FG May Sell $100bn Assets To Shore Up Foreign Reserves
Following the continued depletion of Nigeria’s external reserves as a result of dwindling crude oil prices and huge demand for the green back, experts in the nation’s financial sectors have stated that the federal government may sell its assets to foreign investors to shore up reserves.
Data released by the Central Bank of Nigeria (CBN) last Friday showed that the nation’s external reserves fell to $28.1 billion on January 28, the lowest level since 2005,
On December 31, 2015, the reserves closed at $29.070 billion, reflecting a decline of 15.79 per cent year-on-year (YoY) from $34.52 billion a year ago.
During the first 11 days of this year, the foreign reserves fell by $288 million, and stood at $28.782 billion on January 11.
This, the analysts who spoke to THISDAY on the condition of anonymity said, the situation can only be remedied by the sale of the assets.
Before the slide in the oil price, Chinese investors were said to have offered $70 billion for the Nigerian National Petroleum Corporation (NNPC) joint-venture interests.
However, analysts at FBN Capital stressed that the valuation of these assets would have since fallen sharply as a result of the decline in crude oil prices.
Speaking on how Nigeria got into this situation, the analysts blamed past governments for failing to build solid buffers when oil prices permitted.
According to the analysts, “Because their Nigerian counterparts failed to build solid buffers when oil prices permitted, they are struggling to contain the depletion of reserves now that foreign exchange inflows have slumped. Oil and gas, both dollarized exports, earned $90.5 billion in 2013, and transfers (remittances), the second largest source of inflows, $22.2 billion. We fail to see what could take up the slack before the oil price recovers.”
They added, “From a balance of payments (BoP) perspective, devaluation would not make much difference. A devaluation would boost certain non-oil exports, mostly agricultural, but these amounted to just $4.5 billion in total in 2013. Our chart puts gross inflows on the financial account into context.
In the four quarters from Q3 2012, when Nigeria enjoyed the feel good factor from the JP Morgan listing, gross portfolio inflows reached $21.2 billion, net portfolio flows $18.9 billion, and oil and gas exports $94.9 billion. For direct investment, the gross and net figures for the same period were $7.3 billion and $5.2 billion.”
The CBN had recently stated that with the continued depletion of the foreign reserves, providing forex to the BDCs was no longer sustainable.
The CBN Governor, Mr. Godwin Emefiele, had stated that between July 2014 and January this year, the country’s external reserves had suffered a great pressure from speculative attacks, round-tripping and front-loading activities by players in the foreign exchange market.
These, he pointed out, had led to a decline in the reserves from $37.3bn in June 2014 to $28bn currently.
Manufacturers and foreign investors have been calling for flexibility in the foreign exchange policies of the CBN as businesses continue to suffer from the restrictive policies of the central bank.
The Managing Director, International Monetary Fund (IMF), Christine Lagarde, had in a meeting with President Muhammadu Buhari earlier January stressed the need for flexibility with monetary policies in order not to deplete the reserves.