Businesses are expected to adopt export-oriented strategies by targeting sectors with strong export potential, and focusing on value addition by shifting from exporting raw materials to processed goods, thereby boosting foreign exchange (FX) earnings. Doing this will ameliorate the adverse impact of oil price decline on foreign exchange (FX) inflows into government coffers, in addition to other measures instituted by the Central Bank of Nigeria (CBN), writes JOSEPH INOKOTONG.
THE Federal Government, in the past two years, has recorded some modest gains in the oil sector, a major foreign exchange (FX) earner for the nation, although the non-oil segment of the economy is equally generating FX, after the introduction of various reforms.
This achievement is being threatened by recent developments in the international oil market. The decline in oil prices due to OPEC+ many Organisation of the Petroleum Exporting Countries and allies such as Russia, agreeing to boost production by nearly one million barrels per day (1mbp/d) across April, May and June will have adverse impact on FX inflows to Nigeria.
However, the threat appears to be contained by continuous efforts by the Central Bank of Nigeria (CBN) to establish strong measures to attract more dollars into the economy to reduce impact of crude oil prices drop on FX liquidity and overall economy.
In recent months, global oil prices have continued to decline, currently trading slightly above $60 per barrel. For an oil dependent economy like Nigeria, the ongoing decline in crude oil prices is never a cheering news.
Crude oil prices react to many variables, including supply and demand prospects and the perceived risk of market disruptions. Economic growth can drive up the demand for crude oil, while slowdowns tend to lower demand and prices.
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The current decline in oil prices reflects a complex interplay of supply-side decisions, demand-side concerns, and strategic manoeuvres by key players like Saudi Arabia.
With the pessimistic projection of The Wall Street Journal that Brent could end 2025 below $50 per barrel, Nigerian policymakers have their work cut out for them. At $50 per barrel and a production level of 1.5 million barrel per day (mbpd), Nigeria’s oil revenue will be 10 percent below its fiscal breakeven point. The fiscal deficit could rise to six to seven percent of Gross Domestic Product (GDP), with a knock-on effect on inflation.
In an upcoming meeting, eight OPEC+ countries may consider a further output increase of 411,000bpd for July, as per sources. These supply hikes come amid global economic challenges including a tariff war initiated by the US. Middle Eastern benchmarks have been pressured by the rising supplies, with the average cash Dubai premium to swaps at $1.21/pbl as of 27 May, a $0.45 decrease from April’s average. Saudi Aramco, the state oil company, bases its crude prices on customer recommendations and the past month’s oil value changes, considering yields and product prices.
However, the Central Bank of Nigeria (CBN) Governor, Olayemi Cardoso has through foresight, activated countermeasures that will ensure that the impact of the oil-crisis does not hurt the domestic economy. The apex bank is taking measures to improve Nigeria’s export potential, promoting backward integration principles to reduce import of items that can be produced locally and simplifying dollar remittances to domestic economy for Nigerians in diaspora.
Drawing from China’s economic strategy, the apex bank said Nigeria’s competitive exchange rate can drive export-led growth. To harness this potential, businesses are expected to adopt export-oriented strategies by targeting sectors with strong export potential such as agriculture, manufacturing and creative industries; implement import-substitution models by strengthening domestic production capabilities and reducing reliance on costly imports; and focus on value addition by shifting from exporting raw materials to processed goods, thereby boosting foreign exchange earnings.
Cardoso said Nigeria’s creative sector has potential to attract $25 billion annually to the economy, highlighting the untapped opportunities in Nigeria’s expanding creative sector, including music, film, crafts, and digital exports. He urged businesses to explore international markets, digital platforms, and global tours to increase dollar revenue inflows.
Cardoso also recently advised telecom companies to reduce their dependence on foreign imports by producing key components of their inputs locally. The backward integration proposal for the telecom industry comes at a time the real sector is in dire need of sustainable growth. The CBN boss gave insights on what the economy stands to gain from backward integration in the telecoms sector.
He spoke in Abuja during a visit by Airtel Africa’s management team, led by Group CEO Sunil Taldar. Cardoso stressed that local production would help reduce pressure on the dollar, create jobs, and boost Nigeria’s economy. He said that massive production of key inputs, that are currently being imported, like SIM cards, cables, and towers is essential, noting that over the past 16 months, the CBN has worked to stabilize the foreign exchange (forex) market, strengthen the Naira, and attract investors. With these improvements, he urged telecom firms to embrace backward integration.
In response, Airtel Africa’s CEO, Sunil Taldar, praised the CBN’s reforms and expressed support for local production, saying it would benefit telecom companies in the long run. He also reaffirmed Airtel’s commitment to expanding financial inclusion through technology.
Other analysts also mentioned the renewed interest of Foreign Portfolio Investors (FPIs) in the FX market—driven by improved market confidence, a more efficient FX framework, and strengthening macroeconomic conditions—alongside the CBN’s sustained market interventions, is expected to continually support naira stability.
Telecoms Sector to the rescue
According to the Nigerian Communications Commission (NCC), the total active telephony subscribers increased by 3.2 percent month/month to 164.93 million in December 2024. The increase reflects the gradual recovery in the subscriber base following the conclusion of the NIN-SIM linkage programme by mobile service providers in September.
Analyzing the market share by operators, MTN Nigeria led by 51.4 percent with 84.61 million subscribers, Airtel Nigeria followed with 34.4 percent (56.62 million subscribers), Globacom with 12.2 percent (20.14 million subscribers) and 9mobile with 2.0 percent (3.28 million subscribers). At the same time, the total number of internet subscribers rose by two per cent month/month to 139.28 million in December.
Looking ahead, analysts at Cordros Securities, said they expect subscriber base recovery through SIM reactivation initiatives, especially from market leaders – MTN Nigeria and Airtel Nigeria.
According to the National Bureau of Statistics (NBS) third quarter 2024 Gross Domestic Product (GDP) report, the Information and Communication sector, is made up of Telecommunications (telecoms) and Information Services; Publishing; Motion Picture, Sound Recording and Music Production; and Broadcasting.
What stakeholders are saying
Executive Secretary of the Association of Licensed Telecommunication Operators of Nigeria (ALTON), Gbolahan Awonuga, said that aside telecom operators, other key business owners and entrepreneurs can also invest in the local manufacturing of key components in telecoms operations. He said: “We have to look inwards and get Nigerian companies to produce these key components in telecom operations locally. Government also has a role to play, by ensuring that key infrastructure especially power is available. We do not want a situation where locally produced inputs, will become more expensive than imported versions”.
Awonuga said that telecom sector plays key roles in banking services, including enabling digital payments and ensuring security of transactions. He said banking and telecom sectors have more to gain if backward integration thrives in the country adding that government has significant role to play to make the move a success.
Research Head, Cowry Asset Management Limited, Charles Abuede, said the CBN governor’s call was to discourage the importation of foreign services into Nigeria, especially when efforts can be made to develop such services locally. “The high demand for foreign exchange by telecom operators has further pressured the naira due to increased demand for the dollar. However, with adequate infrastructure development and a conducive operating environment facilitated by regulators, these challenges can be mitigated,” he said.
According to Abuede, “given Nigeria’s FX policies, illiquidity in the foreign exchange market, and infrastructure deficits, I think increased investment in the telecom sector would enable operators to embrace backward integration. This would allow them to manufacture key components, such as SIM cards, locally. As a result, production costs could decline—provided the operating environment remains stable. This will improve profit margins and enhance both top-line and bottom-line growth in the long run”.
The CBN under Cardoso has carried out several efforts to improve the functioning of the FX market. This has led to good results with average daily turnover in the Nigerian Autonomous Foreign Exchange Market increased by 226 percent in the first half of last year when compared to the same period in 2023.
Foreign portfolio inflows have increased by over 72 percent during this period, while foreign exchange reserves have risen from $32 billion in May 2023 to over $40 billion. This represents the equivalent of eight months’ import cover and marks the highest reserve level in nearly three years. The market has also supported over $9 billion in capital outflows over the past year as investors were able to freely repatriate capital and dividends without the need to wait for several months as experienced in the past.
These results, Cardoso said, reflect improved confidence in the reforms he embarked on. “In addition, we witnessed a $6 billion current account surplus in the first half of 2024 as a result of the impact of these reforms. Reduction in petroleum product imports supported by improved domestic refining capacity, a growing focus on non-oil exports and higher remittance inflows helped to support the positive current account balance,” he said.
Also, an enabling policy environment has led to a doubling of monthly remittances from an average of $300 million in 2023 to nearly $600 million in August 2024. “We are committed to further integrating the Nigerian diaspora into our financial system, exemplified by the introduction of the non-resident Bank Verification Number registration. We expect our financial institutions to develop products that not only enable the diaspora to support their families but also provide opportunities for savings and investment in Nigeria,” he said.
Impact on Diaspora remittances
As part of its efforts to boost diaspora remittances and support naira stability, the CBN recently announced the introduction of two new financial products designed to serve Nigerians living abroad.
The Non-Resident Nigerian Ordinary Account and the Non-Resident Nigerian Investment Account were created to streamline remittances, encourage investments, and foster financial inclusion among Nigerians in the diaspora.
He said, “The Central Bank of Nigeria is pleased to inform the general public of the introduction of the Non-Resident Nigerian Ordinary Account and Non-Resident Nigerian Investment Account targeted at Nigerians in diaspora.” The initiative is also expected to provide a secure and efficient platform for managing funds and investing in Nigeria’s financial markets.
President, Association of Bureaux De Change Operators of Nigeria, Dr. Aminu Gwadabe, explained that diaspora remittances are a crucial source of foreign exchange for Nigeria, supplementing both foreign direct investment and portfolio investments. He said CBN’s initiatives have supported continued growth in these inflows, aligning with the institution’s objective of doubling formal remittance receipts within a year. Gwadabe said remittances in the economy is expected to increase based on CBN’s ongoing efforts to bolster public confidence in the foreign exchange market, strengthen a robust and inclusive banking system, and promote price stability, which is essential for sustained economic growth.
In a report: “Diaspora remittances: The power behind Africa’s sustainable growth”, Regional Vice President of Africa at Western Union, Mohamed Touhami el Ouazzani, said remittances may be measured through the movement of money, but their real impact is measured in lives changed. He disclosed that in 2023 alone, $90 billion flowed into Africa from its global diaspora, an amount that rivals the Gross Domestic Product of entire nations.
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