16 January 2017

Nigeria's Forex Earnings Hit $24 Billion in Third Quarter 2016

Photo: Daily Trust

The federal government aggregate foreign exchange (forex) inflow as at the third quarter of 2016 moved up remarkably to $24 billion, a member of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), Dr. Doyin Salami, has revealed.

This represents an increase by $8.67 billion when compared with the aggregate forex inflow into the economy of $15.33 billion recorded by the country in the second quarter of 2016, as indicated in the CBN's economic report.

But Salami, who said this when he spoke on the outlook of the Nigerian economy in 2017, at the Redeemed Christian Church of God, King's Court Parish, Victoria Island, Lagos, at the weekend, pointed out that the aforementioned amount of forex inflow recorded in the third quarter of last year was paltry, compared with an aggregate of $97 billion earned by the country in 2014.

"In 2014, Nigeria earned $97 billion from export revenue, $90 billion of that was oil. As of third quarter 2016, we were doing $24 billion. Now, even if you pro-rate it and add another $8 billion for the full year, that is just $32 billion and about a third of where we were in 2014.

"When you look at the numbers, foreign portfolio investment which was $16 billion in 2014, was down to less than $2 billion in 2016. So, the inflow of FX has reduced dramatically. On the supply side, inflows are down, but on the demand side, the pressure for forex is still high. That is one of the few challenges that this economy is facing," Salami, who is a lecturer at the Lagos Business School (LBS), Pan-Atlantic University, explained.

He urged the federal government to restore confidence in the economy.

Salami, who stressed that the comments were his personal views and not that of the MPC added: "Nigeria in my view unwisely allowed herself to be exited from the JP Morgan Index. It was very unwise! Given that I sat in some of the meetings and listened to some of the comments, Nigeria really needs to understand that in the global market, it is whoever offers the best terms and best securities that gets it. My view is that currently, Nigeria's policy stance is not aligned to attract capital flows. I don't want to be sentimental.

"In terms of capital flows, if we can encourage confidence in Nigeria, in the policy making of the Nigerian government, then we would be able to attract capital flows. But if we cannot, we would continue this way. 2017 would be driven by the resource allocation mechanism to be adopted by the country. Nigeria has one of the best FX policy that was introduced in June last year, it is just that we haven't implemented it yet.

"As a nation, how we come out of recession is as important as staying out of recession. If we come out of it in a manner that sends us back to it two years down the line, because what we did to come out of it was unsustainable, that would be too bad. If we come out of it in the right way, it is going to be gradual. So, for me I see growth around one and two per cent for 2017. My expectation for inflation in 2017 is going to be around 13 per cent. My hope is that the central bank would be a bit more consistent because last year, those of us responsible for monetary policy managed to speak from both sides of our mouths."

Furthermore, he pointed out that because of the structure of the Nigerian economy, events in the global economy would always influence activities in the domestic market.

According to him, the international environment is no "longer set fair for Nigeria," saying that part of it was our fault and partly because of the fact that things have changed.

"Donald Trump takes over as the U.S. President at the end of next week and in terms of his economics, it doesn't portend the best of time for Nigeria. And this is in three dimensions. Firstly, taxes would reduce and US government spending is going to rise. How does that concern Nigeria? It does concern Nigeria because that means US deficit is likely to rise and US interest rates are likely to rise.

"So, on top of what we were expecting, we are also expecting further rise in US interest rates. If US interest rates rise and we are borrowing internationally, it would be costly. If US interest rates rises, the pressure of further foreign portfolio investments coming in here reduces, the pressure for outflows for Nigeria and other emerging economies increases. So, any which way you look at it is a bit of a problem. A stronger dollar is also not good for oil prices. That is because a stronger dollar makes it more expensive and demand to drop.

"As far as oil is concerned, we have seen a little rally recently and my expectation is that prices would move in a range between $45 and $60 per barrel. Honestly, $60 per barrel is rather on the high side. But three things are Nigeria's challenges as far as oil is concerned: If the Niger Delta is not calm, the likelihood that we would get two million barrels per day of oil is not bright.

"So, we need a calm Delta. And my sense is that the government seems to be re-engaging. But there are two other challenges which are beyond our control. The first is the glut in the crude oil market may strengthen and shale. But we cannot continue to depend on the external environment to support Nigeria."

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