Naira Falls Sharply to N1105 at Official Market

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The Nigerian naira fell to a new record low of N1,105 to the U.S. dollar on the official market on Thursday down from N830 at its close on Wednesday, LSEG data showed.

The Nigerian naira fell to a new record low of N1,105 to the U.S. dollar on the official market on Thursday down from N830 at its close on Wednesday, London Stock Exchange Group data showed, Reuters said in a report.

Exchange rates have been swinging negative across the forex market due to the existing US dollar shortage despite FX backlog repayment. Foreign investors’ sentiment has been impacted by past dealing in Nigeria, LSintelligence Associates said in a chat with MarketForces Africa.

Broadstreet analysts’ outlook on the exchange rate after a large official devaluation in June skewed to the downside due to a slowdown in the Central Bank of Nigeria (CBN) market intervention.

This was supported by a lower buffer to keep the exchange rate movement in check. Lately, the external reserve has been on a decline. It had surged for 4 weeks due to increased oil production volume and higher oil prices.

Nigeria Holds No Plan to Defend Naira

Nigeria has no luxury of defending the local currency amidst sharp daily losses in the autonomous foreign exchange market. Although oil prices have continued to trend above the budget benchmark, accretion into external reserves has been limited in 2023.

“One of the major goals of external reserves is to support and maintain confidence for monetary and exchange rate management.

“Conventional rule of thumb to measure reserve adequacy argues that months of import cover should be at least 3”, FSDH said in a macroeconomic update.  Nigeria’s gross external reserve settled at $33.4 billion on Friday, covering more than 7 months of imports.

While the reserves appear strong enough to defend the local currency from freefalling, Nigeria has steep FX related liabilities that have weakened its market intervention capability.

After the Central Bank of Nigeria released its audited financial statements, JP Morgan estimated that net FX reserves could only cover less than one month of imports.

Data showed the foreign reserve has declined successively, from $37.1 billion at the close of 2022 to $33.4 billion on Friday.

Pressure on external reserves is largely a result of higher demand for foreign currency to meet goods imports and service payments, FSDH said. This comes even when there is limited inflows due to weak foreign investors’ confidence about Nigeria’s risk.Afreximbank, APPO to Set Up African Energy Bank

The African Export-Import Bank (Afreximbank) says it is set to inaugurate the African Energy Bank in June 2024 to mitigate the crisis in the African energy sector.

The bank disclosed this during a session on “Africa’s Energy Transition and Financing’’, at the ongoing Inter-African Trade Fair (IATF) 2023 Trade Conference in Cairo, Egypt.

The Energy Bank is expected to champion energy-related projects for the development of the African continent.

The initiative was conceived in 2022 when Afreximbank signed an agreement with the African Petroleum Producers Organisation (APPO).

Both parties are expected to collaborate on the establishment of an African Energy Transition Bank in support of an Africa-led energy transition strategy.

The Director of Client Relations, Afreximbank, Rene Awambeng, said that the bank had partnered with over 700 banks in Africa and its partners to chart a profitable pathway for the African Energy sector.

“In addition to what the bank is doing, with its partners, the management of Afreximbank, working on the sidelines with APPO, has decided to create another agency that will engage in financing the Energy African requirement.

“We are in the final stage of getting all the approvals and it is going to be an organisation set off by treaties.”

“We will have three classes of shareholders, the first will be the African oil-producing countries, national oil companies, and African investors as well as the international investors from all walks of life.

Awambeng said the budgeted share per capital would be five million dollars.

“There will be a process to identify these establishment agreements on the charter to engage in fundraising and commence operations by June 2024.

“The AEB will then be able to help African oil-producing member-states to take advantage of the over 125 billion barrel reserves of oil and that of the over 75 trillion cubit scuff of gas that we have on the African continent.

“This will not only help in raising the much needed foreign exchange from trading, exporting of these resources after they are transformed which again will lead to industrialisation on the continent.’’

He said the bank would be able to improve developed oil assets and develop infrastructure which was more needed in terms of refineries, logistics, pipelines, and building of storage facilities.

“This will help move the equipment and facilities in a more secure way closer to the market and equally develop the capacity building of the people in the energy sector.

“We are looking forward to this new institution as we are working tirelessly with our partners hoping to sell the gap which is glaring in the sector.”

Awambeng noted that the challenges faced in the energy sector were not new, adding that a lot of the International banks had moved away from financing projects in the sector.

According to him, the firepower is not there to meet the 80 trillion dollar requirement from the industry.

“You see sectors like fintech are attracting more money than investment in oil and gas or energy which is critical to the industrialisation of the continent.

“`We have been able to put together all the 700 commercial banks in Africa and the firepower is extremely limited.

“We have severe challenges in supporting the sector, whether in basic trade flow from a continent where we are net importers of products to fuel our industrialisation.

“Other challenges in developing upstream oil and gas projects or logistics support like pipelines, infrastructures, rehabilitation of refineries or building new refineries, and maintaining existing infrastructures around the energy value chain.”

He said the challenges were significant so there was an urgent need to work with the banks’ partners to put in place structures that would help mitigate some of these challenges and meet the requirements.

Awambeng, however, said that working with the bank’s partners which were the development financial institutions, commercial banks and corporations like Oilserv, Oando, Sahara, etc was not sufficient.

Also speaking, Hanna Ryder, Chief Executive Officer, Development Reimagined, frowned at the continent’s low level of energy consumption.

“The current energy access in Africa is below 40 per cent.

“ It’s very bad that a large economy like Africa has less energy access. We need a significant amount of investment in infrastructure like pipelines and power plants etc, to drive the economy.

” We need Afreximbank to finance these sectors and come up with African solutions to African problems and ensure that we come out stronger than where we are at the moment, ” he said.

The Chairman of Oilserv Group, Emeka Okwuosa, emphasised that development in Africa was tied to government support on harnessing its huge gas resources.

Okwuosa said Africa was sitting on huge gas resources that could catapult it beyond the limit if adequately harnessed.

“Yes, we are open to decarbonising. But for the African continent, the fastest means of growing its energy sector and infrastructure is for an intentional development of its gas infrastructure.

“That is the closest energy mix to develop the sector.” Naira Devaluation Deepens Economic Crisis in Nigeria

However, he said the government had a role to play by ensuring adequate support to the energy industries by setting the right policy to drive the agenda.

“Also, Afreximbank will have to do more in ensuring the energy industries are funded adequately to drive this course,’’ Okwuosa said.

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