NIGERIA’S currency problems have failed to ebb, with the naira on sustained depreciation against the dollar, despite the $3bn Afrexim Bank deal with the Nigerian National Petroleum Company (NNPCL).
On Wednesday August 16, 2023, NNPCL and Afrexim Bank jointly signed a commitment letter for an emergency $3billion crude oil payment loan expected to ease Nigeria’s foreign exchange volatility.
The ICIR reported earlier that the signing raised unanswered questions about the deal, urging the National Assembly to probe further the details, while ensuring Nigeria does not raise grow its depth further.
The Naira currently exchanges at N920 against the American dollar at the parallel market, while it it exchanges for N738.18 at the I & E window.
This depreciation continues against the dollar, despite assurances from the CBN’s Acting Governor, Folasodun Sonubi, after a meeting with President Bola Tinubu on the issue on August 14,2023, that things would improve.
“Mr.President is very concerned about some of the goings in the foreign exchange market,”he said after the meeting.
The meeting with the President has failed to provide the much needed respite for currency problems, with knowledgeable economists stressing the importance of Nigeria exporting more to strengthen the naira.
“We need to export more and earn more foreign exchange.We are hugely an import dependent country and the pressure keeps up on the naira. In fact, market speculators prefer dollar as a store of value for their currency now than the naira,”an economist and a financial consultant, Kalu Aja, said in an organised Tweeter Space event.
The Chief Executive Officer at Cowry Asset Management Limited, Johnson Chukwu, said Nigeria would have to start exporting processed products to improve the value of the naira and revitalise the country’s refineries to check foreign currencies being expended on importing petroleum products and the attendant inflationary push.
Chukwu also said, “Many global currencies have suffered depreciation against the dollar, but it is worse for Nigeria, which is importing petroleum products even as an oil-producing nation.
“What we should do in the medium-to-long term is that we must be a producing economy. We must be a manufacturing hub. If you don’t have quality things to export, then your policy will come under pressure under any crisis. We are basically still exporting crude and importing refined petroleum products.”
The Managing Director/Chief Executive Officer of Financial Institutions Training Centre (FITC), Chizor Malize, corroborated this , saying Nigeria now needs to move from consumerism to production to prevent any form of currency crisis.
To state the least, naira is in free fall once again after a $3 billion loan secured by state-oil company NNPCL that was supposed to inject much-needed dollar liquidity into the foreign exchange market appears to be stalling.
Sources familiar with the $3 billion loan deal say it is now on ice after investors who were supposed to make up the balance of the syndicated loan have now gotten cold feet, leaving only the Afrexim Bank, which can not single-handedly provide all the cash.
The reason for the sudden change of heart has been linked to the country’s worsening finances and apparent desperation to defend the naira.
“Afrexim bank has too much exposure to Nigeria and has reached its single obligor limit & can’t do it alone,” a source familiar with the deal who pleaded anonymity said.
“NNPC is too big a risk so Afrexim bank can’t close the deal without some other investors,” said another source familiar with the deal but not allowed to speak publicly.
It has been two weeks since the deal was first announced and the market has run out of waiting time.
There has been zero accretion to the country’s external reserves since then and, most importantly, the CBN’s dollar supply remains thin.
While the loan deal drags, the naira is taking a beating with the situation threatening to get worse as Nigeria muddles through without a substantive CBN governor to calm the storm.
Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.