Nigeria’s exchange rate at the NAFEX window depreciated to N389 during intraday trading on Tuesday, August 4, 2020. In a similar situation, the exchange rate at the parallel market depreciated marginally on Tuesday as well to close at N474/$1 and as high as N480/$1.

Market Watch

Parallel Market: At the black market where forex is traded unofficially, the Naira depreciated against the dollar to close at N474/$1 on Tuesday, according to information from Abokifx, a prominent FX tracking website. This represents a N1 drop when compared to the N473/$1 that it exchanged on Monday, August 3. However, Nairametrics forex tracker obtained a price of N480/$1 from some traders who we also source information from.

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NAFEX: The Naira depreciated against the dollar at the Investors and Exporters (I&E) window on Tuesday, closing at N389/$1. This represents a N1 drop when compared to the N388 rate close that was reported on the last trading day, Monday, August 3.  The opening indicative rate was N388.46 to a dollar on Tuesday. This represents a 13 kobo drop when compared to the N388.33 to a dollar that was recorded on Monday.

The Naira fell to as high as N392.50 during intraday trading before strengthening to the closed rate of N389. It also sold for as low as N380/$1 during intraday trading. Forex is sold at several prices and different times during the day.

Forex Turnover: Meanwhile, forex turnover at the Investor and Exporters (I&E) window recorded an increase on Tuesday, August 4, 2020, as it rose by 43.12% day on day. According to the data tracked by Nairametrics from FMDQ, forex turnover increased from $17.23 million on Monday, August 3, 2020, to $24.66 million on Tuesday, August 4, 2020. Despite the increase, the volume is a far cry from the average of over $200 million that was recorded in January 2020.

The average forex sale for last week was a low volume of about $32 million which is slightly better than the $27 million that was recorded the previous week. FX turnover which was not impressive last week has not shown any sign of recovery despite the picking up of business activities after the 2-day Sallah holiday.

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Total forex trading at the NAFEX window in the month of July was $937 million compared to $875 million in June.

The exchange rate disparity between the official NAFEX rate and the black-market rate remained wide on Monday staying as wide as N85. Nigeria maintains multiple exchange rates comprising the CBN official rate, the BDC rates, SMIS, and the NAFEX (I&E window).

Exchange rate unification remains on the cards and yet to be implemented weeks after the central bank governor confirmed it will be executed.

COVID-19 Pressures

Nigeria’s airspace remains closed to commercial international flight operations and won’t be open till October 2020. Foreign travel has often been a source of demand for the greenback.

• The recent demand for dollars at the parallel market is thought to be fueled by speculators.
• The parallel market also caters to forex trades through wire transfers especially for buyers who cannot fulfil their dollar demands at the I&E window or the SMIS window.
• The exchange rate for wired transfer is often at a premium to the black market rate.

Forex Challenges: Last few weeks have been most challenging for the foreign exchange market as it witnessed very low liquidity. The downward slide against the greenback and some other major currencies continued this week due to tightened liquidity in the system.

According to a report from FSDH research, forex inflows into the I&E window had dropped significantly in the second quarter of 2020 on the back of lower foreign portfolio inflows. Although there was a slight improvement in the month of July, the turnover of $937 million is a far cry from the $3.7 billion turnover that was recorded in the month of March before the lockdown which was triggered by the coronavirus pandemic.

The low oil prices have constrained the CBN’s capacity to intervene further in the foreign exchange market as dollar inflow still remains very low.

The Central Bank of Nigeria has issued the guideline for accessing the Healthcare Sector Research and Development Intervention Scheme (HSRDIS) grant.

The grant, which is part of the apex bank’s policy response to the COVID-19 pandemic, is designed to help strengthen the public healthcare system with innovative financing of research and development (R&D) in new and improved drugs, vaccines, and diagnostics of infectious diseases in Nigeria.

The guideline was published on the CBN’s website on Tuesday.

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Why it matters: HSRDIS is designed to trigger intense national R&D activities to develop a Nigerian vaccine, drugs and herbal medicines against the spread of COVID-19 and any other communicable or non-communicable diseases. This would be done through the provision of grants to biotechnological and pharmaceutical companies, institutions, researchers, and research institutes.

Who is eligible: Activities eligible for consideration under the Scheme shall include:

• Research and development of candidate drugs, herbal medicines, and vaccines validated by relevant health authorities for the control, prevention and treatment of infectious diseases.
• Manufacturing of drugs, herbal medicines and vaccines validated by relevant health authorities for the control, prevention and treatment of infectious diseases.
• Red biotechnological R&D in new health technology for the control, prevention and treatment of infectious diseases.
• The research partnership between academia and industry into the development of drugs and vaccines for the control, prevention and treatment of infectious diseases.
• Research and development into validated phytomedicines for the control, prevention and treatment of infectious diseases.

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Important Notice: Candidate vaccines undergoing pre-clinical testing or trials shall not be eligible for consideration under this Scheme. However, candidate vaccines 4 Classified as Confidential undergoing clinical testing or trials shall be eligible for consideration under the Scheme if considered to have high potential to cross the clinical trial stage and prospects of scale by the Body of Experts (BoE).

Who funds the grant: The Scheme shall be funded from the Developmental Component of the Micro, Small and Medium Enterprise Development Fund (MSMEDF).

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Grant Limit:

• Research activities: Maximum of N50.0 million.
• Development/Manufacturing activities: Maximum of N500.0 million.

NOTE: Disbursement under the Scheme shall be made to beneficiaries in tranches, subject to approved milestones achieved.

Research and Development Timeframe

• research activities: Not more than two (2) years from the date of release of fund.
• Development/Manufacturing activities: Not more than one (1) year from the date of release of fund.

Read the full guidelines here.

After a trying five months of the Coronavirus pandemic and the consequent challenges for the economy, business enterprises in Nigeria expect to start employing again in the month of August 2020.

This is according to the CBN Business Expectation Survey which was published recently on the CBN website.

Findings from the survey show a generally optimistic outlook for August with a confidence index of 33.7 points, and hopes that the volume of business activities would increase in the next 2 to 6 months to justify the employment outlook.

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The business survey was conducted by the statistics department of the Central Bank of Nigeria in July 2020, and it involved a sample of 1050 businesses with a 96% response rate. Respondent firms include small, medium and large businesses cut across agriculture, services, manufacturing, wholesale/retail trade, and construction sectors, both import and export-oriented, across the country.

Sector by sector breakdown showed that wholesale/retail trade had the highest prospect for employment in August with an index of 16.4 points, while manufacturing trailed closely behind with 14.6 points. Respondent firms in Agric/services put the employment prospect index at 3.1 points.

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The wholesale/retail trade sector is also highly optimistic on expansion plans, showing an index of 46.3 points, while the construction sector had an index of 45.0 points. Agric/services sector had an index of 43.4 and manufacturing sector had 39.7 points all pointing towards a positive disposition to expand in the current month (August).

With such expansion plans in view, borrowing rate is also expected to increase in August, September, and December 2020 with confidence indices of 10.5, 15.7 and 16.1 points respectively.

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This is in spite of the obvious challenges which the firms face, which include insufficient power supply, competition, unfavourable economic climate, financial problems, and high-interest rates.

Unclear economic laws, unfavourable political climate, insufficient demand, difficulties in accessing credit and equipment also pose major constraints to business activities.

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More on the outlooks

On the exchange rate, firms are positive that the Naira will appreciate in August, September, and December, with 3.0, 16.5 and 49.4 confidence index points respectively. Meanwhile, inflation level is expected to rise in the next 6 to 12 months (December 2020 and June 2021), at 13.92 and 13.95 percent.

There is an anticipated increase in economic conditions in August at 22.8 points, much higher than the 9.5 points in July. The firms also expect things to improve more in September and December with confidence of 31.7 and 51.4 points.