Nigeria faces import crisis as reserves hit 13-month low

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Guardianng June 22, 2021 4:30 a.m.

Nigeria faces import crisis as reserves hit 13-month low

• Reserves fall behind South Africa, Egypt, Morocco, Libya• ‘Contract-crude swap robbing economy of rising crude gains’• Low confidence worsening investment outlook Nigeria’s economy could be leaning against the wind as the country’s external reserves fell to a 13-month low last week, tumbling quickly to $30 billion, the level it was between 2015 and 2017.

With a population of 35.3 million, Saudi Arabia’s foreign exchange (FX) reserve per capita is over $12,000 while Nigeria’s is about $169, though the imports of the Arab nation far outweigh that of Nigeria with its 2019 yearly imports standing at $144 billion as against Nigeria’s $55 billion.

Ukeje, a financial and investment expert, noted that “some of Nigeria’s oil outputs are pledged to export-import (EXIM) banks and other state lenders in repayment of infrastructure loans,” while the portion so pledged does not bring in foreign exchange inflow “even as the foreign contractors from the lending countries do not bring money into Nigeria.” The contractors, the ex-CBN banker said, spend the proceeds in their countries of origin, which is part of the reason the bullish crude does not translate to a robust external reserve.

Oil revenue constitutes about 60 per cent of Nigeria’s revenue and 90 per cent of Nigeria’s source of foreign exchange earnings, even though it accounts for just nine per cent of the nation’s GDP.

Nigeria’s romance with a nose-diving foreign reserves began in August 2008 (at a time the country’s import was less than what it is today) when it hit an all-time high of about almost $64.8 billion.

As at last September, India’s holding in external currencies could only cover 17 months’ import, a reason the country’s economists are not impressed with the recent growth in the nominal figure.

The country’s forex reserves continues to trend downwards despite the positive rally recorded in the global crude oil market, with Brent crude currently trading at $73.5 per barrel.

The falling reserves, experts have warned, could leave the country’s embattled economic outlook worse off as the confidence of foreign investors is partly influenced by the size of the reserve.

“The value of the naira and foreign investors’ confidence in the economy is tied to the level of foreign reserves available.

However, reports suggest that India’s oil imports are beginning to pick up after months of lessened activities due to the pandemic’s effect on its economy.

With protracted COVID-19 and other economic risks tailspinning into reduced diaspora remittances and foreign capital inflow, economists have continued to balk at the country’s ability to stabilise the reserves.

“The rise in price in the spot market for oil does not affect Nigeria’s oil revenue because the country sells on contract.

With respective forex reserves values of $54.1 billion and $40.3 billion respectively, South Africa and Egypt, which are Nigeria’s regional economic rivals, are way ahead in nominal terms.

Coming at a time Nigeria is battling with her reserves, India’s hit an all-time high of $605 billion earlier in the month, providing an import cover of about 15 months.

This is largely attributed to the decline in crude oil sales, due to the effect of the COVID-19 pandemic on the buying capacity of India, which is one of the world’s largest importers of oil.

This suggests that the current reserves can only fund six-month imports, which Bode Ashogbon, an investment consultant and economist, said would put enormous pressure on the monetary authority’s capacity to stabilise the troubled naira.

“The main source of forex inflow is earnings from crude oil export held by CBN in foreign reserves supported by diaspora remittances and export proceeds..

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