The Central Bank of Nigeria (CBN) recently conducted a Retail Dutch Auction System (RDAS) where the real sector, particularly businesses in the manufacturing industry, played a dominant role. During the auction, the CBN sold approximately $876.26 million to 3,347 firms through 26 qualifying banks at a cut-off rate of N1,495 per dollar. This intervention was designed to alleviate the rising demand pressures in the foreign exchange (FX) market and ensure price stability.
Key sectors such as manufacturing benefited significantly, receiving dollars to import essential items like spare parts for machinery, industrial raw materials, pharmaceutical products, and brewery equipment. Notable companies, including Promasidor Nigeria Limited, Sumal Foods Limited, and subsidiaries of Dangote Industries and BUA Group, secured significant amounts of FX to support their operations. Additionally, companies like African Foundries and Crown Flour Mills used the FX for loan repayments.
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This auction marks a critical FX intervention under the leadership of CBN Governor Yemi Cardoso, who is actively working to stabilize the naira amidst ongoing volatility. A total of $1.19 billion in bids was received, with $815.36 million successfully allocated. However, six banks were disqualified from the auction for failing to adhere to submission guidelines.
Despite the short-term relief provided by the auction, Afrinvest analysts have raised concerns about the sustainability of these interventions. They estimate that Nigeria’s foreign reserves, currently at $37.1 billion, might only cover six to nine months of imports if the current level of FX demand continues. The analysts emphasize the need for strategic fiscal policies to enhance economic productivity, increase oil production, boost remittances, and attract longer-term foreign direct investment (FDI) to ensure the naira’s long-term stability.
The auction’s pricing reflects the reality of the wholesale FX market, with rates fluctuating between N1,450/$ and N1,600/$ throughout 2024
. This indicates that the government’s goal of achieving an exchange rate of N800.0/$ by year-end is unlikely without significant economic adjustments.
