Economic activities in the country could witness a further uptick in the last quarter of the year as crude oil exports are forecast to hit a 5 month high of 1.73 million barrels per day in October.
Increased crude oil imports impact the economy in the following ways.
Foreign reserves
Increased crude oil sales mean the country would be able to maintain foreign exchange reserves at their current level. Data from the Central bank of Nigeria(CBN)’s website place the foreign reserves at $46.2 billion as at August 23, 2018.
This, in turn, provides the necessary liquidity for the Central Bank of Nigeria (CBN) to keep the exchange rate at its current band, as well as keep the country within a stable import cover. The CBN has kept the Naira trading at N360 to the dollar through weekly sales of foreign exchange.
Import cover is the number of months imports can be covered with foreign exchange reserves. Nigeria is a largely import-dependent country both for finished goods and inputs required by industries.
The 3rd quarter of the year tends to witness higher imports as businesses stock up in preparation for the festive season.
Political tensions in Nigeria and crisis in other emerging countries have led to foreign portfolio investors pulling out of the capital market. This, in turn, could pressure on the exchange rate.
More revenue for the government
Increased crude oil sales also translate to more revenue across all tiers of government. The last two Federal Account Allocation Committee (FAAC)meetings were deadlocked due to protests by the states pertaining to the drop in allocation shared.
Companies
Companies operating in the oil sector as well as those servicing them also benefit. These include those with upstream activities such as Seplat, and Oando as well as construction firms like Julius Berger which are heavily dependent on large-scale contracts mostly funded by the government.
Investors
Investors in these firms could thus expect a better dividend payment, compared to 2017 and as well as returns in terms of capital appreciation.
