The exchange rate between the naira and dollar may move in the positive for Nigeria’s local currency, according to views of a cross section of traders and analysts interviewed by Nairametrics.

Last week, Nairametrics reported that the Central Bank of Nigeria (CBN) had increased the bid price for FX at its Secondary Market Intervention Sales (SMIS) window by 5.6% to trade at N380 to $1. This was in line with the apex bank’s plans to unify the exchange rate towards the NAFEX rate.

As traders mulled the implication of the latest move by the CBN, the naira depreciated against the dollar at the parallel market to trade at N461.00 to $1, while gaining against the US dollar to trade at N386 to $1 at the I&E window. However, the exchange rate could strengthen this week based on a positive set of assumptions.

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A treasury dealer at Nigeria’s biggest bank by assets told Nairametrics about the Central Bank’s continual intervention in the currency spot market and outlook for the naira. He said:

“The CBN will sustain its interventions in various windows with injection of $100million to Invisibles and Small and Medium-scale Enterprises (SMEs) segment at ₦384 to a dollar. Also, the CBN will inject c.$250million through the Retail SMIS on Friday.

“With the increase in base rate at last week’s Retail Auction to $/₦380 from the $/₦365, I expect similar revision of the official rate from $/₦361 to IEFX level in line with rate unification exercise which would boost Naira revenue from crude oil sale and qualify the CBN to draw-down from the IMF/World bank loan.

“The paucity of funds that IEFX window has experienced since the start of the Q2 will persist this week. Though, I expect the CBN to come up with plans to clear the backlogs of FX demands estimated at c. $5bn for offshores investors just like it did in 2016. Nevertheless, I expect Naira to trade at sub $/₦400 levels throughout the week.

READ ALSO: Forex liquidity up by 315% as Naira gains marginally at I&E Window

“With this move in unifying the exchange rate system, it is also expected that the present converging of the rates estimated at N387 to $1 (I &E Window) will boost revenues for the federal government which could see a gain of N20 on every US dollar earning in oil.”

Whilst the debate rages on about what the true value of the naira is, several factors are at play. The CBN Governor had alluded to the fact that the lull in business activities suggested that forex demand should be low, thus calling into question the pent-up demand being highlighted by several market analysts.

The Central Bank governor suggested that the black-market rates being reported were likely not representative of what the real demand was, but rather driven by speculative forces.

Michael Nwakalor, Macroeconomist at CardinalStone Research, in a phone chat interview with Nairametrics expressed optimism on the naira appreciating at the black market this week. He said:

“Amid purported pressure from multilateral organizations for a unified exchange rate, the naira has noticeably weakened at both the NAFEX and parallel markets in recent weeks, with reports of a devaluation at the SMIS window from N360/$ to N380/$.

“We expect a possible unification to converge towards the NAFEX rate of N385/$ and if supported by increased FX supply and clear body language by the CBN, we may also see a steep recovery in the parallel market towards that rate. In the absence of this, we expect a characteristically quiet week in the FX market.”

Conversely, market analysts believe that the reluctance of the CBN to fund liquidity shortages at the I&E window is the reason why the black market has depreciated to about N461/$1. They claim legitimate transactions have already taken place in the parallel market, especially for businesses that have obligations to meet but cannot access forex from official windows.

Thelma Ugonna Ohiri-Anyanwu, CFA, a leading financial expert in a Nigerian tier-1 bank, was also optimistic about the naira stabilizing this week. She said:

“With the CBN devaluing the currency by 5.3% from N360 to N380 at its latest currency auction, this saw the market close at about N389 to a dollar. This I believe is in a bid at unifying the rate at the various windows.

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“In the coming week, with little or no significant activities to stimulate the market and no fundamental change, the naira will be relatively stable.

“The I&E window will likely trade around N388-389/$ levels. While the parallel market at N460 to 461/$ levels.”

CBN’s foreign reserves fell slightly during the week as FX outflows outpaced inflows. Data from Nigeria’s central bank showed that its foreign reserves stood at about $36.2billion.

The spread of novel Corona Virus Disease (COVID-19) in Nigeria touched a new milestone as the latest statistics provided by the Nigeria Centre for Disease Control reveal Nigeria now has 28,711 confirmed cases.

On the 5th of July 2020, 544 new confirmed cases and 11 deaths were recorded in Nigeria, having carried out a total daily test of 2,933 samples across the country.

To date, 28,711 cases have been confirmed, 11,665 cases have been discharged and 645 deaths have been recorded in 35 states and the Federal Capital Territory. A total of 151,121 tests have been carried out as of July 5th, 2020 compared to 148,188 tests a day earlier.

COVID-19 Case Updates- 5th July 2020

• Total Number of Cases – 28,711
• Total Number Discharged – 11,665
• Total Deaths – 645
• Total Tests Carried out – 151,121

According to the NCDC, the 544 new cases were reported from 19 states- Lagos (199), Ebonyi (65),Oyo (47), Ondo (46), Ogun (31), Edo (30), FCT (28), Katsina (25), Plateau (15), Bayelsa (11), Kaduna (10), Adamawa (10), Akwa Ibom (8), Gombe (7), Kano (4), Taraba (3), Rivers (2), Abia (2), Ekiti (1).

Meanwhile, the latest numbers bring Lagos state total confirmed cases to 11,244, followed by Abuja (2,181), Oyo (1,513), Edo (1,383), Kano (1,268), Delta (1,227) Rivers (1,183), Ogun (1,005),  Kaduna (865), Katsina (604), Borno (528), Gombe (520), Bauchi (516), Ebonyi (503), Ondo (456), Plateau (436), Abia (385), Enugu (372), Imo (352), Jigawa (318).

Kwara state has recorded 269 cases, Bayelsa (245), Nasarawa (225), Osun (165), Sokoto (153),  Niger (122), Akwa Ibom (112), Adamawa (99), Benue (97), Kebbi (84), Zamfara (76), Anambra (73), Yobe (61), Ekiti (44), Taraba (22), while Kogi state has recorded 5 cases.

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Lock Down and Curfew

In a move to combat the spread of the pandemic disease, President Muhammadu Buhari directed the cessation of all movements in Lagos and the FCT for an initial period of 14 days, which took effect from 11 pm on Monday, 30th March 2020.

The movement restriction, which was extended by another two-weeks period, has been partially put on hold with some businesses commencing operations from May 4. On April 27th, 2020, Nigeria’s President, Muhammadu Buhari declared an overnight curfew from 8 pm to 6 am across the country, as part of new measures to contain the spread of the COVID-19. This comes along with the phased and gradual easing of lockdown measures in FCT, Lagos, and Ogun States, which took effect from Saturday, 2nd May 2020, at 9 am.

On Monday, 29th June 2020 the federal government extended the second phase of the eased lockdown by 4 weeks and approved interstate movement outside curfew hours with effect from July 1, 2020.

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It was a sunny Saturday in May and like it had been for the better part of 8 weeks, the new normal was in force in Nosa’s household. The lockdown induced COVID-19 meant that all the hustle and bustle of giving attention to side hustles on weekends had all evaporated. Now he spent more time with his kids watching TV and playing video games. Whilst he has had to endure multiple weekends of lost revenue, staying indoors meant that his personal finance was still intact. But things would change dramatically this weekend.  

Nosa got a call that he had just lost his aged mother to a brief illness. He had been battling with a terminal illness for years, but things seemed to be under control so her death came as a surprise. Even as he grappled with the thought of losing his mother, Nosa knew that he had to start making preparations for the expenses that are bound to come with burials in an African setting.   

Thanks to the pandemic, and rules that came with it, Nosa ended up spending much less than he would have for his mother’s burial with most of the funds going towards mortuary expenses, transport and the direct cost of the actual burial itself.   

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“This COVID-19 is bad but it has saved me millions of naira that I would have spent in this burial,” he remarked.   

“I wanted to give my mom a befitting burial but these are hard times and I may have borrowed money just to fund this. But with COVID-19 and social distancing in place I did not have to do any of this,” Nosa informs our reporter.   

Nosa’s gains translate to massive losses for a whole chain of service providers in the event management industry. Similar occurrences over the last few months have resulted in the loss of revenue for such businesses.   

Events in Nigeria often cost anywhere between half a million naira to over N100 million depending on the financial muscle of those spending. Burials, weddings, naming ceremonies and birthday parties, make a burgeoning industry that spans several sectors of the economy.   

From mortuaries to casket makers, event planners, event Halls rentals, professional mourners, caterers, confectionaries, party rentals, photographers, video editors, tailors, newspapers , etc, its an entire value chain of businesses that provide one service or the other for this industry.  

Each of these events cost millions of naira to organize hosting as many people as the budget can support. According to a CNN article quoting a report from TNS Global, Nigerians spend as much as $9,460 for a wedding ceremony. The report also indicates the party industry could be worth as high as $17 million based on statistics in 2017.   

The math can be easily deducted. Assuming 50,000 ceremonies every weekend at an average cost of N1 million that is a N50 billion per weekend or N2.7 trillion ($6.75 billion) per annum. GDP data from the National Bureau of Statistics indicates sectors that support the ceremonies market in Nigeria, telecoms, transportation, Arts and Entertainment is worth a combined N18.4 trillion.  

Technology Ceremonies  

Chuks, a Partner at a top consulting firm in Nigeria admits were it not for the pandemic his wedding could have cost him about N15 million personally and another N20 million spent by family, friends, colleagues and well-wishers. He is in his forties and his wedding had been much anticipated. He went ahead with his wedding last weekend with less than a dozen people in attendance and over 140 others logging on via Zoom. He claims while he ended up not spending millions on food, drinks, wedding halls and other logistic costs, he still achieved his goal of getting married.   

Necessity they say is the mother of invention and has millions stay locked in their homes, they have resorted to apps such as Zoom, Instagram Live, Microsoft Teams to hold virtual events. These days Zoom themed parties now have their own rules and conventions. Friends from all parts of the world log in with each person taking turns to say nice things about the celebrants. Games are conducted to spice up the event and stories told by the celebrant. Music is also played by the Zoom host with participants dancing and having fun.  

“It is like watching a live movie and also being part of it as the audience and participant” a wedding planner informed Nairametrics. Whilst one cannot underrate the connection physical socializing brings, virtual meetings are gradually becoming a lifestyle and the longer social distancing continues its cultural significance will only continue to increase.   

Aderonke Adebamibola, CEO of  Unik Ushering Agency, an Event management firm, confirmed to Nairametrics that business has really slowed down in the last few months.  “Even though the NCDC has now given rules to guide weddings and other events, the budget now is way less than it used to be due to the cap on numbers of guests” she explained.   

Now, most events are kept within the premises of family residences, depriving hall rentals, the money they could have made from leasing out their halls. Venue decorators also have much less on their hands to do, as they no longer have to decorate big halls.   

According to Adebamibola, every single business in the chain has been affected, from caterers to ushers.   

“Now, we even have to convince them to use one or two ushers for their events because they believe they don’t need ushers for 20 or 30 guests. Caterers cannot even cook a half bag of rice now because of the number of guests. This means that they are also paid less for their services, even if they expend the same energy and time” she said.  

The new normal in this industry means that the things that used to be prioritized are no longer priorities. Hand sanitisers, face masks and hand washing equipment are now compulsories in events, while the hand-shaking, and hugs that would have characterized such weddings.

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Due to the nature of the industry, a large percentage of the staff are kept on contract basis, so the reduction has not really translated into lay-offs. However, the industry revenue has been badly hit. A contract staff with NPU Events, who preferred anonymity, noted that in the last three months, she has only been called twice for events.  

Since this forms a major part of her income, it has caused a major dip in her resources. COVID-19 has brought unwanted hardship to the Nigerian economy with small businesses and workers in the informal sector suffering the most.  

A recent World Bank report indicates the Nigerian economy might contract by as much as 3% in GDP growth rate this year. This informed government’s latest decision to inject about N2.3 trillion into the economy to spur economic growth. The funds will be targeted at small businesses through non-collateralized low-interest loans.  Whilst all these initiatives are geared towards stimulating the economy, the spending power of Nigerians will remain pivotal and as long as the pandemic persists, ceremonies will remain subdued.