Why naira is losing value against dollar - Businessday NG (2024)

Naira has continued its plunge against the dollar this year, with experts pointing to a multitude of factors contributing to its freefall.

As of Thursday, the naira reached a record low of 1,851/$1 at the parallel market. At the official market, it was 1,571.3/$1.

The currency’s decline is linked to factors including heavy reliance on oil and inconsistencies between fiscal and monetary policies, which have strained the nation’s economy.

President Bola Tinubu removed foreign currency controls last June in a bid to get transactions flowing through the official market again to help unify the naira’s exchange rates.

However, this move has only exacerbated the currency’s weakness and added to inflationary pressures.

According to the National Bureau of Statistics, headline inflation rose to 29.90 percent in January from 28.92 percent in the previous month. Food inflation rose to 35.41 percent from 33.93 percent.

Why the naira is falling

The naira’s decline stemmed from the dollar’s growing scarcity and demand in Nigeria, compounded by persistent foreign exchange supply challenges and a significant demand backlog.

This situation has intensified pressure on both the official and black markets, precipitating a downward trend in the currency’s value.

Speculation also plays a pivotal role, as everything in Nigeria, from fuel prices to everyday goods, is intricately linked to fluctuations in the dollar.

Even individuals unfamiliar with dollars directly adjust their prices based on their movements.

The drop in the country’s production of oil, its main source of foreign exchange earnings, has pushed the country’s external reserves lower and intensified pressure on the naira. Its foreign currency reserves stood at $33.4 billion as of February 22, 2024.

Moreover, Nigeria’s persistent trade imbalance exacerbates the situation. The country imports more goods and services than it exports, resulting in a continual need for foreign currencies, particularly the dollar. This demand further strains the naira’s value in the foreign exchange market.

Economic analysts also noted that Nigeria’s lack of economic diversification is a major contributing factor. Despite attempts to bolster non-oil sectors like agriculture and manufacturing, the economy remains heavily reliant on oil revenue.

Additionally, structural issues within the economy, such as rampant inflation, political instability, and corruption, compound the challenges facing the naira. Inflation erodes the currency’s purchasing power, driving up the cost of imports and further eroding its value.

Political uncertainty and inconsistent economic policies deter foreign investment and trigger capital outflows, placing additional strain on the naira.

Implication of the naira fall on the economy

As the value of the naira continues to fall, it invariably implies that its value in people’s pockets will decrease, meaning they can only buy less with the same amount of money at hand. This will lead to a decline in the standard of living.

Companies in Africa’s biggest economy are not left out as the large devaluation of the naira that followed the implementation of foreign exchange reforms last year dampened the earnings of businesses with significant FX exposure.

Over the past seven years, several manufacturers, especially in the fast-moving consumer goods (FMCG) industry, have either left the country or stopped production of some of their products as a result of the difficult operating environment.

Related News
  • Competing for global customers—Keeping the naira stable
  • Economic Insight: Will Tinubu's tax reforms hit the nail on the head?
  • Nigerian Army condemns torture of ex-soldier in viral video

Problems such as rising interest rates, surging inflationary pressure, and foreign exchange volatility are impacting input costs, operating expenses, and the general profitability of businesses in Africa’s most populous nation.

According to BusinessDay analysis, six FMCG firms recorded a cumulative FX loss of N269.5 billion in the first nine months of this year, compared to N13.6 billion in the same period of last year.

Data from the Manufacturers Association of Nigeria showed that the number of jobs lost in the manufacturing sector rose to the highest in three years for the first half of 2023.

The number increased by 108.7 percent to 3,567 in the first half of 2023 from 1,709 in the same period of 2022.

What has the central bank done to stabilise the naira

Over the past year, as the naira depreciated, the Central Bank of Nigeria (CBN) took action. It implemented various policies to address the exchange rate crisis.

The CBN made moves to attract inflows, improve liquidity and end the manipulation of the exchange rate but the efforts are yet to bear fruit.

The currency of Africa’s largest economy has continued to slide since the reforms. The Governor Yemi Cardoso-led central bank has blamed inadequate dollar liquidity for exacerbating price swings and promised to boost supply to clear a backlog of foreign exchange demand.

In June 2023, the CBN unified all exchange rate windows.

Before the unification, the CBN controlled the dollar price in official markets, keeping it lower than in the parallel market by supplying dollars.

However, on June 14, 2023, the CBN collapsed all segments of the foreign exchange market into the Investors’ and Exporters window, allowing market forces to dictate prices. This caused the official exchange rate to fall from N460 to N620 on June 15.

On October 12, 2023, the central bank lifted the foreign exchange ban imposed on 41 items on June 23, 2015.

On January 31, 2024, the CBN issued a circular to discourage banks from speculatively holding dollars. Banks were given 24 hours to comply with a net open position limit, resulting in increased liquidity in the FX market.

Moreover, on the same day, it revised guidelines for international money transfer operators, mandating that all inbound transfers to Nigeria be paid in naira, not foreign currency.

On February 8, 2024, the CBN removed the limit on the spread of foreign exchange rates, allowing banks more flexibility in their pricing.

“Nigeria’s economic and exchange rate issues cannot be addressed solely by CBN policies. The country needs a structure to generate foreign inflows, reduce losses from crude oil theft, prioritise public accountability and prudence, and address insecurity to ensure agriculture’s growth,” Leke Olushuyi, a chartered accountant and business writer, said.

“The CBN’s policies are great but the fiscal and the economic team still have work to do if the country will see economic improvements,” he said.

The Nigerian Economic Summit Group said in its 2024 outlook report that an anticipated increase in local crude oil production and a favourable global oil price outlook will sustain the trade surplus and accelerate growth in the country’s external reserves.

It said limited CBN’s intervention in the foreign exchange market is projected to foster an increase in foreign reserves to approximately $40.0 billion by the close of 2024.

Why naira is losing value against dollar - Businessday NG (2024)
Top Articles
What is Test Execution Report? | BrowserStack
How To Develop An Abundance Mindset And Break Free From Scarcity
Woodward Avenue (M-1) - Automotive Heritage Trail - National Scenic Byway Foundation
Fort Morgan Hometown Takeover Map
La connexion à Mon Compte
Lexington Herald-Leader from Lexington, Kentucky
Nesb Routing Number
Lesson 3 Homework Practice Measures Of Variation Answer Key
Nichole Monskey
Mawal Gameroom Download
Thayer Rasmussen Cause Of Death
Accuradio Unblocked
Nebraska Furniture Tables
ᐅ Bosch Aero Twin A 863 S Scheibenwischer
Daily Voice Tarrytown
Paychex Pricing And Fees (2024 Guide)
Red Devil 9664D Snowblower Manual
라이키 유출
Menus - Sea Level Oyster Bar - NBPT
Delectable Birthday Dyes
Abga Gestation Calculator
Riverstock Apartments Photos
Tom Thumb Direct2Hr
Datingscout Wantmatures
How Much Is An Alignment At Costco
Eero Optimize For Conferencing And Gaming
The Venus Flytrap: A Complete Care Guide
Poster & 1600 Autocollants créatifs | Activité facile et ludique | Poppik Stickers
Microsoftlicentiespecialist.nl - Microcenter - ICT voor het MKB
Kstate Qualtrics
Lucky Larry's Latina's
Blue Beetle Movie Tickets and Showtimes Near Me | Regal
Samsung 9C8
Naya Padkar Newspaper Today
Ewwwww Gif
My.lifeway.come/Redeem
Tillman Funeral Home Tallahassee
Xxn Abbreviation List 2023
O'reilly's Palmyra Missouri
Giovanna Ewbank Nua
Joey Gentile Lpsg
Ghareeb Nawaz Texas Menu
Atu Bookstore Ozark
Mybiglots Net Associates
Walmart 24 Hrs Pharmacy
Ehc Workspace Login
Haunted Mansion Showtimes Near Millstone 14
Poster & 1600 Autocollants créatifs | Activité facile et ludique | Poppik Stickers
Sj Craigs
Bones And All Showtimes Near Emagine Canton
What Responsibilities Are Listed In Duties 2 3 And 4
Obituaries in Westchester, NY | The Journal News
Latest Posts
Article information

Author: Ray Christiansen

Last Updated:

Views: 5619

Rating: 4.9 / 5 (49 voted)

Reviews: 80% of readers found this page helpful

Author information

Name: Ray Christiansen

Birthday: 1998-05-04

Address: Apt. 814 34339 Sauer Islands, Hirtheville, GA 02446-8771

Phone: +337636892828

Job: Lead Hospitality Designer

Hobby: Urban exploration, Tai chi, Lockpicking, Fashion, Gunsmithing, Pottery, Geocaching

Introduction: My name is Ray Christiansen, I am a fair, good, cute, gentle, vast, glamorous, excited person who loves writing and wants to share my knowledge and understanding with you.