According to data from the FMDQ Securities Exchange, the naira has depreciated by 38.9 percent against the United States dollar at the official Investors & Exporters (I&E) window of the Central Bank of Nigeria (CBN) in the past three months. The official exchange rate opened at ₦745.19 per dollar on October 3, 2023, and closed at ₦1035.12 per dollar on January 3, 2024.
Key Points:
Official Exchange Rate Decline:
The official exchange rate started at ₦745.19 per dollar on October 3, 2023.
Closed at ₦1035.12 per dollar on January 3, 2024.
Reflects a 38.9% depreciation against the US dollar.
Parallel Market Rate:
The naira is trading around ₦1,220 per dollar in the black market.
Despite the CBN’s announcement of unifying all segments of the foreign exchange market, the parallel market rate remains higher.
Government Efforts and Impact:
Despite efforts to improve liquidity, including a $2.25 billion foreign exchange support facility from the African Import-Export Bank, the naira continues to depreciate.
The Central Bank of Nigeria has cleared a $7 billion backlog to address forex scarcity, but the impact has not been as expected.
Volatility in the Forex Market:
The naira volatility on the I&E window persists, with fluctuations in rates.
Forex volumes on the I&E window hover around $100 million to $150 million.
Impact on Businesses:
Manufacturers and the organized private sector express concerns over the falling naira, leading to scaling down operations.
Manufacturers Association of Nigeria (MAN), Lagos Chamber of Commerce and Industry (LCCI), and other industry groups warn of potential business closures and job losses.
Business Response:
Manufacturers intensify calls for a lasting solution to forex illiquidity.
Companies may wind down operations, leading to downsizing and potential relocation.
Official Window and Black Market Rates:
The naira’s value at the official I&E window and the black market is causing challenges for businesses and affecting the real sector.
CBN’s Concerns and Actions:
CBN Governor Olayemi Cardoso acknowledges concerns and states the bank is addressing policies comprehensively.
The CBN has taken steps to float the currency and implement changes in the forex market.
Business Advice:
Businesses are advised to hedge against currency volatility through exports and backward integration policies.
Calls for companies to explore alternative sources of foreign exchange, including exports.
Concerns for Economic Growth:
The World Bank emphasizes the need for controlling inflation and stabilizing the forex market to boost economic growth.
Continued volatility poses risks to expected net FDI and net FPI.
Industry Outlook:
Manufacturers express worry about the current business climate and potential shutdowns in the sector.
Industry groups call for prioritized forex and credit allocation to manufacturers.
Downsizing and Relocation:
Companies are downsizing quietly, and there are concerns that more businesses may relocate if forex scarcity persists.
Conclusion:
The depreciation of the naira against the US dollar, coupled with challenges in the forex market, is causing significant concerns for businesses in Nigeria. The impact on the manufacturing sector, downsizing, and potential business closures highlight the urgency for comprehensive measures to stabilize the forex market and boost economic growth. The effectiveness of ongoing efforts