How Oil’s Tumble Continues to Hurt Nigeria

ByJosie Cox

The Naira is being hit but it’s not alone, with the currencies of other major oil economies including Norway and Russia feeling the pain.

Agence France-Presse/Getty Images

Here’s one oil economy that’s having a particularly rough ride.

Nigeria, which is dependent on oil and natural gas for 96% of export revenues and 80% of government revenues, has been slammed hard by a slump prices over the last weeks and on Thursday hit yet another all-time low against the dollar – a veritable kick in the teeth for the central bank after it just last week intervened by selling dollars and buying the Naira after the dollar soared above 172 naira.

The intervention initially triggered some respite, but today the dollar climbed above the previous peak, to above 173, traders said.

The Naira’s drop puts Nigeria among the worst hit of the word’s oil producers, but the ruble, Norwegian krone and Canadian dollar have all taken hits. It’s economy is also cited as one of the most promising growth stories in Africa, based in no small part on its massive oil reserves, but also its burgeoning middle class.

Year-to-date, the currency has now lost 8% against the dollar and more than 4% since the start of November, and in the short term at least, traders say they see no relief. The ICE Brent Crude Index was down 0.6% at $79.90 per barrel according to Factset Thursday, taking its year-to-date loss to over 27% and Deutsche Bank economists wrote in a note that at least in the near term, they see risk to the downside.

“Although a seasonal pickup in crude oil demand will be triggered by refinery turnarounds concluding in November, we expect renewed weakness in 2015 owing to the medium-term trend of non-OPEC supply growth expanding at a faster rate than total demand growth, even at current oil prices,” they wrote.

The central bank is attempting to curtail its currency’s fall against the dollar, barring imports of goods paid for in dollars and limiting deposits in its Standing Deposit Facility to 7.5 billion naira, or about $45 million to boosy the amount of naira in circulation to pay for goods and services.

But its foreign currency reserves recently stood at $39.5 billion, much smaller than Russia’s $454 billion as of the end of September for example, limiting Nigeria’s ability to hold back the decline with interventions.

Nigeria’s All-Share Index on Thursday recouped some of losses recorded in previous sessions, rising 0.8% in early European trade, but is still down almost 18% so far this year and almost 10% since the start of November alone.

Amid all the concerns surrounding the currency and other oil-dependent  assets Nigeria’s Debt Management Office said on Thursday that it had issued 55 billion naira ($325 million) worth of sovereign bonds at a regular auction on Wednesday, with maturities of three, 10 and 20 years respectively. All bonds were heavily oversubscribed according to the DMO but one banking source said that the amounts issued were slightly smaller than what the government would have done under usual conditions, and the yields moderately higher, showing the “proactive stance of the government” against an adverse backdrop.