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By Chinwendu Obienyi
In the aftermath of the $3 billion emergency crude repayment loan secured from the African Export-Import Bank (Afreximbank) by the Nigerian National Petroleum Company Limited (NNPCL), economic analysts have reiterated that diversifying the economy’s export base would be paramount to solving the reoccurring exchange rate issues.
According to the analysts, Nigeria needs to look beyond crude oil and earn more from stable exports.
The NNPC Limited had on Wednesday, stated that the loan agreement was not a crude-for-refined product swap but an upfront cash loan against proceeds from a limited amount of future crude oil production.
The company further revealed that the disbursement will be in tranches based on the FGN’s specific needs & requirements adding that there are no sovereign guarantees tied to the loan.
Reacting to this, analysts at Cordros Research via an email sent to Daily Sun, noted that the loan arrangement would mean that the NNPCL was collecting its future revenue from crude oil production in advance from the AFREXIM Bank. The analysts said this arrangement shows the government is also aware of the dearth of liquidity in the FX market, requiring an urgent need for US dollar inflows to provide a short-term FX fix while it continues to fix the fundamental issues.
They said, “When the money comes to the NNPCL, it will enable the Corporation to settle its taxes and royalties to government in advance, providing the CBN with US dollar liquidity needed in the near-term respite for the local currency. In terms of repayment, the NNPCL will repay the loan from its future crude oil production, depending on the terms of the agreement with Afreximbank”.
They further noted that although Nigeria needs significant FX inflows to provide a near term support for the FX reforms embarked by the CBN since 14 June, the NNPCL’s loan arrangement came as a positive surprise while adding that this loan is a favourable short-term fix in providing near-term FX supply to support the FX market and stabilise the Naira.
According to Cordros Research, “the amount is not enough to significantly support the local currency, more so that the funds will come in tranches. Thus, if not adequately managed with other measures (such as higher interest rates and additional funding support from third parties or multilateral institutions), FX pressures may likely build up again, leading to another round of local currency depreciation”.
The research and investment based firm also added that the loan agreement may negatively impact FAAC inflows when the NNPCL starts repaying the loan.
“Our prognosis is hinged on revenue flows from crude oil which may reduce if oil production does not improve significantly from current levels and a reduction in future taxes and royalties from NNPCL as the FGN now gets them in advance”, they said.
