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Nigeria’s FX black market under serious threat

Analysts estimate there is pent up demand between $1.5 billion and $1.8 billion from investors looking to exit Nigeria, whose economy is forecast to shrink by 3.4 percent this year.

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Nigeria’s currency is expected to come under pressure on the black market next week, with Uganda’s seen firming and Kenya and Zambia’s holding stable.

Nigeria’s naira is seen weakening on the black market as dollar shortages at official sources cause investors and importers to channel demand to the parallel market, traders said.

The naira has hit a series of lows on the black market widening the gap with the official and over-the-counter spot markets, especially after dollar sales were suspended due to a coronavirus lockdown in April and a 15 percent devaluation in March.

The black market naira traded on the streets fell to 460 against the dollar on Thursday, reflecting the build-up of demand. The naira was quoted at 450 last week on the unofficial market after a lockdown was eased.

Dollar demand from investors and importers has ballooned with payment obligations accumulating amid hard currency shortages triggered by the oil price crash.

The Nigerian central bank governor has warned domestic and foreign investors against patronizing the black market, saying it was helping to overheat that market.

“Don’t go there it is not good for you,” Emefiele told investors on the call referring to the black market. The date on the computer screen is May 18 2020.

“You would lose money because you would have bought at a price that is not realistic,” he said.

The naira is seen rangebound on the official and over-the-counter spot markets, traders say.

Back home, The Kenyan shilling is seen stable in the coming week with markets eyeing a resumption of inflows from remittances and horticulture exports amid month-end dollar demand from merchandise importers, traders said.

Commercial banks quoted the shilling at 106.75/95 per dollar, compared with 106.60/80 at last Thursday’s close.

“Horticulture exporters are talking of opening up towards June, once those inflows check in it will support the shilling,” said a senior trader from one commercial bank.

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