UBA Says Nigerian Currency Devaluation May Happen This YearChris Kay
Nigeria’s currency may face a “gradual depreciation” of as much as 15 percent this year with the naira under pressure from U.S. stimulus cuts, said United Bank for Africa Plc Chief Executive Officer Phillips Oduoza.
While the pace of depletion in Nigeria’s foreign reserves has slowed in 2014, there is “very, very huge demand for foreign exchange arising probably from the tapering of the quantitative easing in the United States,” he said in an interview yesterday at the World Economic Forum in Abuja, Nigeria’s capital. “It could happen any moment from now, there is so much pressure on the local currency.”
Oduoza joins executives from Africa’s biggest phone company, MTN Group Ltd., who said the country’s central bank may need to lower the naira’s target peg of 3 percentage points above or below 155 per dollar at twice-weekly foreign-exchange auctions. The currency of the continent’s largest economy dropped 2.2 percent in the past 12 months and traded less than 0.1 percent weaker at 161 by 10:24 a.m. in Lagos.
Nigeria’s foreign-exchange reserves declined 13 percent this year to $38 billion by May 5 as the central bank sold dollars to prop up the naira and as oil production missed estimates. Godwin Emefiele, who becomes the institution’s governor in June, told the Senate in March that a devaluation of the naira is “not an option” and would be “devastating” for the economy.
Pressure on the currency may still prompt a change in the peg, Oduoza said. “It may happen and probably the market may force that.”
Andrew Bing, chief financial officer of MTN’s Nigerian unit, said in a May 5 interview that the currency will probably be devalued after next year’s election because of lower-than-forecast oil exports from the continent’s biggest producer.
Companies are also being affected amid attacks by militant group Boko Haram. The violence is a concern for investors and it’s negatively affected UBA and client businesses in the northeastern region of Africa’s most populous nation of about 170 million, said Oduoza.
“We have some major multinationals that use that particular corridor to move their goods across to the neighboring countries, that has affected their business and in turn it has affected out business,” he said. The northeast contributes less than four percent of the bank’s revenue, so “the impact is very minimal,” Oduoza said.
International political and business leaders attending the forum ending today, including Chinese Premier Li Keqiang and Bharti Airtel Ltd. Chairman Sunil Bharti Mittal, condemned the Boko Haram Islamists who seized more than 200 schoolgirls last month and pledged continued investment in Nigeria. The U.S., U.K., France and China plan to send security personnel and other unspecified support to Nigeria to help locate the students.
As Nigeria gets foreign assistance to deal with the insurgency, Oduoza said the insurgency may be “a phase that’s going to pass” in the country.
“I think we are going to see a just a gradual disappearance of these terrorist activities, if not completely,” he said.
While investors are looking to long-term growth in Nigeria, a southern spread of the insurgency to oil-producing region and the commercial megacity Lagos would cause “major, major panic across the nation,” Oduoza said.
“If it goes beyond it will definitely affect the business and it will definitely affect foreign investors,” Oduoza said. “It is definitely going to affect everything that we are doing.”