FOREX NEW YORK COMPANIES

The steady growth recorded by Nigeria's forex reserves since this year may discontinue as a result of the sharp drop in the price of crude oil.

THISDAY checks Sunday showed that the forex reserves -derived mainly from the proceeds of crude oil production, fell by $218 million in the last nine days, from $37.768 billion as at June 6 to $37.550 billion last Thursday.

The reserves which stood at $32,985 billion at the beginning of the year, improved remarkably to $35.608 billion at the end of the first quarter.

On the other hand, crude oil price settled at $83.99 per barrel on Friday, after touching an eight-month low near of $81.

This was attributed to concern over Spain's bank bailout, the euro debt scenario, among other external factors. The current value of the oil price reflected a drop by 35 per cent, compared with its peak value of $127 per barrel in mid-March.

At the current rate of decline, financial market experts predicted that forex inflow into the country would fall from the $4.31 billion it was in January to $3.34 billion next month, while they also forecast the external reserves would diminish to $22 billion- covering less than three months of imports.

The development has also impacted negatively on the naira as it has depreciated significantly against the United States dollar, especially at the interbank and parallel markets.

For instance, at the interbank market, the naira has so far fallen by N4.68 to N163.68 to a dollar on Friday, as against the N159 to a dollar it was on May 15. Similarly, at the parallel market, the local currency dropped by a total of N4.20 to close at N164.20/$1 on Friday, compared with the N160/$1 to a dollar it was a month earlier.

Managing Director of Financial Derivatives Company Limited (FDC), Mr. Bismarck Rewane, said the recent decline in oil prices was partly triggered by market sentiments of a further deepening crisis in the euro-zone, in conjunction with weak economic growth recorded in advanced economies in the first quarter of the year.

"The question however is how vulnerable are Nigeria's external reserves, should oil prices drop further, for example, to a low of $80 per barrel? The Federal Government's budget is benchmarked to oil price at $72 per barrel, while Bonny Light crude is trading at $98 per barrel.

This is a variance of $26 per barrel. At the current rate of decline, we expect forex inflows to fall from $4.31 billion in January to $3.34 billion in July.

"If oil prices were to drop to $80 per barrel (which is 50 per cent likelihood based on current trends), there is a 95 per cent likelihood that forex inflows will decline to approximately $3.03 billion."

"In this situation Nigeria's external reserves would be expected to follow suit and drop to a value as low as $22 billion, covering less than three months of imports. Resultantly, the CBN may be forced to allow the naira to depreciate sharply to N165/$1, to compensate for the substantial loss in oil revenue."

International Financial Advisory and Investment firm - Renaissance Capital (RenCap) also warned that the drop in oil price may pose some risk to the Nigerian economy if the trend continues, even as it expressed concern over the ability of the federal government to meet its revenue projections if the trend continues.

Vice President, Sub-Saharan Africa Economist, RenCap, Yvonne Mhango, said: "This evidently has implications for Nigeria given that it is an important oil exporter. Our estimates suggest that the risk to Nigeria's economy becomes significant if the average oil price for 2012 drops below $75 per barrel."

Similarly, FSDH Securities Limited, in its latest report, stated that "the recent sharp drop in the international price of oil has severe negative implications for the country's external reserves position in the short-to-medium term. The recent shortfall in crude oil production, coupled with the declining price of crude oil could put further pressure on the exchange rate in the face of growing demand, particularly from oil importers."

As a result of all these, the Coordinating Minister of the Economy/Minister of Finance, Dr. Ngozi Okonjo-Iweala, last Wednesday, advised members of the Federal Executive Council (FEC) to be proactive in decision making, so as to forestall effects of possible economic recession based on happenings in the global economy. She had warned them to shun wastefulness in the management of the nation's resources.

Kevin Hayes has stepped down as finance director of struggling hedge fund firm Man Group on the day the company is demoted from the FTSE 100.

Jonathan Sorrell, Man's head of strategy and corporate finance, will replace him at Europe's largest listed hedge fund.

Man, whose shares have slumped, is being replaced in the FTSE 100 list of the UK's leading companies by Babcock.

Mr Hayes is leaving to pursue "other interests", Man said in a statement.

He joined Man in 2007.

Man Group shares have tumbled since the last FTSE review in March, and are down almost two-thirds since last year.

The firm's funds have struggled as cautious clients withdraw money because of the market turmoil caused by the eurozone debt crisis.

Mr Sorrell, son of WPP advertising chief Sir Martin Sorrell, spent more than a decade at Goldman Sachs before joining Man last August.

In a statement, Man chief executive Peter Clarke said Mr Sorrell's experience "will be extremely valuable as we continue to develop and evolve in challenging world markets".