Nigeria’s currency, the naira, has lost nearly 40 percent of its value against the US dollar in the past three months, sparking fears of more economic woes and job losses in Africa’s most populous nation.
The naira, which traded at N745.19/$ on October 3, 2023, at the official Investors and Exporters’ Window of the Central Bank of Nigeria (CBN), fell to N1035.12/$ as of January 3, 2024, according to data from the FMDQ Securities Exchange.
The naira’s decline has been more pronounced in the parallel market, where it has been trading around N1,220/$ in recent weeks, creating a wide gap with the official rate.
The naira’s volatility has continued despite the government’s efforts to boost the liquidity of the foreign exchange market, such as securing loans from the African Import-Export Bank and the Nigerian National Petroleum Company Limited.
Impact on Businesses and Consumers
Based on a report by Punch, the naira’s depreciation has had a severe negative impact on businesses and consumers in Nigeria, especially those who rely on imported goods and services.
Manufacturers and other members of the organized private sector said their production costs had skyrocketed due to the high cost of raw materials and machinery, which are mostly imported.
They also said they were facing difficulties in accessing foreign exchange from the official market, forcing them to resort to the parallel market or the black market, where the rates are much higher.
Some manufacturers said they had scaled down their operations, laid off workers, or shut down completely due to the forex crisis.
Consumers, on the other hand, have seen their purchasing power eroded by the rising inflation and the high cost of living.
The inflation rate in Nigeria rose to 18.3 percent in November 2023, the highest in more than four years, according to the National Bureau of Statistics.
The prices of food, fuel, electricity, and other essential items have soared in recent months, making life harder for millions of Nigerians who are already struggling with poverty and unemployment.
Way Forward
The government and the CBN have been under pressure to address the forex crisis and stabilize the naira.
In June 2023, the CBN announced a policy of exchange rate unification, which removed the rate cap on the naira at the official market and allowed it to float freely.
However, the policy has not yielded the desired results, as the naira has continued to depreciate and the forex market has remained illiquid.
The World Bank, in its December 2023 Nigeria Development Update, urged the government and the CBN to implement more reforms to stabilize the naira and boost economic growth.
The bank recommended that the CBN tighten its monetary policy, phase out its development finance initiatives, and discontinue its “ways and means” advances to the government, which are seen as sources of money supply and inflation.
The bank also advised the government to remove the remaining import restrictions, improve the infrastructure, and pursue clear and consistent trade policies.
The CBN Governor, Olayemi Cardoso, recently stated that the bank was concerned about the naira’s volatility and was working on a comprehensive document that would outline the rules and regulations of the forex market.
He also expressed optimism that the naira would recover in the coming months as the economy improves and the forex demand eases.
Many Nigerians hope that the government and the CBN will find a lasting solution to the forex crisis and restore the value and stability of the naira, which is vital for the economic well-being and prosperity of the nation.
