Quarterly revenue from crude to hit $14bn, trade balance becoming positive – Rewane

The future appears bright for the country with crude oil quarterly revenue poised to reach $14 billion, whilst trade balance to berth on the positive side after a long period of repeated trade deficits.
In addition, contrary to expectations of some cynic that the naira would plummet after the Central Bank of Nigeria (CBN)’s decision to stop funding the Bureau De Change (BDCs), the naira made a U-turn and has appreciated instead.
“The bright spot in the chequered picture is that oil prices are back up again at an average of $74pb in July and OPEC has increased Nigeria’s quota to 1.8mbpd. This could lift the quarterly dollar oil revenue towards $14 billion per quarter from an average of $11 hillion in 2020”, said Bismarck Rewane, Chief Operating Officer (COO) of Financial Derivatives Company (FDC)..
He said, Nigeria’s terms of trade, which measures the change in prices of its exports relative to the prices of its imports has improved from 23.2 in 2020 to 30 in 2021. This means that with the balance of trade now becoming positive ($1.2bn) and an exchange rate determining mechanism aimed at attaining global competitiveness, there is a chance that Nigeria might be moving gradually and closer towards fair value of the naira on a more sustainable basis. The naira has gained 3.24% since it fell to N525/$ last week.
“Most pessimists were of the view that the naira was likely to plunge to N700/$ after the BDCs were stopped from buying dollars from the CBN. We continue to hold the view that the naira will continue to appreciate towards fair value (N470-N490/$) in the parallel market as long as the CBN increases forex supply. However, corporates remain nervous as to policy direction and uncertainty remains”, Rewane said in its latest FDCThink Tank edition..
It will be recalled that the CBN in a twist of events has discontinued its forex sale to BDCs with immediate effect. This announcement was made by the CBN Governor during the question and answer segment of the recently concluded monetary policy committee meeting on July 27.
By the next day, the parallel market rate had plunged to N522/$ and then N525/$ as the markets tried to process the implications of the CBN’s decision on businesses. Since then, the naira has gradually appreciated, to currently trade at N508/$ (August 4). Other market rates have also appreciated. For instance, the IATA rate (the exchange rate used by airlines to issue tickets) moved from N460/$ to N412-N413.
Since the CBN is expected to shift the forex supply previously sold to BDCs to the banks, we expect to see an increase in vol- ume and turnover in the banking segment of the forex market, making dollar sales more accessible to the public. This will lead to an appreciation of the exchange rate for invisibles such as PTA, BTA, tuition etc. Also, the parallel market rate deprecia- tion will continue albeit temporarily, leading to a widening of the forex market premium. However, as the market adjusts to the new forex ban, the spike in the parallel market premium will fizzle out, leading to a convergence of rates around the IEFX window.
The banks will benefit from the increased forex supply from the CBN and in return record an increase in transactions. However, the cumbersome documentation process required by banks will remain a challenge for the public. We expect the markets to adjust to the new norm, while the BDCs will be forced to survive or become extinct in the new forex market era.

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