In a recent development, the Central Bank of Nigeria (CBN) disclosed its disbursement of approximately $61.64 million to foreign airlines through various Deposit Money Banks (DMBs) within the country. Additionally, the CBN highlighted its successful redemption of outstanding forward liabilities totalling about $2 billion over the last three months, bringing the cumulative amount to $2.062 billion.
This intervention in the foreign exchange (FX) market was officially confirmed through a statement by CBN’s acting Director of the Corporate Communications Department, Mrs. Hakama Sidi. The central bank emphasized that this payment signifies its unwavering commitment to resolving the backlog of matured foreign exchange in banks, aiming to alleviate pressure on the exchange rate.
Mrs. Hakama Sidi explained that this initiative aligns with the CBN’s broader efforts to reduce outstanding liabilities to airlines, emphasizing the commitment to settling valid forward transactions. The central bank anticipates that these interventions will not only contribute to stabilizing the naira against major global currencies but also foster increased confidence among investors in the Nigerian economy.
Federal Government Receives $2.25 Billion FX Facility to Address Shortage
In a related development, the federal government recently received a crucial injection of funds, amounting to $2.25 billion, out of a larger $3.3 billion foreign exchange (FX) facility from the African Export–Import Bank (Afreximbank). This long-awaited credit support is strategically designed to mitigate the acute FX shortage in the country, which has posed constraints on economic activities and dampened investor confidence.
President Bola Tinubu had earlier assured Nigerians of the administration’s commitment to resolving the FX backlogs through substantial fund injections into the market. With an estimated $7 billion to $10 billion in existing FX backlogs awaiting clearance, the infusion of funds is seen as a critical step to boost investor confidence and address persistent liquidity challenges affecting the economy.
Afreximbank played a pivotal role in this financial arrangement, acting as the mandated lead arranger alongside United Bank for Africa (UBA) as the local arranger. The structured financing arrangement involved a $3.3 billion liquidity support for Nigeria, with the first tranche of $2.25 billion released into the nation’s coffers. UBA is also serving as the onshore depository bank for the transaction. Other major participants in the deal include Gunvor, Sahara Energy, and several prominent oil traders.
This transaction is in line with President Tinubu’s Renewed Hope Agenda, intending to stabilize the FX market and address inflationary trends that have challenged the Nigerian economy since the inception of the administration.
Nigerian Equities Market Outperforms Global Counterparts in 2024 Opening Week
Shifting focus to the financial markets, the Nigerian equities market demonstrated robust performance in the first trading week of 2024, surpassing global markets and extending the positive rally observed in 2023. Closing last Friday, the overall market capitalization of the Nigerian Exchange Limited (NGX) surged by N2.68 trillion in just four days, reaching N43.593 trillion from the N40.917 trillion at the beginning of the trading year. This impressive performance in the opening week outpaced the corresponding period in 2023 by N1.6 trillion when the market gained N1.08 trillion in market capitalization during the first five days.
The NGX All-Share Index experienced significant growth, closing at a historic 79,664.66 basis points, marking a 6.54% Year-to-Date increase. This positive momentum contrasts with the major US stock indexes—S&P 500, Dow Jones Industrial Average (DJI), and Nasdaq Composite—that commenced 2024 on a downward trajectory. The US benchmarks recorded their first weekly declines in ten weeks, with the S&P 500 dropping by 1.54%, Nasdaq Composite slumping by 3.26%, and Dow Jones Industrial Average dipping by 0.59%.
Analysts attribute investors’ cautious approach in the opening sessions of 2024 to a wait-and-see attitude regarding clarity on the timing and pace of potential interest rate cuts. Notably, the Nigerian All-Share Index outperformed other African markets, with the Johannesburg Stock Exchange All-Share declining by 3.13% Year-to-Date, Ghana Stock Exchange (GSE)-Composite dropping by 0.04% Year-to-Date, Egypt’s EGX 30 gaining 1.83%, and TuninDex dipping by 2.25% Year-to-Date.
Despite challenges such as double-digit inflation, insecurity, and other economic uncertainties, the Nigerian equities market has continued to thrive. Positive sentiment was reinforced by Fitch Solutions’ pre-2023 election report predicting victory for the All Progressives Congress (APC) candidate, Bola Tinubu. The market’s bullish trend was activated following President Tinubu’s inaugural announcements of fuel subsidy removal and foreign exchange unification.
Reflecting on the market’s performance in 2023, Chief Executive Officer of Wyoming Capital and Partners, Mr. Tajudeen Olayinka, highlighted the eventful and bullish nature of the market. He emphasized that market confidence was evident as early as November 2022 when it became clear that pro-market candidates, including Bola Tinubu, were likely successors to former President Muhammadu Buhari. President Tinubu’s policy reforms, particularly FX liberalization and petrol subsidy removal, boosted investor optimism and resulted in substantial gains, especially in the banking and oil and gas sectors.
Looking ahead to 2024, Olayinka predicted positive momentum for the Nigerian stock market. He drew attention to President Tinubu’s 2024 budget proposal, which heavily relies on private capital for funding essential developmental projects across the country. Anticipating a bullish and active primary market in 2024, Olayinka acknowledged the possibility of occasional moderation in price movements as investors take profit and engage in portfolio rebalancing. The expectation is that the private sector’s leadership in steering the economy will contribute to a more robust capital market.
Rotimi Olubi, Managing Director of ARM Securities Limited, reflected on the resilience of the Nigerian stock market in 2023. Despite global agencies’ downgrades (FTSE and MSCI) and macroeconomic challenges, the market stood strong, reaching historic highs with the NGX All Share Index hitting 70,000 points and achieving an impressive 45.90% Year-to-Date return. The market’s bullish trend commenced after the implementation of key policy reforms following President Tinubu’s inauguration in May 2023. These reforms, including FX liberalization and petrol subsidy removal, spurred investor optimism, resulting in substantial gains, particularly in the banking and oil and gas sectors.
Looking ahead to 2024, Olubi anticipated that the positive trajectory of the market would persist as investors position themselves favorably in dividend-paying stocks, awaiting the release of 2023FY earnings. While expressing concern about the potential removal of selected Nigerian securities from the MSCI Frontier Markets Indexes, which could trigger sell-offs and dissuade foreign investors, Olubi acknowledged the relatively low foreign investor participation rate in 2023. He emphasized the importance of addressing persistent challenges such as structural issues, the FX crisis, and inflationary pressures to attract increased foreign participation.
In the near term, analysts at Cordros Research anticipate continued support for buying activities on the local bourse as investors position for 2023FY earnings releases and accompanying dividends declarations. However, they advise investors to seek trading opportunities in fundamentally justified stocks, considering the weak macro environment as a significant headwind for corporate earnings.
