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Interbank rates rise on NNPC withdrawal

By on April 11, 2011

The current oil price spike, which is great news for oil producing countries, could be a double- edged sword and unsustainable, Managing Director, Financial Derivatives Company Limited, Mr Bismarck Rewane, has said.

He also said Nigeria’s terms of trade, which measure the exports and imports price relationship have improved sharply following a new economic drive that pushes imports to countries with weaker currencies.

Speaking during the monthly Lagos Business School Executive Breakfast Meeting, Rewane said: “Nigeria’s export market growth mirrors global economic conditions and that higher oil prices may stifle global recovery, but will have a positive effect on revenues.”

Oil rose to a 32-month high last Friday above $126 a barrel.

Rewane said cautious optimism is recommended in long-term planning, stressing “the global economy is dominated by the Japanese natural disaster and nuclear fallout, violence and the end Game in Cote d Ivoire as well as the undesirable slide of Portugal into bankruptcy.”

He, however, said effects of these developments on Nigeria differ from country to country.

Rewane said developments in Japan are important, but not vital to Nigeria’s economic calculations. Japan is the world’s third largest economy with Gross Domestic Product (GDP) of $5.06 trillion and expected GDP growth of two per cent. Japan’s trade with Africa is estimated at $24 billion, mainly oil, Liquefied Natural Gas (LNG) and automobiles.

The country’s Foreign Direct Investment (FDI) in Nigeria is relatively low, due to extreme risk aversion of Japanese investors. Rewane said an increase in demand for LNG will also change Nigeria’s export composition as gas accounts for 7.8 per cent of exports for the economy.

He also said a possible bankruptcy in Portugal will have negative consequences for Nigeria. “Portugal imports mainly LNG from Nigeria. The planned European Union bailout of $100 billion means that cumulatively, trouble EU member states.

The Financial Derivative boss said the Naira, which exchanges at N154 to dollar has been linked to Nigeria’s terms of trade improvement.

source : The Nation