Nigeria Economy and Market Update

Nigeria Economy News; CBN Reviews Foreign Exchange Policy

The Central Bank of Nigeria (CBN) at its monthly Monetary Policy Committee (MPC) meeting on May 21, 2009 revised key elements of the monetary and foreign exchange policies, the highlight of which is the intended full reversal to the Wholesale Dutch Auction System (WDAS) from the current Retail Dutch Auction System (RDAS) within the next three months. The naira appreciated at the parallel market, closing at N160 to the dollar

, compared with about N182 on May 22, with the official market witnessing a 31 kobo depreciation, closing the week at N146.63/$1.

The daily CBN FOREX auctions saw total of $559.17 million sold for the week ending Thursday 21st May, 2009 – a 6.7% increase from the previous week’s amount of $524.05 million.

This is on the basis of the continued stability of the exchange rate in both the parallel and official markets.


-The RDAS replaced the WDAS on January 14, 2009 largely as a result of the crash of the naira against the dollar, which was attributed to speculative FOREX purchases.

-The WDAS is characterised by end-users of FOREX having the ability to source such funds from banks, while the RDAS requires end-users to bid for FOREX directly from the CBN.

-The reversal to the WDAS could be attributed to the inability of the CBN to effectively monitor actual uses for which FOREX was being obtained at the parallel market.

-This new development is likely to see the gap between the parallel and official markets close gradually, as the CBN will no longer hold a monopoly over the supply of the greenback.

-The gap between the official and parallel foreign exchange rates peaked at about N37 representing a 25% difference

-The narrowing of the gap between the official and parallel markets may thus halt the accusations and counter-accusations of round-tripping in financial services sector.

Nigeria Cedes Global Oil Rank to Angola According to United States reports on its hydrocarbon suppliers, Angola has replaced Nigeria as the 5th global supplier of oil to the US, with Nigeria now falling to 8th place. It may thus be safe to say Angola is presently Africa’s largest oil exporter.


– The Niger Delta militancy in Nigeria is believed to be the main cause for the nation’s abysmal drop in oil production volumes. Present production is at 1.6 million barrels per day (mbpd) which represents approximately half of the nation’s 3.2 mbpd capacity.

– At present, Nigeria is unable to meet its 1.67 mbpd OPEC quota, even without further cuts being declared by the oil cartel

Further cuts by OPEC will likely have drastic effects on the nation’s oil revenues and foreign reserves.

– Around 1mbpd is currently shut in on the nation’s onshore oil facilities, which offer the greatest return on investment – implying huge losses in these locations.

– Military incursion in the Niger Delta may reduce oil production in the short-term.

– Nigeria’s output fell to as low as 1.3 mbpd last month.

– Angola has a production capacity of 2 mbpd, with its OPEC target set at 1.52 mbpd, – current output is at around 1.72 mbpd.

– Angola’s foreign reserves have also been hard hit, plunging to around $13 billion in April 2009 from $18.9 billion in 2008.

Nigeria’s foreign reserves are reported to have dropped to $45 billion, from $48 billion in April.

IMF Lending to Africa Exceeds $1.5 Billion In a bid to further assist African nations in the face of the global economic crisis, the International Monetary Fund (IMF) is boosting lending to sub-Saharan African nations, virtually doubling its 2008 lending level, as well as doubling country limits to loan access.


– With this upgraded lending programme, Nigeria may be able to access more borrowing from Bretton Wood institutions.

Money Market

The naira appreciated at the parallel market, closing the week at N180/$1, with the official market witnessing a 31 kobo depreciation, closing the week at N146.63/$1.

The daily CBN FOREX auctions saw total of $559.17 million sold for the week ending Thursday 21st May, 2009 – a 6.7% increase from the previous week’s amount of $524.05 million.

The 7-Day, 30-Day and 90-Day NIBOR movements are highlighted in the table below:


22-May 15-May Basis point change

7-Day 14.88 14.79% (9)

30- Day

16.25 15.75% (50)

90- Day

16.78 16.45% (33)


– The market was relatively tight due to the outflows attributed to purchase of bonds, treasury bills and the foreign exchange auctions.

– The tightness of the market may be carried forward into the coming week, as there is no anticipated inflow.

Capital Market

The stock market has witnessed a strong 5- week run, with the All Share Index (ASI) closing the week at 26,989.04 points, an impressive 8.84% rise from the previous week’s figure of 24,796.42 points.

Market capitalisation also witnessed a bullish movement, closing the week at N6, 142.58 billion, a 9.07% rise from the previous week’s figure of N5, 631.76 billion.

The top 5 gainers and losers are highlighted as follows:  

Global Update


In the week under review, crude oil prices climbed above the $62 dollar mark, as predicted in our earlier analysis two weeks ago that oil prices would hover between $62 and $64. However, the oil price fluctuated and subsequently dipped to close the week at $61.67.

The Organisation of Petroleum Exporting Countries (OPEC) is unlikely to change its quotas – implying that the current production target of 24.845 mbpd will likely be maintained.


– Nigeria is unlikely to exceed its OPEC quota of 1.67 mbpd especially with the skirmishes between the Joint Task Force and the militants in the Niger Delta.

– Crude oil prices may inch northwards if the Niger Delta clash persists.

– Oil prices may have risen partly due to the dip of the dollar against major currencies resulting from speculations of the US meeting the same fate as the UK which had its sovereign outlook downgraded from ‘stable’ to ‘negative’

However, initial news of the UK’s outlook review gave strength to the dollar temporarily, bringing down the price of crude oil.

UK Outlook Downgraded by Standard & Poor’s

The UK is at risk of losing its top AAA rating, as Standard & Poor’s (S & P) have reviewed the nation’s outlook to ‘negative’ from ‘stable’ on the basis of the possibility of the country’s budget deficit reaching up to 100% of its GDP. The rating company cites a 33% chance of the UK’s rating being downgraded from AAA.


– In response to S & P’s move, the pound depreciated by about 2% against the dollar in the week under review

– This development has negative implications for UK government bonds, with increased costs of insuring debt against default

The rate of credit-default swaps rose to 79.5%, an indication of a decline in investor confidence in government bonds

Credit default swaps (CDS) are essentially a form of insurance against debt – usually bonds or loans, paid out when the issuer defaults.

A downgraded credit rating is a major event which can trigger a pay-off of a credit swap

– A budget deficit of $13.4 billion was reported last month, and the government expects to meet the shortfall by selling £220 billion worth of government debt.

– The UK is the 5th European Union (EU) member to have its outlook revised in the wake of the global economic downturn, following Ireland, Greece, Portugal and Spain.

– In our previous reports, Moody’s Investor’s Services was highlighted as stating that the UK’s rating was “not under any immediate threat” – a stand which has now been counteracted by current developments

– We are of the view that other major economies that have borrowed heavily to fund economic bailouts (particularly the US) or have reported huge budget deficits, could have their national rating outlooks revised British Airways Posts Biggest Ever Loss at £401million

British Airways (BA) reported its worst ever financial performance as a result of high fuel prices and a drastic decline in business travel. This is a sharp contrast to its performance in May 2008, when the company’s profit hit a record £922 million.


– Passenger volumes declined by 4.2% to 33.1 million, in the year to 31st March 2009.

– BA’s business class passengers – accounting for around 50% of the airlines revenue – declined by 13% in the last 6 months.

– BA’s management is unlikely to raise fares as this might further drain an already weak passenger demand

– BA has declared that neither management bonuses nor dividends will be paid out this year.

– There are indications of the adoption of strategies aimed towards increasing passenger numbers – which may come as welcome news for some holidaymakers and business travellers.

– In a similar development, Nigeria’s local aviation industry has witnessed a drop of 30% of passenger volumes, chiefly as a result of the ongoing economic and financial crises.


President Yar’Adua disclosed that $1.5bn has been provided for investment in gas network infrastructure to enhance stable power supply in the country. He assured that the government would meet its target of 6,000 mega watts by the end of this year.

The Federal Government approved the implementation of a number of proposed key measures and safeguards to block leakages in the overall national revenue generation process on a sustainable basis. These measures and safeguards will rectify institutional support to the relevant revenue generating agencies to enable them meet targets for taxes, duties, and other allied revenue.

Nigeria and Japan would hold talks on a pipeline project in the oil and gas sector estimated to cost $150m under the Overseas Development Fund (ODF). Japan, the world’s second largest economy, had also pledged $4bn to Africa with special focus on agricultural and infrastructural development programmes.


OBB rate was stable at 8.0% last week while Overnight rates opened at 15.0% but rose to close the week at 18.0%.


Update on Global Economic Crisis

General Motors (GM) is expected to declare itself bankrupt and then seek legal protection from its creditors after a four year loss of $81bn. Under the bankruptcy, GM will continue to manufacture and sell cars, but a judge will rule on competing claims over its assets from the government, unions and lenders.

The US government is likely to get a stake of 70% in the company in return for further state aid of up to $30bn. Its bankruptcy filing will be the third largest in US history, behind last year’s collapse of the Wall Street bank Lehman Brothers and the demise of the telecoms firm WorldCom in 2002.

Four major central banks will meet this week to decide on monetary policies. The Reserve Bank of Australia (RBA) will meet tomorrow, while the European Central Bank (ECB), the Bank of England (BoE), and the Bank of Canada (BoC) will meet on Thursday. RBA, ECB, BoE, and BoC are all expected to leave rates unchanged at 3.0%, 1.0%, 0.50% and 0.25% respectively.

Commodity Market

The price of OPEC basket of twelve crudes closed at $61.77 a barrel last week compared with $58.73 the previous week.

The International Monetary Fund (IMF) confirmed that the Congress might soon approve the sale of 403.3 metric tons of gold holdings. The yellow metal is presently trading above $985 an ounce.  

N.B. -: 78% of the world’s oil reserves are located in OPEC countries with Saudi Arabia, Iran and Iraq contributing 55% to the OPEC total. Source: OPEC

“Wisdom is not the product of schooling but of the lifelong attempt to acquire it.”

Albert Einstein.

This report is prepared for information purposes only. Whilst every care has been taken in compiling this market update, we do not warrant correctness of its contents or any comments thereon., its principals or agent accepts no liability whatsoever for any direct or consequential loss that may arise from use of any of the opinions contained therein. For comments or further information contact

Sources: June 01, 2009 Sterling Bank Treasury Reports