As the Nigerian naira continues to weaken, trading near the 1,500 per dollar mark in both the official and parallel markets, the Federal Government has received a crucial lifeline of $925 million from the African Export-Import Bank (Afreximbank). This fund aims to bolster the forex market and meet Nigeria’s dollar obligations amid ongoing currency pressure.
Forex Shortage and Naira Depreciation
The naira has been under significant pressure against the US dollar due to a persistent forex shortage, speculative activities, and other economic challenges. Despite various measures by the Central Bank of Nigeria (CBN) to stabilize the currency, including interventions and policy adjustments, the naira’s value has continued to decline, reaching close to 1,100 per dollar in early April.
Afreximbank’s $925 Million Disbursement
On Thursday, the naira closed at N1,481 per dollar on the official market. On the same day, Afreximbank announced an additional $925 million disbursement as part of the $3.3 billion crude oil-backed prepayment facility, known as Project Gazelle, sponsored by the Nigerian National Petroleum Company Limited (NNPC). This latest disbursement brings the total funded facility size to $3.175 billion.
The $925 million was raised from a consortium of crude oil off-taker lenders, including the Oando Group and Sahara Energy Resource Limited. Afreximbank played multiple roles in this transaction, acting as Mandated Lead Arranger, Technical and Modelling Bank, Bookrunner, Facility Agent, Offshore Account Bank, Intercreditor Agent, and Collateral Agent.
Objectives and Impact of the Facility
The primary goals of this facility are:
- Stabilizing the Foreign Exchange Market: The funds will help the CBN manage the forex market more effectively.
- Meeting Dollar Obligations: It will assist the Federal Government in fulfilling its dollar-denominated obligations.
- Supporting NNPC: The funding will also provide NNPC with necessary resources to maintain and expand its operations.
Prof. Benedict Oramah, President and Chairman of the Board of Directors of Afreximbank, emphasized the importance of this facility in supporting Nigeria’s macroeconomic stability and long-term economic growth. He highlighted that this funding aligns with Afreximbank’s role as a development partner for Africa.
NNPC’s Role and Strategic Planning
Mele Kyari, the Group CEO of NNPC, praised Afreximbank for its investment philosophy and active interest in Nigeria’s growth. He assured that NNPC would continue to leverage the nation’s hydrocarbon resources and strengthen partnerships across the oil and gas value chain. NNPC has reserved up to 90,000 barrels of crude for Project Gazelle, ensuring sufficient cash flow for repayment and other financial obligations.
Naira’s Market Performance and Projections
The naira showed slight appreciation, trading at N1,481 from its lowest level of N1,488.60 per dollar. Market data from FMDQ Exchange indicated a high of N1,505 and a low of N1,401 during trading hours. The daily forex market turnover stood at $213.31 million, up from $205.43 million the previous day.
Fitch Ratings projected that the naira would average about N1,200 per dollar this year and end the year around N1,450 per dollar. The rating agency also anticipated a recovery in the oil sector to support FX demands.
Future Outlook
The $3.3 billion loan from Afreximbank has attracted mixed reactions, with concerns about its implications for Nigeria’s oil production. However, NNPC’s Chief Corporate Communications Officer, Olufemi Soneye, defended the loan as a necessary short to mid-term solution to the forex shortage. He pointed out that unmet obligations amounting to over $6 billion were pressuring Nigeria’s external reserves and contributing to the naira’s devaluation.
Soneye explained that the pre-financing arrangement allows the Federal Government to receive foreign exchange in advance, helping to resolve its unmet FX obligations and stabilize the exchange rate. He emphasized that forward sale contracts are strategic for delivering significant upfront funding for new projects before production and export, ultimately enhancing oil and gas exports and bringing in more foreign currencies.
In summary, the $925 million lifeline from Afreximbank is a critical step towards stabilizing Nigeria’s forex market and supporting the naira. It underscores the importance of strategic financial interventions in addressing economic challenges and fostering long-term growth and stability.
