Nigeria Reserves May Rise to Strongest in More Than Year, FBN Capital Says

Nigeria’s foreign-currency reserves may rise 24 percent to the highest in a year in the second half of 2011 as it creates a sovereign wealth fund, tightens spending and lifts curbs on inflows, FBN Capital Ltd. said.

The foreign-currency reserves of Africa’s top oil producer may rise to $40 billion, FBN Capital, the investment-banking unit of First Bank of Nigeria Plc (FIRSTBAN), said in an e-mailed research note today. That would be the highest since April 2010, according to data from the Abuja-based Central Bank of Nigeria’s website. Reserves have fallen 14 percent to $32.3 billion as of June 24 compared with a year earlier. Bonny Light oil has added 38 percent over the same period. The West African country relies on crude exports for about 95 percent of its foreign-currency earnings, according to the Finance Ministry.

“Our feeling is that in the second half of 2011, reserves will pick up, perhaps to $40 billion, as the new government opts for modest fiscal tightening and foreign investors respond positively to the reform agenda,” Gregory Kronsten, the London- based head of macroeconomic and fixed-income research at FBN, wrote in the note. A transparent sovereign wealth fund would address market concerns over how the nation’s oil revenues are managed, he said.

President Goodluck Jonathan, who was returned to power in April elections, rejected proposals by lawmakers and slashed almost 500 billion naira ($3.2 billion) off a budget adopted two months earlier, taking the final spending plan to 4.5 trillion naira. Nigeria’s Senate passed a bill last month creating a sovereign wealth fund to help the country save more of its oil revenue and funnel money into projects.

Currency Demand

Nigeria will lift a requirement for foreign investors to hold local-currency investments in government securities for at least one year from July 1, Lamido Sanusi, governor of the central bank, said June 23.

The West African nation’s reserves may not have risen because foreign-currency “demand at auction is robust and has not cooled since the elections in April,” said Kronsten.

Demand at the central bank’s its twice weekly auctions reached a post-election high of $499 million on May 16 and was at $476 million on June 22. The bank has defended the naira, keeping it within 3 percent above or below 150 per dollar marginal rate at foreign-exchange auctions in a bid to curb inflation.

To contact the reporter on this story: Chris Kay in London at ckay5@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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