THISDAY HEADLINE: External Reserves Down to $47.42bn as Foreign Portfolio Investors Anticipate US Rate Hike

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Nigeria’s external reserves has maintained a sustained decline, albeit marginally in the past three weeks as foreign portfolio investors (FPI) continue to weigh the possibility that the United States Federal Reserve will raise interest rate at its meeting which holds this week.


A hike in US interest rate would mean an increased return for FPIs who may also be concerned about political risk in Nigeria.

Nigeria’s external reserves which hit a five-year high in the first quarter of 2018, fell by a total of $329 million, to $47.425 billion as of June 7, compared with the $47.754 billion it attained on May 21.

However, the movement of the reserves which are derived majorly from the proceeds of crude oil earnings, showed a continuous decline.

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But it is not all gloom as the total assets of the Nigerian Sovereign Wealth Fund (NSIA) grew by 27 per cent to stand at N533.88 billion in 2017 compared to the N420.93 billion in the corresponding period of 2016, to the Managing Director/Chief Executive Officer of the Nigerian Sovereign Investment Authority (NSIA), operators of the Fund, Dr. Uche Orji, who spoke at the weekend.

The fund’s manager also said new funding plans for the 2nd Niger Bridge, Lagos-Ibadan Expressway and the East-West Road that have expressed funding difficulties for some time now, would soon be unveiled by the Authority.

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Meanwhile, Fed had raised rate in March 2018 and thereafter signalled that it would further hike rate about two more times this year.

But a top central bank official who pleaded to remain anonymous explained that the move by the US Fed was not only affecting capital flows to Nigeria, but to other emerging and frontier economies as well.

“You will notice that in May, the Federal Open Market Committee (FOMC), which is the monetary policymaking body of the Federal Reserve held their position. But when they raise rate in March, between April and May, South Africa and Argentina lost heavily as investors left those countries.

“The foreign investors were contemplating to pull funds out of Nigeria, but they spared Nigeria.

“Even though it was earning seasons and they repatriated some of their dividends. But while they were taking funds out from Nigeria, they hit South Africa and Argentina badly.

“Last month when FOMC held rate steady, they (FPIs) went to Turkey and Indonesia, to the extent that even though Turkey’s policy rate went up, they still moved out of the country after some time.

“Now, this month, we have seen heavy moves into Indonesia. But if FOMC raises rate again at their meeting this month, there is the contemplation that they would go heavily into Malaysia.

“But while there is this massive movement of flows from emerging markets into the US, what is moving out of Nigeria is moderate because of the good oil price and the fact that treasury bills rates are still attractive.

“So, I would say the CBN has done well. The flows out of Nigeria has been repatriation of dividends and very minor outflows to balance their portfolio. “However, we are not going to pretend that political risks are not there,” the source explained.

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In a related development, analysts at Lagos-based CSL Stockbrokers have pointed out that the decline in the reserves coincided with the weeks during which Shell took offline two major oil export pipelines – the Trans Forcados and the Nembe Creek Trunk Line.

“The pipelines in question are particularly sensitive to the government as well as stakeholders at large. Multiple attacks by militants on Trans Forcados in 2016 for example, brought Nigeria’s oil production to its lowest in years.

“The pipeline is indeed a major evacuation route for onshore oil production but it is a sitting duck for militants due to its design (onshore that is not buried under the ground). The pipeline also links a number of oil fields and oil mining leases (OML) in the western Niger Delta with the Forcados terminal on the coast.