THE naira appreciated to an eighth-month high of 1474.78/$ at the official foreign exchange (FX) market on Friday as dollar demand eases on a raft of fiscal and monetary policies of the government.
The naira traded at 1,485.99/$ on June 3, 2024 at Nigerian Foreign Exchange Market (NFEM). However, the currency is now stronger eight months after due to a slew of factors, including a rising local petrol refining capacity, higher dollar inflows and the Central Bank of Nigeria (CBN)’s swift policy actions in the last 17 months.
The 650,000-barrels-per-day Dangote Petroleum Refinery began refining petrol in September 2024, providing premium motor spirit (PMS) to a nation battling an acute fuel crisis.
Four months after, Nigeria’s petrol imports dropped to their lowest level in eight years. Petrol shipments into the West African nation stood at about 110,000 barrels a day during January 1-24 data compiled by Bloomberg from analytics firm Vortexa Ltd showed.
A PwC document says petrol imports constitute 22 percent-25 percent of Nigeria’s forex demand.
“There is less pressure on the market now because fuel importers are no more seeking dollars to import petrol the way they earlier. More so, the CBN has cleared forex backlog and we saw inflows from Eurobond and dollar bond last year,” Ike Ibeabuchi, emerging markets analyst.
Dollar demand by various sectors of the Nigerian economy, also referred to as foreign exchange (FX) utilisation, fell by 11 percent to $5.7 billion in the third quarter (Q3) of 2024 from $6.4 billion in the second quarter (Q2) of the same year, primarily driven by a reduction in invisible transactions.
Uche Uwaleke, director of the Institute of Capital Market Studies at Nasarawa State University, forecasts a positive trajectory for the naira in 2025, attributing this outlook to lower petrol and food importation as well as increased fuel exports next year.
Uwaleke pointed to the reduced importation of petroleum products as a major driver of the naira rebound.
“With increased domestic refining capacity, we expect a significant decline in fuel imports, which will ease pressure on foreign exchange demand and strengthen the naira,” he said.
He further highlighted the potential impact of increased earnings from the export of petroleum products.
“As Nigeria boosts its export capacity, foreign exchange inflows will improve, supporting the local currency,” Uwaleke noted.
