The naira has been tipped to come under pressure this month as more travelers are expected to seek Personal Travel Allowance (PTA) and Business Travel Allowances (BTAs) for their foreign trips within the month.
In a monthly market report released at the weekend, Afrinvest West Africa Limited, said massive demand for PTAs and BTAs by travelers will likely weaken the naira, unless there are significant dollar inflows to boost FX positions in the economy.
The report said the month of September comes with “seasonality effects” for PTAs, BTAs demand. Traveling abroad, whether for business or leisure, often requires access to foreign currency. In Nigeria, the Central Bank of Nigeria (CBN) has provisions for travelers to obtain forex under the BTA and PTA schemes.
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Expanding on the development, the report said: “In the absence of significant inflow to boost FX supply, we expect the naira to be pressured in the month, due to the seasonality effect, as PTAs and BTAs demand peaks.”
It said that Nigeria’s foreign exchange reserves fell 1.3 per cent month-on-month to close at $36.3 billion and the slight decline can be attributed to the Central Bank of Nigeria (CBN’s) intervention in the FX market in an effort to stabilise the Naira.
“Meanwhile, activity level faltered as total turnover fell 29.7 per cent month-on-month to $3.6 billion. In the currency market, the performance of the naira varied. Specifically, the Naira gained 0.9 per cent month-on-month against the dollar to N1,593.9/ $1.00 at the official market window while it dipped 0.6 per cent month-on-month at the parallel market to close at N1,605.00/$1,” it said.
On the oil sector performance, the report said that in August, Brent crude oil prices experienced a rebound, driven in part by the planned production cuts in Iraq (down to 3.85mbpd from 4.25mbpd) as part of plans to compensate for excess output in July and production shutdown in Libya due to political dispute.
“These disruptions to supply triggered a bullish outlook for oil prices, as market participants anticipate shortages,” it said.
“Additionally, the expectation of interest rate cuts by the Federal Reserve in September contributed to the rise in crude oil prices as lower interest rates can weaken the US dollar relative to other currencies, which will make crude oil more attractive to foreign buyers. As a result of these factors, the average Brent crude oil price rose 3.6 per cent month-on-month to $84.3/bbl”.
The report also took a deeper look into the recently published second quarter 2024 Gross Domestic Product (GDP) data, which showed that the economy grew 3.2 per cent year-on-year in real terms compared to 2.5 per cent in second quarter of 2023.
Furthermore, it highlighted three striking patterns in the sectoral GDP performance that call for improved strategy from the Federal Government and other sub-nationals to avert major economic crises.
“First, the resilience of the services sector is fast weakening, given that growth only came in at 3.8 per cent as compared to 4.4 per cent in the corresponding period of 2023. We are concerned that this worrisome trend may not be unconnected to the heightened pressure exerted on players in the sector, notably, the telecoms sector evidenced by the negative knock-on effect of exchange rate volatility in the last 12 to 14 months on the sector (sector’s average growth weakend to 4.4 per cent from a 10-year average of 9.5 per cent).”
Also, MTN Nigeria’s shareholders fund was wiped off in 2023 after posting record exchange rate losses of N740 billion.
The report said, the agriculture sector growth at 1.4 per cent is unflattering, considering the 2023 base where growth printed at 1.5 per cent despite disruptions from the naira scarcity episode and pre-election jitters.
In addition, the agriculture sector growth is weak for an economy with an estimated population growth rate of 2.5 per cent per annum.
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