Nigeria Content Online

The declining
external reserve portends significant risk to the value of the naira,
experts have said, as the country continues to be dependent on foreign
exchange from oil sales to lubricate the domestic financial market.

Nigeria’s external
reserves continued its downward trajectory during the second quarter,
with the country’s fallback declining further from $40 billion at end
of first quarter this year to $37billion at the end of second quarter
representing an 8.62 per cent fall.

The reserve stood
at $52 billion and was $42 billion as at end of 2008 and 2009 end,
after reaching $60 billion in July 2008 at the height of the oil price
boom of 2007/2008.

Experts said with
the ensuing challenges and expected increase in forex demand for
imports as year-end approaches, there may be some pressure on the value
of the naira in the near term.

“The striking
thought now borders on how long the external reserves could meet the
higher demand for the naira. The successful creation of a Sovereign
Wealth Fund (SWF) would in the long run provide future streams of
income to serve as alternative source of foreign exchange,” Access
Bank’s Economic Quarterly stated.

“In addition, the
return of low investors’ sentiment regarding the slow pace of recovery
of the global economy, due to the Greek-led sovereign credit default
risk, would likely provide significant risk to the country’s main
foreign exchange earner, as developed countries factors in the downturn
in productive activities. Oil price recently experienced marked
volatility at the international market, with implications for
government revenue.”

Changed foreign exchange outlook

Victor Ndukauba, a
research analyst at Afrinvest, a finance and investment banking firm
said “Apart from (forex) being stable, it even had the potential for
some kind of appreciation, but what has happened over the past two
months has totally changed the outlook of Forex.” He attributed this to
the depletion of the excess crude oil account and other reserves and
rising import demand.

Statistics from the
report by Access Bank states that at the official market, the value of
the naira depreciated against the US Dollar in second quarter when
compared with end of quarter one of 2010 figures, but appreciated at
the interbank market, while it remained stable at N152/$ in the Bureau
de change.

“Naira’s value
declined, albeit marginally, at the official and parallel markets by
0.14 per cent and 0.5 per cent to N148.50/$ and N153/$, respectively
from end of first quarter of the year and appreciated by 3.9 per cent
to N150.05/$ at the inter- bank. In the same period of 2009, the naira
appreciated across all segments of the market, except at the interbank
market where it depreciated by 1.5 per cent. Naira has remained
relatively stable around N150/$, following CBN’s commitment to defend
the currency against volatility,” the report stated.

But the Bureau de
change does not think the naira will suffer the free fall like it did
last year. Over the recent months, the value of the naira has shown
increased convergence across all segments of the market which can be
attributed to sustained high Forex supply and transparency of the
foreign exchange market, amid the Central Bank’s resolve to meet
legitimate Forex demand though its stability is constantly accentuated
by the nation’s dwindling external reserves.

“I do not think it would go up down like it did last year because of
the intervention of the Central Bank. The system of this CBN is very
good, so I don’t think they would allow the Naira to fall like that”
Gali Suleiman Kabiru, the spokesperson of a section of Hausa currency
changers in Marina, Lagos state said.