Pouring water on the fire sale

The past two weeks have seen a lively domestic debate about a fire sale of state-owned assets to rebuild official reserves and restore a fully functioning fx market. Supporters of a sale include Nigeria’s best known industrialist, the Senate president and a former head of state; a former CBN governor, the majority in the Senate, the labour movement leadership and, reportedly, the presidency number among its opponents. We would support a sale if it was on a scale to solve the problems.
The figure of US$15bn in circulation is said to cover NNPC interests, Nigeria LNG, the leading airports and miscellaneous stakes such as the CBN’s 42.5% interest in the Africa Finance Corporation.
We recall that in 2009, and in a time of firm oil prices under the Yar’Adua presidency, Chinese state interests reportedly offered US$50bn for a menu of state-owned oil leases.
Some legislators have not grasped the fact that the authorities would be selling from a position of weakness and not be in a position to dictate terms.
Imports of goods and services were running at about US$6bn per month in 2015. Once we make allowances for a) the CBN circular of June 2015 on the 41 import items no longer eligible for fx from official sources and b) the easing of demand in the current recession, import demand falls closer to US$4bn per month.
This figure assumes that import demand is fully met. In reality a backlog has developed on imports of goods and services (such as dues to the airlines) as well as payments to the offshore portfolio community. A programme of asset sales to generate US$30bn-US$35bn would cover six months’ imports and clear the backlog according to our estimates.
Ideally the authorities could push further and perhaps seek to expand the Eurobond issuance programme for this year. Under this scenario, we think that portfolio players would return in greater numbers, other autonomous fx inflows would recover strongly and the exchange rate would enjoy stability in a fully functioning market.
However, the assets recommended for sale would not currently raise this figure. Also, the sale proceeds would materialize over time (although a strong marketing pitch would send a positive signal to the market.)
We fear, therefore, that this latest initiative to kick-start the fx market and the broader economy will remain a proposal.

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