Experts of investment banking are not seeing any respite for the weak Naira in the near term as the Central Bank of Nigeria (CBN) foreign exchange intervention tumble 28% last week.
This is even coming as Nigeria records unfavourable trade position with a trade deficit of around N4.00 trillion in the first quarter of this year due to increased importations despite scarce foreign currency inflow into the economy.
This negative trade position implies an outflow of dollar for the country as the monetary policy authority struggle to keep ailing Naira strong in the currency market.
While current data shows that foreign trade jumps 6% to about N10 trillion, importations accounted for 70% of total international trade in the period.
Analysts say the unfavourable trade report stem from increased demand for imported items amidst low exports apart from crude where Nigeria earned foreign receipts.
In the last 12 months, total imports saw a meteoric jump of more than 50% while exports positions still remain weak as government strives to raise performance of non-oil segment.
National Bureau of Statistics (NBS) says foreign trade in goods report, total merchandise trade stood at exactly N9.757 trillion representing 6.99% increase in the first quarter.
It pointed out that the 6.99 percent was an increase over the value recorded in the last quarter of 2020 and by 14.13 percent compared to the value recorded in first quarter of that year.
The report says the export component of the trade stood at N2.907 trillion, representing 29.79 percent of the total trade while import was valued at N6.850 trillion representing 70.21 percent.
The data agency explains that the higher level of imports over exports resulted in a trade deficit in goods of -N3.943.45 trillion.
Adding, it said the value of crude oil export stood at N1.929 trillion representing 66.38 percent of the total export recorded in the first quarter, while non –crude oil export accounted for 33.62 percent of the total export.
In its breakdown, NBS said the value of total imports rose by 15.61 percent in first quarter compared to the fourth quarter, 2020 and 54.30 percent compared to first quarter, 2020.
The value of imported agricultural products, according to NBS, were 18.37 percent higher in first quarter than in fourth quarter, 2020 and 140.47 percent higher year on year.
”The value of raw material imports fell by 6.50 percent in first quarter compared to fourth quarter, 2020 but increased by 109.29 percent compared to first quarter, 2020.
”The value of solid minerals imports was 36.97 percent higher in Q1 than in fourth quarter, 2020 and 59.26 percent more than its value in first quarter, 2020.
”The value of energy goods imports was 34.39 percent in Q1, higher than in fourth quarter, 2020 and 1,346.72 percent higher than the value recorded in first quarter, 2020”, NBS says.
The report states that the value of imported manufactured goods grew by 18.47 percent in first quarter, against the value recorded in Qfourth quarter 2020 and 69.70 percent against its value in first quarter, 2020.
The value of other oil products imported in first quarter, was 19.02 percent more than its value in fourth, 2020 but 15.76 percent less than the corresponding quarter of 2020, it said.
For exports, NBS says its value in first quarter, decreased by 8.99 percent against the level recorded in fourth quarter, 2020 and 29.26 percent compared to first quarter, 2020.
It said the value of agricultural exports increased by 128 percent in first quarter, compared to fourth quarter, 2020 and 0.1 percent compared to first quarter, 2020.
”The value of raw material goods exports in first quarter, was 9.0 percent lower than the value in fourth quarter, 2020 and 6.7 percent lower than the value recorded in first, 2020.
“The value of solid minerals exports increased by 107.2 percent in first quarter, against fourth quarter 2020 and 481.7 percent against the corresponding quarter in 2020.
“The export of energy goods increased in value by 16.3 percent in first quarter compared to fourth quarter 2020 and 18.1 percent compared to first quarter, 2020”, the report said.
NBS says the value of manufactured goods exports rose by 94 percent in first quarter compared to fourth quarter 2020 but decreased 43.7 percent, compared to first quarter, 2020.
According to the report, the value of crude oil exports in first quarter decreased by 23.5 percent compared to fourth quarter, 2020 and 34.5 percent compared to first quarter, 2020.
It also said the export value of other oil products increased by 25.5 percent in first quarter compared to fourth quarter, 2020, and rose marginally 0.1 percent compared to first quarter, 2020.
However, in separate reports on the foreign exchange market, analysts’ consensus remains that the apex bank’s market intervention has dropped significantly while demand maintains an uptrend.
This is happening at the time when the monetary authority, at a meeting with Nigerian deposit money banks’ directors, said it will increase dollar supply to meet eligible customers’ demand.
A key problem facing the Naira in the currency market has been the rising demand for foreign currencies while inflow into the economy has been limited.
Monetary policy authority has been fighting to keep Naira safe but a low war chest due to weak external reserves remains an issue to contend with.
This has brought about various initiatives include Naira4dollar payment on remittances. However, Naira still gasps for breath from the onslaught of arbitrageurs in the black market.
The CBN intervention in the Investors and Exporters Window has dropped below the pre-pandemic level, analysts reiterated in their separates reports. However, lower foreign exchange supply amidst increased demand for foreign currencies continues to force pressure on the local currency.
In a report, analysts at Chapel Hill Denham maintained a position that they do not foresee any respite in the near term until the Central Bank engineers further devaluation or increase its foreign exchange intervention or both.
Foreign exchange supply to the investors and exporters (IEW) window nosedived strongly amidst low inflow into the external reserves.
Despite this low-level liquidity in the space, Naira gained at the window amidst ongoing arbitrage activities in the parallel market with widening spreads on the exchange rate.
Commenting on the supply position, analysts at Chapel Hill Denham said, unlike the prior week, liquidity at the Investors window worsened, declined significantly by 28.0% week on week to US$153 million.
The firm said even at that, Naira appreciated against the greenback by 30 points to N410.75.
In the mean time, in the parallel market, it depreciated markedly by 140 basis points week on week, crossing the N500 perceived resistance to close at N502.
Analysts said the premium between the IEW and the parallel rates remained exorbitant at 22.2%, the highest since early December 2020. Across other segments, the foreign exchange rate remained unchanged at N410.18 and N380.69 at the official and SMIS windows, respectively.
Last May, the apex bank updated the NAFEX rate on its website, a move that dovetails neatly with its foreign exchange rates convergence aspiration.
While the convergence was expected to partly solve the liquidity crisis across the different segments of the FX windows, Chapel Hill Denham said the static and sizable balance of payment deficit portends that further foreign exchange adjustment is required if any meaningful progress is to be made.
“To add, we imagine that the recent rapid pace of Naira depreciation at the parallel market is a fall out of CBN’s failure to significantly step up intervention sales in the window.
”Overall, we do not foresee any respite in the near term until either the CBN engineers further devaluation or increase its foreign exchange intervention or both”, Chapel Hill Denham said.