensifying speculations about potential rate cuts by the European Central Bank (ECB).
The euro exhibited a 0.4% weakening against the dollar while ten-year bund yields dropped four basis points, indicating growing anticipation of an earlier initiation of ECB interest-rate reductions in the coming year.
The Stoxx 600 index slightly receded, marking a moderate adjustment to its most impressive month since January. Concurrently, US equity futures maintained stability with minimal changes.
US Treasuries, however, experienced a brief pause in their November rally as investors awaited further signals regarding the potential timing of a shift towards rate cuts in the upcoming year.
The upcoming data on Thursday is projected to demonstrate a deceleration in the personal consumption expenditures price index, the Federal Reserve’s preferred inflation metric.
“The PCE inflation data for October is most likely going to echo what we already saw in the October CPI and PPI reports and add to the soft-landing narrative,” stated Evelyne Gomez-Liechti, a multi-asset strategist at Mizuho International Plc in London.
The French economy contracted by 0.1%, coupled with a decline in November inflation to the lowest level this year.
Markets are now pricing in a quarter-point reduction in ECB rates by April.
Investors are closely watching for signals from Fed Chair Jerome Powell’s speech on Friday, considering it a potential litmus test for market sentiment and the Fed’s stance on monetary policy.
Analysts caution against excessive optimism in the market, urging prudence in evaluating the forward curve and expecting clarity from Powell’s statements later this week.
Dollar Hits Four-Month Low as Rate Cut Speculations Grow
The US dollar extended its decline, reaching the lowest level since early August as swap traders increased bets on a Federal Reserve interest rate cut as early as May.
The Bloomberg Dollar Spot Index registered its fifth consecutive day of losses, reflecting concerns about a potential recession and dovish comments from the Fed that are prompting investors to speculate on a reversal of the central bank’s aggressive tightening cycle.
Global Head of Currency Strategy at Brown Brothers Harriman & Co., Win Thin, emphasized the dollar’s vulnerability, stating, “The dollar remains vulnerable until we see a shift in market expectations for the Fed, and that may be a 2024 story.”
He added, “With the dollar rally stalled, it will take some firm real sector data to challenge the current dovish Fed narrative.”
Amid these developments, the New Zealand dollar led gains among Group-of-10 peers, propelled by the central bank’s warning of potential rate hikes in the coming year.
Simultaneously, the Japanese yen strengthened to a two-month high as concerns about elevated US rates diminished.
The prevailing narrative suggests that unless there is a notable change in market expectations for the Fed, the dollar is likely to remain under pressure, with potential shifts anticipated in 2024.
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