Analysts suggest that boosting crude oil production for export earnings is vital to fortifying the value of the Nigerian naira. Persistent pressure on the currency stems from diminished inflows from oil sales, remittances, and foreign capital.
Johnson Chukwu, the founder of Cowry Asset Management Limited, emphasized in an interview with BusinessDay that the anticipated relief from the Dangote Refinery’s impact on foreign exchange pressures hinges on an increase in the country’s crude production. He highlighted that if the refineries, including Dangote and Port Harcourt, become operational, they would reduce crude export. However, without a concurrent rise in crude production, any allocation to local refineries could diminish earnings from crude sales.
READ ALSO: Rewane Outlines Policy Changes for 2024, Says Naira Undervalued
Chukwu stressed the need to augment crude production, stating that allocations to local refineries should come from incremental production to maintain current export earnings and decrease the 30 percent spent on fuel import.
Kingsley Chinda, another analyst, noted that the Dangote Refinery’s 650,000 barrels-per-day capacity is expected to meet 100 percent of Nigeria’s refined petroleum product demand. Additionally, it aims to contribute to foreign exchange earnings by exporting 40 percent of its products.
READ ALSO: NGX: Naira Rate Falls To N1,320/$1 As Diaspora Nigerian Depart
Chinda explained that by generating a sufficient supply of petrol, diesel, jet fuel, and kerosene domestically, the refinery would reduce Nigeria’s reliance on imported products. This, in turn, would lower the demand for dollars, alleviating pressure on the naira exchange rate.
He further emphasized that Nigeria’s substantial spending on fuel imports exerts pressure on the demand for foreign currency, particularly the dollar. The Dangote Refinery’s production could reduce or eliminate the need for fuel imports, thereby decreasing the demand for dollars in fuel importation and potentially strengthening the naira against the dollar.
Chinda concluded by stating that the establishment of the Dangote Refinery not only aids in reducing imported inflation and associated costs but also has the potential to attract foreign investments, contributing to exchange rate stability. The refinery’s scale and strategic significance could position Nigeria as an attractive investment destination, bringing in foreign currency inflows, expertise, technology, and best practices, ultimately fostering economic growth and exchange rate stability.
