Despite Slight Appreciation, Naira Still Weak – Report

In spite of the slight appreciation of the Naira at the weekend, the World Bank has listed Nigeria’s local currency as being among the worst-performing currencies in Sub-Saharan African in the first ten months of 2023. According to figures obtained from Aboki forex, the naira was bought and sold for 1,140/$ and 1,150/$1 at the weekend on the parallel section of the foreign exchange market as against the 1,310/$ on Thursday. Over the past two weeks, the Naira has been hitting new lows, as it sold as low as N1300/$ at the black market, and N848/$ at the official market. However, within the past few days, the currency has been on an upward swing, as it appreciated to N789.84/$ on Friday. But in a report by the World Bank the Nigerian Naira has posted a year-to-date depreciation of about 40 per cent, making it the weakest currency in Sub-Saharan Africa, alongside the Angolan Kwanza. Other currencies with significant losses include the South Sudanese pound which has depreciated by about 33 per cent YTD, the Burundian Franc which has depreciated by 27 per cent YTD, the Congolese Franc (18 per cent), Kenyan Shilling (16 per cent), Zambian Kwacha (12 per cent), Ghanaian Cedis (12 per cent), and Rwandan Franc (11 per cent). In the report, it highlighted that between March 2020 and June 2023, there was a widening disparity between the parallel market exchange rate and the official exchange rate. The disparity widened to as much as 80 per cent in November 2022 and dropped to 60 per cent in June 2023. The prioritization of strategic sectors and the imposed price ceilings and trade restrictions pushed transactions to the parallel market, which started to account for a large share of the foreign exchange transactions in the country, including for remittances, tourism, and exports of non-oil products. After the unification and liberalization of the exchange rates in June 2023, the NAFEX rate converged to the parallel one, closing the gap. However, resistance toward the increasing pressure on the Nigerian naira coupled with limited supply of FX at the official window has led to the reemergence of the parallel market premium. Figures obtained from the Central Bank of Nigeria on movement of foreign reserves showed that the country’s external reserves recorded $76.82m accretion in one week, after it moved up from $33.249bn on October 19, 2023 to $33.326bn as of the end of October 26, 2023. It had earlier lost $841.75m in three months after it fell from $34.07bn as of July 7, 2023, to $33.23bn as of October 5, 2023. Meanwhile, an economist and Chief Executive Officer, Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, attributed the naira appreciation to the Supreme Court judgment that brought finality to the litigation around the presidential election. He said the judgment removed uncertainty in the economy. “The pronouncement that the President made about efforts to boost the liquidity in the forex market may have also affected the level of confidence and influenced expectations because if people have expectations that liquidity will improve and the naira will appreciate, they would quickly begin to offload the dollars they have at a lower rate. “We need to seize the opportunity to push down the demand for foreign goods. We must reduce the demand for the dollars. We can have the naira appreciate better.”

Diversify Export Earnings, Increase FDIs To Address Fx Liquidity Challenge -Uwaleke

Professor of Finance and Capital Market, Uche Uwaleke, has said that except the Federal Government diversify its export base and increased foreign direct investments (FDIs), the liquidity challenge in the forex market would persist. Uwaleke, who gave the advice Monday in Abuja, added that the country’s weak economic indices would make it difficult for the government to implement the naira float.  In a bid to address the widening exchange rate gap, the federal government resorted to a managed float of the naira on the I&E Window. However, this policy has failed to halt the fall of the naira.  The exchange rate for a dollar to naira at the official window is N751.1 as of Monday, 11 September 2023, according to the data published by CBN. While at the parallel market, the naira exchanged for N925 to a dollar in Lagos. Experts have said that with a larger part of Nigeria’s revenue still coming from oil, it would not be easy for the government to address supply side constraints in the FX due to the country’s inability to meet it’s OPEC quota. “The only sustainable solution to deal with the liquidity challenge in the forex market is to have multiple streams of forex comprising export proceeds and foreign investments. “Nigeria’s economy is not ready for a complete float of the naira due to weak economic fundamentals. “Regrettably, over 90% of forex inflows still come from crude oil sales. A diversified export base is required to check volatility in a forex market where the exchange rate is determined by market forces. This is still lacking in Nigeria. “On the demand side, I support the idea of curbing dangerous currency speculation by making the trading in forex outside the Banks and BDCs illegal. By doing so, the CBN can be in a position to monitor activities in the forex market,” he said. 

CIBN backs Tinubu on exchange rate unification

The Chartered Institute of Bankers of Nigeria (CIBN) has commended President Bola Tinubu for unifying the Naira exchange rate to save the country from financial crisis. The President/ Chairman of Council of CIBN, Dr Ken Opara, said this at the 2023 Lagos Bankers Night with the theme, “Exchange Rate Unification: Global Implications, Organisation’s and the Country,” on Friday night in Lagos. According to him, the institute has always advocated transparency and a free market that would allow the interplay of supply and demand. He said, “The Chartered Institute of Bankers of Nigeria totally supports the Central Bank of Nigeria’s reform as it relates to the unification of the exchange rate and other measures basically taken to ensure the true value of the Naira. “As a matter of fact, we have been advocating for this and during the week, Dr ‘Biodun Adedipe, leading other scholars, and Mr Laoye Jaiyeola of the Nigeria Economic Summit Group, gathered at the Bankers House to applaud the reform, especially as it relates to the unification of the exchange rate. “We have seen that the effort that the Central Bank of Nigeria has initiated is already yielding dividend. “We can see that the exchange rate between the Naira and the dollar has started coming down which means it is a good initiative that is well thought out.” Opara said that the institute recently organised a half year economic review, where captains of industries also spoke in support of the reform. He urged Nigerians to take advantage of the good opportunities that the reform had presented, saying wherever there are challenges lie in opportunities. The CIBN president pledged the institutes continued commitment to making contributions and suggestions relating to what should be done to support and grow the country. He said, “As it is the concept of the industry; we played this role very well when the industry was facing challenges and we will continue to do that because we believe that the banking industry is very solid, stable and efficient.” He described the payment system in Nigeria as “the best” all over the world, stressing that it is a system that one could consummate transactions on an online real-time basis. Opara said this showed that the banking industry and its regulator had done well in stabilising what an effective payment system. He debunked media reports that its Lagos branch was not in support of the exchange rate unification, describing as “untrue”, but calculated to cause panic. Chief Consultant of B. Adedipe Associates Ltd. (BAA Consult), Dr ‘Biodun Adedipe, said that the exchange rate unification, which was not new in Nigeria, had gone through the route before with different appellations. “Let me trade very quickly what I brand as Nigeria’s journey to exchange rate unification. “Nigeria has gone through this route before but with different appellations like devaluation, correction, alignment, depreciation, all of which are matter of semantics. “The simple interpretation of this is to remove the premium on the official rate and the parallel market or road side market. “Of course, this is a typical Bretton Woods recipe; keep premium within five per cent to decentivise round tripping and then find liquidity to sustain it. “This is the easy way out; but, it never brings enduring solution to the persistent crisis in the external sector of the Nigerian economy.”. According to him, there are 54 evidence-based research documents to establish that free float is not always the most appropriate for all economics. Giving historical illustrations, the expert noted that exchange rate movements had a more significant impact on all other prices more than interest rates adjustment. He said the only period that Nigeria experienced a successful and stable rate convergence in the country was when it had a significant external reserve. Adedipe said it took the country an average of two to six weeks for the parallel market rates to diverge from the official exchange rate during each episode of premium removal. He added that speculative attack on the currency occured each time there was no clear sight to a stable and enduring supply. President Bola Tinubu, had during his inauguration on May 29, said his administration would seek to bring the different exchange rate regimes being operated across the country’s foreign exchange channels under a single regime. However, in June, Tinubu through the Special Adviser on Special Duties, Communications, and Strategy, Dele Alake, announced the implementation of a unified exchange rate to save the country from a financial crisis. He emphasised that his decision to implement a managed float, similar to his approach to fuel subsidy removal, was in the best interest of Nigeria.