The Nigerian naira has experienced a significant depreciation of 38.9% against the United States dollar within the past three months, based on findings.
Data from the FMDQ Securities Exchange reveals that the naira’s value dropped from N745.19/$ on October 3, 2023, to N1035.12/$ as of January 3, 2024.
Official and Parallel Market Trends
Despite the initial depreciation after the announcement of the exchange rate unification policy by the Central Bank of Nigeria (CBN) in June 2023, the naira has continued to decline, reaching over N1000/dollar.
At the parallel market, it has been trading around 1,220/dollar in recent weeks.
Impact on Private Sector
Manufacturers and members of the organized private sector express concerns about the negative impact of the falling naira value on their operations.
The Manufacturers Association of Nigeria (MAN), Lagos Chamber of Commerce and Industry (LCCI), and Nigerian Association of Small-Scale Industrialists highlight that members are scaling down operations, which may lead to further job losses.
Government Efforts and Challenges
Efforts by the Federal Government to improve foreign exchange (FX) market liquidity have not prevented the naira’s volatility.
Despite initiatives such as clearing FX backlogs and receiving foreign exchange support facilities, the naira has not responded positively to increased liquidity.
Current Economic Situation
The naira began 2024 at N988.46/$, declining to N1035.12/$ on January 3, marking the third time it closed above N1000/$ on the Investors and Exporters (I&E) window.
The continued decline raises concerns about its impact on foreign direct investment and portfolio investment in the country.
World Bank’s Perspective
The World Bank emphasizes the need for stabilization in the official FX market at market-reflective rates, citing consistently low FX volumes on the I&E window.
The bank underscores the risks to expected net foreign direct investment and net foreign portfolio investment if the FX market remains volatile.
Concerns and Solutions
Members of the organized private sector, including MAN and LCCI, express worry that sustained forex scarcity may lead to more companies winding down operations in Nigeria.
Despite the CBN’s decision to float the currency, concerns persist about the impact on the real sector of the economy.
Manufacturers’ Response
Manufacturers express dismay at the current business climate, with the President of MAN stating that if the trend continues, more calamity awaits the sector.
Calls are made for lasting solutions to the perennial crisis of forex illiquidity, emphasizing the need for prioritizing forex and credit allocation to manufacturers.
Challenges for Small-Scale Industries
The National Vice Chairman of the Nigerian Association of Small Scale Industrialists notes that businesses are in a state of limbo, forced to downsize due to forex scarcity.
Companies face difficulties as they resort to the parallel market to procure foreign exchange at high rates.
Outlook for 2024
The economic outlook for 2024 remains uncertain, with concerns about inflation, the need for foreign exchange market stabilization, and the necessity of clear and consistent trade policies.
Recommendations include hedging against currency volatility through exports and adopting backward integration policies to mitigate the impact of forex scarcity on businesses.
Conclusion
The current economic challenges pose significant threats to various sectors, prompting calls for comprehensive policies to address forex scarcity, stabilize the FX market, and encourage economic growth.
The impact on businesses and the workforce emphasizes the urgency of finding sustainable solutions to the currency depreciation issue.
