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The World Bank’s recent report that the naira is among the worst-performing currencies in Africa should make the federal government to check the persistent slide of the value of the naira against major foreign currencies. The naira has been on a downward trend for months now as scarcity of the United States dollar bites harder. Currently, the naira exchanges at about N1,200/$. To stabilize the exchange rate, the government must strive to urgently meet the forex (FX) demand.
According to the World Bank, the naira has weakened significantly against the dollar since June 14th when the Central Bank of Nigeria (CBN) harmonised the exchange rate markets. “So far this year, the Nigerian naira, and the Angolan national currency, the Kwanza, are among the worst-performing currencies in the African region,” the World Bank stated. The two currencies, the bank says, have posted a year-to-date depreciation of nearly 40 per cent. In the case of the naira, the crisis was triggered by the CBN decision to remove trading restrictions on the official market.
Other countries in Africa with steep depreciation in the value of their currencies in 2023 include South Sudan (33 %), Burundi (27%), DR Congo(18%), Kenya(16%), Zambia(12%), Ghana(12%) and Rwanda(11%). Besides, the World Bank noted that the parallel market exchange market rates are worsening inflationary problems for many countries in Africa. Nigeria’s current inflation rate is 26.7 per cent. It is projected to reach 30 per cent by year end. The depreciation of the naira has been rapid and substantial.
Already, manufacturers and small businesses have complained bitterly about job losses due to the acute shortage of forex. The sector borrowed about N1.8trillion in the First Half of 2023. The CBN had in June directed Deposit Money Banks to remove the rate cap on the naira at the official Investors and Export (I &M) window of the forex market.
The then Acting CBN Governor Folashodun Shonubi, directed the commercial banks to allow free float of the naira against the dollar and other major foreign currencies. That was a major monetary policy error that has put the economy on a tailspin and the national currency in a free-fall. Since then, the naira has steadily been falling in the parallel and I&M window markets.
Undoubtedly, the depreciation of the naira is a national concern as every nation is measured is on the strength or value of its currency. Investors’ interest in any country is also a function of its currency stability. Enhancing the value of the naira requires a new legislative framework, and fiscal and monetary policies that will stabilise the value of the naira. Domestic manufacturers must be empowered to improve the quality of their products and services.
Getting balance of payment facilities from multilateral institutions and increasing local exports of goods and services will boost dollar supply and shore up the value of the naira. However, there is need to increase the production and consumption of local goods. The current preference for foreign goods will only worsen our economic woes.
This calls for aggressive diversification of the economy through huge investment in the non-oil sector. This requires imaginative thinking by policymakers to formulate concrete fiscal and monetary policies that will grow the country’s exports. According to World Trade Organisation (WTO), Nigeria’s current share of global trade is a negligible 0.33 per cent. In 2021, Nigeria exported goods worth $57.7 billion, making it the number 52 exporter in the world. In 2019, Nigeria’s Gross Domestic Product (GDP) in export was just 14.22 per cent.
Sadly, Nigeria is not exporting much in the global market to earn enough foreign exchange that will impact positively on the value of the naira. Until there is enough supply of forex, it will be difficult to stabilise the exchange rate. The CBN may be forced to use its limited reserves to stabilise the exchange rate.
Nigeria’s gross official reserves fell by $167 million month-on-month to about $34billion at the end of July, 2023, though JP Morgan said recently that the figure quoted by the CBN was much less than what was in Nigeria’s foreign reserves. The decline in the official reserves in July was consistent with the steady drop since August 2022.
A stable exchange rate has become imperative to revamp the economy. The speedy removal of fuel subsidy and unification of the forex market rates had exacerbated our economic woes. The government should review the unification of the exchange rate in line with present reality. Beyond that, the government can look in the direction of foreign finance through asset-link bonds. A friendly business environment will boost foreign investment. Nigeria can overcome the current forex crisis and dwindling value of the naira by increasing its non-oil exports.
