The foreign exchange crisis in the country worsened on Thursday as a dollar exchanged for over N1,000 at the parallel market, Daily Trust reports.
Survey at popular black markets in Lagos indicated that a dollar exchanged for between N1,000 and N1,050 in the early hours of Thursday, before settling for N990 in the evening, indicating a difference of N252 from the Investors & Exporters FX window, where the naira closed at N738.
The gap between the official and parallel market has steadily widened, since the Central Bank of Nigeria (CBN) announced unification of all segments of the foreign exchange markets in June.
However, despite the unification policy, the parallel market has continued to witness patronage due to the scarcity of the greenback at the official market, according to operators.
“There is scarcity at the market,” said Ismail Muhammed, one of the operators at Allen Roundabout.
“We are now buying dollars for N990 but earlier in the day, it was sold for N1, 000. Some people exchanged it for N1, 050,” he said.
Another operator, Alhaji Abdullahi Olugbede, said that the surge was caused by the scarcity as most licensed Bureau De Change Operators do not have dollars to trade with.
“When there is scarcity, the dollar will go up against the naira but we are not happy. We should pray that it will come down because this is not good,” he said.
Implications are negative — Experts
Experts have warned that the implications of the depreciation of the naira in the black market are negative as it will adversely affect the economy.
Professor of Accounting and Financial Development at Lead City University, Ibadan, Godwin Oyedokun, said it will make it difficult to do business in Nigeria because of the relevance of exchange rate in the economy.
“I am not currently in the country. Let me cite an example, I wanted to buy a can of coke today in Jordan. I could buy the same can of coke for $2 that is almost N2, 000 if a dollar exchanges for N990 in Nigeria as you said. This is just because the strength of our currency is very weak.
“The implication is that goods that Nigerians should get from abroad, let’s say if dollar to naira is 1/1, Nigerians will now spend as high as 990 minus 1; that is, goods worth N300,000 will now be worth times 990 of it. So, it makes it so difficult to do business. Every sector of the economy will adjust to this and will make the price of commodities become costly,” he said.
The tax and forensic expert, however, said, the pressure on the naira will reduce if the government implements the right policies and also boost local production so that Nigeria can also earn more foreign exchange.
“The only way to address this is to have the right policies in place which the current government is doing and have things that we can also export to earn foreign exchange. The finance minister and the new CBN governor will need to think about how the fiscal and monetary policies can work together effectively so that we can have a country of our own. It will interest you that Jordan’s currency, Jordanian Dinar, is higher than the dollar, it is about $1.41. If we get the policies right, the pressure on the naira will reduce,” he said.
Economist and former Director General of the Lagos Chamber of Commerce and Industry (LCCI), Dr Muda Yusuf, said that among others, it will have an effect on inflation as the economy is very sensitive to exchange rate movement.
“The implications are very negative to put it mildly because it shows there are some fundamental challenges that we still need to deal with that are driving the exchange rate. We need to further interrogate how deep the parallel market is and what percentage of economic activities are being funded by the parallel market.
“We need that research, we need that data because each time we talk about the exchange rate, people don’t even talk about the official rate anymore, we just talk about the parallel market,” he said.
Citing the likely effects on the different sectors of the economy, he said, “Diesel price has gone up, gas price is likely to go up. The PMS is under pressure and should have gone up if not for the fact that the president said that NNPC should hold on, otherwise petrol price should have jumped to over N800 by now.”
Dr Muda, who is also the Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), said that some extraneous variables including money laundering might be responsible for the pressure on the naira.
“I think there are some extraneous variables that have not been captured in our analysis because this speculative assault on the naira is not looking ordinary anymore. I am beginning to worry that perhaps, there are quite a number of illicit funds that are putting this pressure on the Naira because how many manufacturers can continue to buy dollars at this rate? And yet it keeps going up and people are buying it. How many people with genuine income or resources can do that? It is possible there are factors around money laundering, possibly people have loads of naira they are seeking to convert to dollars,” he said.
While noting that the current pressures have defied the forecasts of many economists when the unification policy was introduced, he counselled the government against jettisoning the policy.
“The government can’t afford to be chasing the parallel rate at this time because the situation will become worse. It means they have to move the official rate from N700+ to N800 or N850. The situation now is not responding to the kind of forecast that many of us predicted. This is not the kind of impact we thought convergence will have because on the face of it, convergence normally encourages more inflows and should normally reduce demand,” he said.
Financial analyst, Abiola Rasaq, who said that the backlog of demand in the system continues to put pressure on the naira, however, said the positive outlook for oil price will likely strengthen the country’s currency against the dollar.
“The market is still somewhat speculative, especially as autonomous supply of FX is still weak whilst demand remains relatively elevated. More so, the backlog of demand in the system continues to put pressure on price. Interestingly, we are close to the end of the seasonal Q3 demand cycle, thus the naira should have some respite. Even as FX supply may remain relatively weak, moderation in demand should help calm the pressure and provide relative stability to the naira in the rest of the ember months, especially if some of the efforts of the government towards improving oil export comes to fruition.
“Notably, the positive outlook for oil price is also supportive of stronger naira in the months ahead, especially if oil export is complemented with steady rise in non-oil exports,” he said.
President Bola Tinubu recently nominated a banking executive and former civil servant, Olayemi Cardoso to serve as the new governor of CBN.
Tinubu also approved the nomination of Emem Nnana Usoro, Muhammad Sani Abdullahi Dattijo, Philip Ikeazor and Bala Bello as deputy governors of the apex bank, for a term of five years at the first instance, pending their confirmation by the Nigerian Senate.
It is unclear if the former CBN governor, Godwin Emefiele, who was suspended and has been in detention since June, has resigned.