• Foreign flows into Nigeria have been relatively strong in 2020 so far
• Coronavirus fears risk hampering both oil and non-oil inflows
• Exchange rate should be stable until at least the end of H1-20, but further out, picture is bleak

February 7, 2020/Cordros Report

The wave of capital repatriation by foreign investors and the resultant drawdown on Nigeria’s foreign reserves has been sustained into early 2020. However, relative to December 2019, the downtrend has been far less steep. For one, for the first time in seven months, the Central Bank of Nigeria (CBN) was a net-buyer at the I&E window, purchasing a total of USD633.27 million in the month of January

Turning Our Heads to Oil

Looking ahead, our currency stability concerns have shifted from the sell-offs of naira assets by foreign investors, to crude oil prices. The recent outbreak of the deadly coronavirus continues to send panic through global markets, with oil prices falling to one-year lows. The recent outbreak of the deadly coronavirus continues to send panic through global markets, with oil prices falling to one-year lows. Brent, the global oil benchmark, has slumped 20.2% YTD to USD54.93pb (6 February 2019) as traders reacted to the magnitude of the health crisis.

Covering All Bases

We believe that at current levels, oil prices have already priced in significant demand shocks, and as such there is only modest further downside potential. However, an extended period and/or a worsening of  the virus outbreak will continue to weigh down global oil markets and should force the CBN to rethink its exchange rate management strategy. Going by history, apart from a reduction in oil inflows for the apex bank, a prolonged period of depressed oil prices will also increase the strength of capital outflow/repatriation by foreign investors. Thus, we adopted a worst-case scenario and assumed an average crude price of USD50 per barrel (previously USD60 per barrel) over the rest of H1-20.

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