Friday, January 29, 2016 08:42 AM / FBNQuest Research
We see industry estimates that the Chinese authorities would run their official reserves down to zero by December 2018 if they maintained their current very high rate of monthly depletion. Because their Nigerian counterparts failed to build solid buffers when oil prices permitted, they are struggling to contain the depletion of reserves now that fx inflows have slumped.
Oil and gas, both dollarized exports, earned US$90.5bn in 2013, and transfers (remittances), the second largest source of inflows, US$22.2bn. We fail to see what could take up the slack before the oil price recovers. From a balance of payments (BoP) perspective, devaluation would not make much difference.
A devaluation would boost certain non-oil exports, mostly agricultural, but these amounted to just US$4.5bn in total in 2013.
Our chart puts gross inflows on the financial account into context. In the four quarters from Q3 2012, when Nigeria enjoyed the feelgood factor from the JP Morgan listing, gross portfolio inflows reached US$21.2bn, net portfolio flows US$18.9bn, and oil and gas exports US$94.9bn.
For direct investment, the gross and net figures for the same period were US$7.3bn and US$5.2bn. We have seen the argument that the FGN could sell assets to foreign investors to shore up reserves.
We recall that before the slide in the oil price Chinese investors were said to have offered US$70bn for the NNPC’s joint-venture interests. The valuation of these assets would have since fallen sharply.