Anxiety as official, parallel market rate gap widen by N100/$1

•Experts demand lifting of ban on 43 items

By Chinwendu Obienyi

Despite ongoing reforms by President Bola Tinubu, Nigeria’s official exchange rate is facing a significant divergence from parallel market rates, inching close to N100/$1.

This is coming after the Naira at the Investors and Exporters’ (I&E) window closed at N777.82/$1 while prices at the parallel market hovered between N865/$1 and N870/$1.

According to market analysts, the widening gap between the Naira’s official exchange rate and the parallel market rate is the widest seen since the currency’s unification, largely driven by an insatiable demand for the US dollar that surpasses the available supply.  

 Initially, the Central Bank of Nigeria (CBN) hinted at allowing free trade until the currency achieved a market-relevant level. However, there are concerns that the high demand for foreign exchange might lead to further depreciation of the local currency. 

Several factors contribute to this predicament, including a significant influx of foreign currency from non-oil sources, such as remittances, tourism, and non-oil exports, into the black market.

This exacerbates the dollar shortage issue.  

Furthermore, the country’s failure to meet the OPEC quota plays a vital role in determining the value of the Naira, as oil remains a major contributor to the country’s foreign currency earnings, however, the increasing oil theft in the oil sector has led to declining oil revenues.  As a result, Nigeria’s crude oil production has fallen short of OPEC’s target of 1.74 million barrels per day, with actual production hovering between 1 million and 1.4 million barrels this year. It will be recalled that OPEC had revised Nigeria’s output to 1.38 million barrels per day, citing ongoing capacity shortages, which could further limit the country’s ability to earn foreign exchange in the long term. Experts are now warning that the principle of willing buyer-seller foreign exchange trading could have negative short-term effects on the Nigerian economy, as sellers seek the highest bidder for their US dollars, potentially undermining the objectives of the apex bank. 

Also, the inability of Central Bank of Nigeria (CBN) to meet the official market demand has driven many towards the parallel market, causing prices to surge due to unprecedented demand for the Naira’s currency. 

Investigations further revealed that Nigeria’s FX reserves sustained its downtrend last week, falling by $58.63 million week-on-week (w/w) to $33.98 billion (19 July, 2023). This is actually the lowest level in two years, last observed in July-August 2021. 

On the back of this, economic experts who spoke to Daily Sun, called on the FG to reset its trade policies as well as removed the ban on the 43 items. Despite the raft of changes done to reset the economy, it was thought that the apex bank would make changes as regards the ban but that has not been the case.

Speaking to Daily Sun via a telephone chat at the weekend, the Chief Executive Officer, the Center for the Promotion of Private Enterprise, Dr Muda Yusuf, said that inconsistencies, unpredictability, and impulsiveness has characterised Nigeria’s trade policies over the past decade, making long-term planning difficult.

According to him, the CBN’s 43 banned items has done more harm than good to the economy because it is an anomaly to have two parallel import prohibition lists for the same economy from the Ministry of Finance and the apex bank.

“How can we have a trade policy of the Ministry of Finance, which lists items on import and export prohibition; and there is another policy from the CBN listing items for which foreign exchange would not be made available?  This has created a chaotic situation for our trade policy.

We cannot be running an economy with two parallel trade policy documents. Then we need to reform our tariff regime with a view to reducing tariffs on items in which we have weak domestic production capacity, especially intermediate products for our industries.  Excessively high tariffs provide incentives for smuggling and many sharp practices in international trade”, Yusuf explained.

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