The painful combination of declining oil prices and an appreciating Dollar has punished the Nigerian economy with the Naira being left under immense pressure, said Lukman Otunuga, a research analyst at FXTM.

Speaking to Nigeria CommunicationsWeek on factors working against naira in the forex market, Otunuga, a keen follower of macroeconomic events, with a strong professional and academic background in finance and well versed in the various factors affecting the currency and commodity markets, said that concerns over slowing domestic growth continue to weigh on sentiment, while an appreciating Dollar, which although is not the legal tender in Nigeria, seems to be the driving force which has haunted investor attraction towards the Naira.

He said that Nigeria as the largest economy in Africa with a growing population and an abundance of natural resources, possess potentials to become the central hub for the African forex markets.

“It must be understood that Nigeria is an import nation so an appreciating Dollar may weigh heavily on businesses which in turn pass the increased costs to citizens. If the fall in oil prices persists and the Fed raise US rates, then the Naira could be left vulnerable to further losses.

Why Naira Is Not Recognised On Global Forex Trading (Market)
“The major question is not whether the Naira is recognized, but when it will be a currency that displays as much popularity as the USD or GBP. As of now the Naira was pegged at N200 to the Dollar with expectations mounting that the Central Bank of Nigeria may implement a flexible rate of N285. While this may be the case, the ‘black market’ exchange displays a different picture with the Naira rate against the Dollar at $350. It should be kept in mind that the nation needs to work on a solid foundation before the Naira potential stabilizes and gains investor appetite. Once stability is achieved the local currency may appreciate as buyers are encouraged to invest in the hopes of a further appreciation in prices.

How to Help Naira Appreciate
“The Central Bank of Nigeria could have raised interest rates to bolster the value of the Naira while at the same time curbing inflation. Although an interest rate hike could have been the first logical step the Central Bank of Nigeria could have taken, this was forgone in the recent central bank meeting. While the major method discussed to help the Naira appreciate has been focused on diversification, this is not a method which could happen over-night. Agriculture, manufacturing and technology could be the key areas Nigeria could focus on, while agriculture has already displayed signs of diversification, the next steps could be the harmonization of the industry to embrace modern technology and yield results. Nigeria has fertile soils, so why not fortify agriculture? The foundation needed to elevate the productivity of farmers could be education as most may be using old methods to cultivate the land. When education is correct, then the sector could support exports and bridge the gap.

Harnessing Mining, Agric Sectors to Boost Exports
“The mining sector could produce gains for Nigeria if the infrastructure and foundations are worked upon. Although government revenues have diminished from the falling oil prices, the little revenues left could be invested towards mining and agriculture as a method of steering away from being heavily oil export dependent. If Nigeria attains the ability to export to other nations, then when talks of a Naira devaluation arise this could also benefit the nation further with export competitiveness boosting economic growth.

Distinguishing Factors Between Nigeria and Other Emerging Markets
“Although the decline in commodity prices has punished emerging markets including Nigeria, this nation does have some noticeable differences when compared to other markets. For instance, there are still concerns over China slowing growth but they are diversifying, aggressively investing in other economies and transitioning to being a service led economy. Focusing back on Nigeria, although the days of triple digits’ oil prices have long gone, the nation should focus on setting the right foundation for an extended period of low oil prices. Rather than importing the refined oil that is produced, why not work on the correct infrastructure to refine the oil and export the refined version?

Nigerian Stock Exchange Has Appreciated for Few Days Now
“A sense of relief dispersed across the Nigerian markets during trading last week following the growing expectations and subsequent announcement that the Central Bank of Nigeria would implement a flexi rate policy. The renewed risk appetite encouraged bullish investors to pile into riskier assets and this consequently send the Nigerian Stock Exchange higher. With hopes that the CBN has come back to reality as inflation spirals out of control, there are speculations that the central bank could take action in the future. While fears linger that the Nigerian economy could be heading towards a recession, the renewed optimism of a potential flexi rate policy has offered a foundation for the stock markets to temporarily rally. Investor confidence has received a welcome boost but stocks could be set to decline further in the future as fears of inflation and rising unemployment weigh on sentiment.

Investors Pulling Out of Nigeria (United Airlines, For Instance)
“The whole world is concerned that Nigeria’s economy is on the brink right now. Although, key interest rates were unexpectedly maintained at 12%, it is becoming quite clear that the extended declines in oil prices have left the CBN under immerse pressure to take action. Sentiment has also taken a hit from the rapidly declining government revenues, while diminishing oil production from renewed militancy has left nation on edge. So, anxiety lingers across the board and there could be a possibility that the delayed 2016 budget, which was only approved in May, could have exacerbated this unfavorable situation further. Therefore, investors would want to be cut napping when the economy crumbles in default. Most of them will come back when the situation stabilizes. Nigeria is still the biggest investors’ destination in Africa.

Situation of Nigerian Banks
“Transparency could be the first step towards saving the banks of Nigeria. Nothing should be hidden from the apex bank or investors because the moment people feel something is not right, it could raise alarms and will cause panic among the mass. Unfortunately, the banking system is shrouded in secrecy which may leave most investors anxious. For example, market participants are still awaiting further clarity about the $6 billion loan from China with most confused about what the loan will be used for. The government needs to communicate their actions better to the people because when there is transparency from the top, it trickles down to other areas.

The Effectiveness of Technology in Promoting Online Forex Trading
“Technology is instrumental in the drive for smart, efficient and proficient forex trading. This constant push to offer the best service and trading experience is driving innovation, leading to the creation of advanced trading platforms and increased execution speeds. At FXTM we have invested in our own Research & Development team to ensure that we offer cutting-edge and client-centric solutions, such as the ForexTime App, which launched in November last year, and provides real-time currency rates, insightful market analysis, and financial news on-the-go. Technological developments are also leading to the creation of new forex products and the growth of a lively online trading community, a key example being the increasingly popular social trading and copy trading programs. In response to this trend, earlier this year we launched FXTM Invest, our highly accurate and reliable copy trading program.