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Naira’s true value

CBN has adjusted the value of the Naira by as much as 15% as it seeks a single exchange rate instead multiple exchange rate.

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Naira’s true worth,Naira gains on the dollar for the first time since March, Naira forwards hit record high as it crashes to N420/dollar in the parallel market, Naira hits N500 to $1 at the forward market, Naira hits N509 to the dollar at forwards market, demand for the U.S dollar climbs up, Naira hits $387.35 to $1 at currency spot market , Naira sells at N456, Nigeria’s Foreign Reserves drop by over $3 billion in Q1 2020, Investors and Exporters (I&E) window

The value of a country’s currency should, irrespective of whether it is operated on a fixed, floating or managed-float currency regime, depict the performance of the country’s economy and how long the country can maintain the exchange rate system.

The Central Bank of Nigeria (CBN) has adjusted the value of the Naira by as much as 15%, as it seeks a single exchange rate instead of the often criticized multiple exchange rate system exchanging at N380 to the dollar

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The multiple exchange rates system, which had been criticized by the IMF, has kept the official rate at about N307 per dollar.

It uses this to supply cheap foreign exchange to government institutions and selected companies, including refined fuel importers.

(READ MORE: Naira depreciates to N410 per dollar as local currency weakens)

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The CBN now wants to merge the official rate, the rate for importers, exporters and foreign-exchange bureaus.

CBN health intervention fund gets new interest rate by March 2012

Godwin Emefiele

The strengthened concerns over a potential technical recession in Nigeria has forced the Central Bank of Nigeria to relinquish its stealth peg to truly allow the Naira to be determined by the natural forces of supply and demand.

This development simply added to the repeatedly depressed oil prices and declining oil production from weakened global economic outlook growth which noticeably soured sentiments towards the Nigerian economy.

The Coronavirus pandemic has hit China, Iran, Western Europe, and the U.S the hardest but falling oil prices and global economic stress has led to capital flowing out of emerging markets like Nigeria, in a flight to safety.

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Nigeria’s currency peg is one of the most unsustainable. Foreign exchange has fallen by 20% since last June 2019 to $35.98 billion as of 21st March 2020.

Patricia

READ MORE: CBN stops oil companies from selling dollar to NNPC, here’s why

In a recent chat with Nairametrics, analyst, Temitope Busari, CFA, said, “The bells of devaluation rang yet again and it really just marks the onslaught of a vicious cycle, the very same playbook in which decreasing external reserves, high debt levels, and huge funding deficits, force the country into an action that essentially makes the people poorer.

“Until the underlying issues are addressed, I believe the intrinsic value of the Naira cannot be placed. I read recently that an offshore investment bank valued the Naira somewhere around $/600 and I simply chuckled at the irony of it all; they will continue to throw such sentiments around to pave the path that allows them continually pick up Nigerian assets for cheap.  

“The regimented approach to our FX markets does very little to help as with simple economics, allowing the currency to float along with the forces of demand and supply will allow it settle for what it’s truly worth.”  

According to her, in as much as Nigeria continues to falter with the diversification of the economy away from oil, the nation would continue to relinquish control over her own currency.

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“Free markets, robust trade surpluses, and large scale exports from the agricultural and mining sectors. Technology and other services are elements that could improve the country’s FX earning capabilities and as such, allow all to discover what our currency is worth.” 

READ MORE: Covid-19: Tinubu asks FG to print more naira notes, outlines economic measures

Although there may be concerns of inflation spiraling out of control as the Naira finds its true value in the short term, this could be the first true step for the nation to shield itself from external risks.

With the parallel and official markets potentially closing the gap as the Naira free floats, liquidity could increase as investors send their dollars to the official exchange.

As of now, the Naira trades around N380 to the Dollar and could depreciate further as a combination of low oil prices and ongoing fears over the domestic economy encourages investors to install another round of selling.

CardinalStone Research, in an email to Nairametrics, reported that “Policy responses are likely to provide a calming effect. We believe the soothing measures could help manufacturers cover important obligations and keep plants running to meet domestic demand without inordinately raising prices to account for the rising cost of raw materials. 

“The measures to support pharmaceutical and healthcare companies are also positive, given the shutdown of countries across the globe, ongoing spread of the COVID-19 virus in Nigeria, and sustained panic buying of pharmaceutical products domestically.”  

However, measures to boost liquidity and economic activities may cascade to some pressures on the naira, which has been well sold in the last two months (CBN intervention: February – $2.1billion; March – $1.8 billion).

(READ ALSO: Curbing COVID-19 through naira)

It stated, “These pressures, and continued moderation in oil prices, are likely to offset gains from the mild naira devaluation implemented by the CBN. In addition, even though the FX rates across the I&E and BDC markets are now priced closer to the long-run real effective exchange rate of N382/$, we believe our fair value estimate of c.N437.20/$ better captures the realities of sustained double-digit inflation and twin deficits across fiscal and current accounts.  

“That said, the recent narrowing of FX spreads across the currency markets could imply CBN’s growing acceptance of the need to reprice the currency to reflect the state of fundamental variables in challenging periods.”

In all, not until a solid economic framework is being laid for a highly internal, productive Nigerian economy the value of the naira will continue to get worse and revolves in its vicious cycle laid by its history.

Olumide Adesina a French-born Nigerian, is an Investment Professional at Nairametrics Financial Advocates, owners of Nairametrics.com. Olumide Adesina is a certified Investment trader, with more than 14 years of working experience. His work experience covers trading commodity derivatives and analysis of global equities, currencies, commodities, cryptocurrencies, and Fixed Income instruments. A member of the Chartered Financial Analyst Society. You can follow Olumide on twitter @tokunboadesina and email via olumide.adesina@nairametrics.com.

5 Comments

5 Comments

  1. Uzoigwe Roy

    April 1, 2020 at 12:29 pm

    As an investment expert and analyst,what type of international stock or Investment would you encourage one to go into considering the effect of the global pandemic that has affected virtually every sector of the economy?

  2. Dr Adenuga A M

    April 1, 2020 at 2:53 pm

    I’m afraid to say, ” leave all form of investment for now, till at least all market both in Asia, Europe & Americas begin going North(green)…that’s of course after this corona pandemics, then look at the direction oil is going before considering any investment.

  3. Anonymous

    April 1, 2020 at 5:06 pm

    Is it advisable to change ones savings in naira to dollars now?

  4. Esther

    April 2, 2020 at 7:25 am

    If we decided to suspend all forms of investment with no monthly allowance for those of us working with private companies, how then do we survive. But I thank God for cashfx that gave me hope of income on a daily basic.

  5. Edith

    April 2, 2020 at 2:10 pm

    Yes is good to suspend all forms of investment but I also suggested the should wait after this corona pandemics, then look at the direction before putting it into consideration of the investment

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Economy & Politics

Output cut: Nigeria leads in OPEC non-compliance with 50 unsold cargoes of crude

Nigeria and Iraq were reported not to have kept to their commitment to the huge production cut deal that had promised to reduce output by 9.7 million barrels of crude oil per day.

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Petroleum Industry Bill to be passed by mid-2020, says Sylva, FG discovers crude oil in north, says there’s more , OPEC, non-OPEC countries to meet as Saudi, Russia price war affects Nigeria’s budget, FG considers fuel price reduction, OPEC deal: Nigeria to generate additional $2.8 billion revenue as FG reacts

As opinions continue to differ on whether OPEC will extend its current oil output cut beyond June, available information has shown that not all members of the oil cartel complied fully with their agreed quotas for the month of May. This is despite the fact that the oil output by OPEC member countries reached its lowest in almost 20 years.

Available data from oilprice.com showed that OPEC members cut their output by 5.91 million barrels per day from the April level, producing 24.77 million barrels per day. This figure also showed a 4.48 million barrel per day of the agreed output cut, thereby representing a 74% compliance level.

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Nigeria and Iraq were reported not to have kept to their commitment to the huge production cut deal that had promised to reduce output by 9.7 million barrels of crude oil per day.

Iraq was able to achieve just 38% compliance of its agreed output cut for the month of May, while Nigeria, which achieved a much lower compliance of the agreed output cut, recorded 19% compliance of what was agreed. Saudi Arabia showed the highest compliance, recording 96% of the agreed output cut.

Some have attributed the noncompliance of some members of OPEC to the agreed output cut, to the contractual obligations and commitment to buyers, given the short timeframe between when the agreement for the output cut was made and its implementation.

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Meanwhile oil exports from Angola and Congo remained steady at high prices on Friday, while Nigerian oil fared lower amid huge inventory of unsold cargoes.

Nigeria continues to face some difficulty in the oil market, primarily due to sluggish demand from Europe; it has around 50 unsold cargoes of crude oil yet to be sold for the months of June and July.

Meanwhile, India has become one of the few buyers for the Nigerian oil. Indian oil firms bought about 5-6 million barrels of Nigerian crude oil last week and has bought about 2 million barrels as at Thursday this week.

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Business News

President Muhammadu Buhari reshuffles NNPC’s board of directors

Note that the former board included the late Chief of Staff to the President, Abba Kyari as a member. Stakeholders have since expected the President to reconstitute a new board to take over.

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President Muhammadu Buhari to address Nigerians on Monday, receives update and recommendations from PTF

President Muhammadu Buhari has approved the reconstitution of the board of the Nigerian National Petroleum Corporation (NNPC) after the expiration of the tenure of the current board.

The newly constituted board members are expected to serve for a tenure of three years, effective immediately. They will take over from the last board, whose 3-year tenure officially ended in 2019. Information about this development is contained in a State House press release that was published on the official twitter handle of the Nigerian Presidency on Saturday morning.

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READ MORE: Construction of ICT Parks nudges Nigeria into digital transformation

READ ALSO: CBN and NIPOST open pilot microfinance branches

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The newly constituted NNPC board is made up of six members from each of the geo-political zones in the country. The members include the following individuals:

  • Mallam Mohammed Lawal, representing the North West
  • Dr Tajudeen Umar from North East
  • Adamu Mahmood  Attah from North Central
  • Senator Magnus Abe from the South-South
  • Dr Stephen Dike from the South East, and
  • Chief Pius Akinyelure from the South West geo-political

READ MORE: Boko Haram: A protracted battle yet to be won?  

Of the six members, three are returning members on the board – Chief Pius Akinyelure, Mallam Mohammed Lawal, and Dr Tajudeen Umar from North East.

Note that the constitution of the new board is considered a welcome development, as it balances the representation of the six geo-political zones on the board. The previous constitution of the board was faulted for not being “balanced”.

READ ALSO: Full text of President Muhammadu Buhari’s 58th Independence day broadcast

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Note that the former board included the late Chief of Staff to the President, Abba Kyari as a member. Stakeholders have since expected the President to reconstitute a new board to take over.

Patricia

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Around the World

Zoom’s market valuation hits $50 billion mark, thanks to COVID-19

Zoom’s share price now trades at an eye-watering 55 times estimated revenue compared with an average of 7 times for information technology stocks in the S&P 500, according to information obtained from Bloomberg.

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Zoom

Zoom Video Communications’ shares surged to record highs on Friday, as bullish runs in the last hours of trading helped the company to close with a market capitalization of more than $50 billion. The stock gained about 9.7% to jump to $179.48, thereby giving it a market value of $50.6 billion. 

Note that this is the first time Zoom’s valuation is reaching this high level since it became a quoted company. The tech giant, which owns popular video conferencing software “Zoom”,  has gained more than 160% this year. This is because investors are betting that the surge in Zoom users amid the COVID-19 pandemic, would eventually translate to long-lasting revenue growth.

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READ ALSO: How VCs are encouraging terrible business practices by founders

Zoom’s share price now trades at an eye-watering 55 times estimated revenue compared with an average of 7 times for information technology stocks in the S&P 500, according to information obtained from Bloomberg.

Following the significant jump in the company’s valuation, the net worth of its founder and Chief Executive Officer, Eric Yuan, also rose significantly by more than $800 million on Friday. He now has a net worth of $9.3 billion, according to the Bloomberg Billionaires Index. 

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Meanwhile, in reaction to Zoom’s overnight success, Gennie Gebhart, a researcher with the Electronic Frontier Foundation, said she hoped Zoom would change course and offer protected video more widely. It should be recalled that some users of the app had raised security concerns back in April, as Nairametrics reported

READ ALSO: Did Satoshi Nakamoto cause the panic sell-off in Bitcoin market

Meanwhile, Zoom has recruited Alex Stamos, a former chief security officer at Facebook, and other top security experts to help deal with the security issues which led to some top companies banning its use. While discussing efforts being made to deal with the security challenges, Stamos told Reuters:

 “At the same time that Zoom is trying to improve security, they are also significantly upgrading their trust and safety. The CEO is looking at different arguments. The current plan is paid customers plus enterprise accounts where the company knows who they are.” 

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