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Nigeria’s Forex reserves shrink to six-month low at $36.763bn

By BusinessNews Staff on December 5, 2014

The effect of the dwindling price of oil crude oil is taking its toll on the country as its external reserves have declined by $2.081 billion to $36.682 billion on December 1.
This represented a decline by 5.4 per cent, compared to the $38.763 billion it stood as at the end of the previous month.
The last time the reserves, which are mostly derived from crude oil earnings was at its current level was in June 2014.
The Central Bank of Nigeria (CBN) has been defending the naira from the forex reserves. The naira has been under pressure due to the falling oil price as well as strong capital outflows.

This had necessitated a devaluation of the naira as well as further monetary policy tightening.
Meanwhile, a report by Business Week has stated that last week’s decision by OPEC not to cut production may result to a lot of collateral damage. It quoted RBC Capital Markets’s Helima Croft to have warned that Nigeria might actually be the country most at risk for civil unrest related to oil price decline.
“In a country plagued by deep regional and religious divisions, oil revenue is literally the glue that binds the fractious elites together,” Croft wrote.
There are two major sources of violence in Nigeria: In the north, Boko Haram and Ansaru (influenced by ISIS of late). In the south, there are the Christian militias, which reached a tentative peace agreement with the government a few years ago. That agreement expires next year.

Also, another strategist, Emad Mostaque wrote in a note, “Nigeria has been meaningfully below its faceplate production capacity for a number of years. The primary reasons for this are local instability (particularly in 2008 with MEND), decaying infrastructure and graft.”
In a separate email to Business Insider, Mostaque noted that “Nigeria is a… porous country with billions going missing each month between Nigerian National Petroleum Corporation (NNPC) invoices and receipts alone…”
The country’s budget is based on an oil price of $77 per barrel. Any revenue above that goes into the excess crude account (ECA).
However, the federal government recently announced some measures to enable it cushion the effect of the oil price decline on the economy.
Public violence has been increasing in the last year in the country, and the threat for more civil unrest as the February 2015 national elections approach is high. Sectarian tensions between Christians and Muslims are running high.
Low oil prices will only make the situation worse. According to RBC’s Croft, “elites have also turned to crude theft as a way to help finance elections … with less oil money around to grease the election machinery, crude theft and production outages could easily exceed levels seen in prior polls.”

[ThisDay]

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