External reserves drop to $34.82bn amid sluggish economic recovery

By Motolani Oseni

The country’s external reserves monitored by the Central Bank of Nigeria (CBN) dropped by $177 million or 0.51 per cent in March to $34.82 billion from $34.99 billion in February, as it faces slower economic recovery.

This is even as the World Bank has said Nigeria face slower economic recovery, while compared with other African countries affected by the COVID-19 pandemic.

However, while considering the opening figure at the beginning of the year, the foreign exchange buffer has dropped by 2.3 per cent from $35.64billion it opened to $34.82billion as of March-end.

However, the naira appreciated by 0.2per cent to N409.63 against the Dollar at the Investors & Exporters Foreign Exchange (I&E FX) window last week but remained flat at N485.00 against the dollar in the parallel market.

At the IEW, total turnover as of 31st March 2021decreased by 66.2per cent Week Till Date (WTD) to $114.14 million, with trades consummated within the N381.00 – 412.00 against the Dollar band.

The overnight (OVN) rate jumped by 21.75 basis points w/w to 32.5per cent – its highest level since 16th September 2019 – as outflows from the system for CBN’s weekly OMO (N100.00 billion) and FX auctions, CRR debits and NTB net issuance (N49.15 billion) edged out inflows for OMO maturities (N169.25 billion), FGN bond coupon payments (N69.33 billion) and FX Retail refunds.

The Treasury bills secondary market turned bullish, as the increased liquidity in the system (This week’s average: N256.39 billion vs Last week: N70.91 billion) supported participant’s appetite for shorter-dated T-bills. Thus, the average yield across all instruments declined by 14basis points to 5.4per cent.

Across the market segments, the average yield contracted by 17basis points to 6.4per cent at the OMO secondary market and by 9basis points to 4.1per cent at the NTB secondary market.

To limit the excess demand in the T-bills market, the CBN simultaneously floated the primary auctions for OMO and NTB bills – the first time in almost two years. At the OMO auction, the CBN sold N100.00 billion worth of bills to market participants and maintained stop rates across the three tenors, as with prior auctions.

At the NTB auction, the CBN offered N95.68 billion – N10.00 billion of the 91-day, N17.60 billion of the 182-day, and N68.08 billion of the 364-day – in bills and ultimately allotted N144.83 billion, 51.4per cent higher than offered.

The auction stop rates were unchanged at two per cent and 3.50per cent on the 91D and 182D bills but increased by 100basis points to eight per cent on the 364D bill. The equities market of the Nigerian Stock Exchange (NSE) depreciated by 0.76 per cent week-on-week (w/w) to 38,916.74 basis points from 39,216.20 basis points, it opened for trading amid investors profit-taking.

The market opened for four trading days last week as the Federal Government declared Friday and Monday as public holidays to commemorate the 2021 Easter celebrations.

As a result, the equities market Year-Till-Date (YTD) loss rose to -3.4per cent. Activity levels mirrored the decline in the market’s broad gauge, as trading volumes and value declined by 5.6per cent w/w and 10.7 per cent w/w, respectively.

Notably, profit-taking in bellwether stocks; Dangote cement plc declined by 4.4 per cent, Stanbic IBTC Holdings plc sheds two per cent, Access bank dropped by three per cent and Unilever Nigeria was down by 2.6per cent to drive the weekly loss.

Sectoral performance was broadly negative, as the Industrial Goods (-2.1 per cent), Banking (-1.3 per cent) and Oil and Gas (-0.3 per cent) indices recorded losses. On the flip side, the Insurance (+2.8 per cent) and Consumer Goods (+1.9 per cent) indices posted gains.

The weekly market the report stated that “A total turnover of 1.445 billion shares worth N19.039 billion in 17,400 deals were traded this week by investors on the floor of the Exchange, in contrast to a total of 1.530 billion shares valued at N21.311 billion that exchanged hands last week in 20,016 deals.

“The Financial Services Industry (measured by volume) led the activity chart with 1.033 billion shares valued at N13.369 billion traded in 9,179 deals; thus contributing 71.51per cent and 70.22 per cent to the total equity turnover volume and value respectively.

“The Conglomerates Industry followed with 131.153 million shares worth N578.393 million in 811 deals. The third place was Consumer Goods Industry, with a turnover of 92.937 million shares worth N1.750 billion in 2,892 deals.

“Trading in the top three equities namely Guaranty Trust Bank Plc, Union Bank Nig. Plc and Wema Bank Plc (measured by volume) accounted for 670.354 million shares worth N10.331 billion in 1,990 deals, contributing 46.39 per cent and 54.26 per cent to the total equity turnover volume and value respectively.”

The report stated that a total of 108,271 units valued at N445.285 million were traded this week in 16 deals compared with a total of 25,905 units valued at N208.954 million transacted last week in seven deals.

It added that “A total of 50,358 units valued at N55.298 million was traded last week in 14 deals compared with a total of 93,124 units valued at N97.453 million transacted last week in 47 deals.” Analysts at Cordros capital stated that “Heading into the second quarter, we expect investors to rebalance their portfolios based on an assessment of corporate earnings released during Q1-21 whilst keeping an eye on the movement of yields in the FI market.

“Considering that the FY 2020 earnings season has run its course, we now expect investors’ sentiment to be influenced by developments in the macroeconomic landscape and corporate actions.

Notwithstanding, we advise investors to take positions in only fundamentally justified stocks as the unimpressive macro story remains a significant headwind for corporate earnings.”

Analysts have expressed that the apex bank intervention in the foreign exchange market continued to weaken the foreign reserves amid a steady increase in global oil prices. According to analysts at Cordros capital, “We expect improved liquidity in the IEW over the medium term, given the higher oil prices and an expected increase in crude oil production volume.

“Accordingly, we expect the naira to remain relatively range-bound (N410.00/USD – N415.00/ Dollar) at the I & E FX. “Similarly, we believe the CBN will devalue the naira by 5.3per cent to N400.00/Dollar at the interbank market to narrow the gap with the I & E FX window rate.”

According to the World Bank, the slow rollout of COVID-19 vaccines had muted Nigeria’s growth outlook despite rising oil prices.

World Bank in its newly released Africa Pulse report said, “Despite higher oil prices, Nigeria and other oil exporters are expected to face a slower recovery compared with the rest of the sub-region, where activity is projected to strengthen.

“Nigeria’s real GDP is projected to rebound from a 1.8 per cent contraction in 2020 to moderate growth of 1.4 per cent in 2021, driven by telecommunications services, trade due to the gradual opening of borders, agriculture due to an additional influx of labour, and construction, in a context of higher oil prices and fewer mobility restrictions.”

The World Bank has noted that Nigeria exited last year’s recession faster than expected. Nigeria slipped into recession in the second quarter of 2020 amid the economic fallout of the COVID-19 pandemic but emerged from it in the fourth quarter.

The bank said real GDP in West and Central Africa was estimated to have contracted by 1.1 per cent in 2020, less than projected in the October 2020 Africa’s Pulse forecast, partly owing to a less severe contraction than expected in Nigeria in the second half of the year.

It said, “Following a 6.1 per cent year-on-year contraction in 2020Q2, Nigeria’s economy contracted by 3.6 per cent in 2020Q3, and expanded by 0.1 per cent in 2020Q4, moving out of recession faster than expected.

“For the year, Nigeria’s real GDP is estimated to have contracted by 1.8 per cent, a stronger outturn than projected in October 2020 forecast.” Meanwhile, the Central Bank had allayed any fear by Nigerians over the scarcity of foreign exchange, while affirming that there is enough forex for business owners, travellers and parents with students abroad to meet their financial obligations.

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CBN Governor, Godwin Emefiele, made the declaration at the 278th Monetary Policy Committee held recently in Abuja.

The CBN governor stated that about $80million were disbursed to banks every week to enable Nigerians to meet their forex responsibilities.

Emefiele pleaded with Nigerians to report any bank withholding forex to a special call centre of the apex bank. He said “Part of the measures that we have adopted is that weekly, the CBN disburses not less than $80million to the banks either for Personal Travel Allowances or payment of school fees.

“We have created a complaint desk where you can call us or call some of our people who will respond. It is like call centres, where people can call that they went to a particular bank and they didn’t get money to pay school fees or they didn’t get money to travel” he had said.