The Naira has failed to appreciate as the United States dollar sells for N500+ with traders and experts calling on the federal government to take urgent actions in saving the economy from total collapse.
As the prices of crude oil keep rising in the international market, there were expectations that the naira will appreciate, but Nigeria’s foreign exchange (forex) reserve continued to trend downwards.
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Prices of basic necessities including drugs, food, automobiles, spare parts and raw materials for industries have continued to rise with attendant negative effects on the purchasing power of the citizens.
The Brent crude is currently trading at $75.62 per barrel, a feat experts said should bring succour to Nigeria’s economy.
They believe that the naira would continue to suffer until Nigeria becomes self-reliant and net exporter and radically resuscitates the oil sector for the refineries to work efficiently.
According to them, the increase in oil prices had not directly translated to improve income for the ordinary people even as importers have to cough out a lot of naira to get the dollar and other foreign currencies in order to import goods.
Daily Trust reports that the weakening of the naira became worse from May 2021, when the Central Bank of Nigeria (CBN) adopted the Nigerian Autonomous Foreign Exchange Rate (NAFEX) of N410.25 to a dollar while removing the N379/$ rate it had on its website for months.
As of Wednesday, June 30, the CBN rate only recorded a slight improvement of the naira to other currencies in exchange power. The buying rate for the dollar was N409.16; the central rate was N409.66 while the currency sold for N410.16. This was an improvement from N409.17 to a dollar as of Friday, June 25, 2021, when the dollar also sold for N410.17.
The Pound Sterling improved slightly too, as the naira strengthened from N568.74 buying rate and N570.13 on Friday to N567.46 and N568.15 on Wednesday, June 30 respectively.
The Euro recorded N488.83 and N490.03 CBN buying and selling rate on Friday to strengthen at N486.65 and N487.84 buying and selling rates yesterday.
On the parallel market, the naira exchanged between N498 and N501 to a dollar according to several Bureau De Change (BDC) operators in Abuja.
According to Aboki.com, a local BDC operating agency, as of Friday, the dollar traded for N485/N495 (buying/selling), the pound had N700/718 while the Euro was N588/605.
By Wednesday, the dollar had increased to N490 to buy; and sold for N500 at the black market, representing N10 increase in about four days. The Pound Sterling was bought for N704 and sold for N718, indicating a N4 increase while the Euro was bought for N590 and sold for N605, indicating a N2 increase.
The World Bank in its Nigeria Development Update (NDU), titled “Resilience through Reforms” released on June 15, 2021, had faulted CBN on its management of the foreign exchange (forex) regime saying it was the reason for the current crisis.
Daily Trust reports that the US dollar exchanged for around N509 at the parallel market that same day.
“The way the exchange rate was managed limited access to FX and thus adversely affected investor confidence and investment appetite,” it stated.
The Group Managing Director of a technology firm, VDT Communications, Engr. Biodun Omoniyi, said the difficulty in gaining access to foreign exchange (forex) and multiple taxes, among others, affect the operations of Internet Service Providers (ISPs).
He said it was becoming increasingly difficult for operators to buy or replace damaged equipment, especially as operators import communication equipment and need forex.
“Before COVID-19, the value of naira was N360 to $1, but today it has jumped to over N500 to $1, which is now eating deep into our revenue,” he said.
According to the Director General of the Lagos Chamber of Commerce and Industry (LCCI), Dr Muda Yusuf, there were two dimensions to the forex crisis.
He said that there was a sharp depreciation in the exchange rate and then the acute illiquidity in the forex market. These two variants of the crises, according to him, had taken a huge toll on businesses and the economy including the foreign exchange induced spike in prices.
While he noted that the major driver of core inflation is forex factor, he said production and operating costs had risen sharply while profit margins, capacity utilisation, sales, purchasing power and business sustainability had been correspondingly impacted.
Some businessmen who import products said the instability of the naira was putting pressure on their businesses because of the fluctuating nature of the naira.
Arnee Mary, who buys fragrance from the United Arab Emirates, said she began to witness huge increments in the prices of the product she purchased in February.
Mary stated that the fall in the exchange rate of naira to the dollar was affecting both the payment for the goods and the amount to be paid for shipment.
“We buy 250 millilitres, 500 millilitres or one kilogramme (1kg) as a fragrance at the same price.
“Just recently, a 250 millilitre of fragrance cost N11, 500 but we now pay 13,000. This does not include the money to bring it down to Nigeria and we will still pay custom duty and cost of flight to bring it down to Abuja and the other charges to pick it up at the airport,” she said.
She said the payment for shipment of goods weighing a minimum of 26 kg that cost 33,000 last week changed to 39,000 for 24kg, stating that some oil products she uses have also witnessed an uptick in price.
On how she intends to stay afloat, Mary said all products will undergo price changes to meet up with the reality but expressed worry that it will affect the purchasing power of her customers.
Also, Sabiu Khalid, who sells foreign fabrics, said the price of a bale of had increased by N20, 000. “The ones I buy for N330, 000 are now N350, 000 while the one of N350, 000 is now N380, 000.”
Naira drowns in spite of CBN interventions
In spite of the several interventions by the apex bank, the naira has continued to drown. According to the World Bank, the disparity between the official I&E Foreign Exchange Window (IEFX) and the parallel market has widened to as high as N90 in recent weeks due to a combination of speculation, demand and fear of future devaluation of the currency.
“Significant spreads between the official, the IEFX and the parallel exchange rate persisted throughout 2020 and as of April 2021, the spread between the official and the IEFX rate was estimated at 8% and between the IEFX and the parallel rate reached 18% (the spread between the official and the parallel rate was 27%).”
The CBN recently made its biggest move yet in unifying the exchange rate after it dumped its long-held official rate for the IEFX rate published by the FMDQOTC.
The apex bank also extended the Cash4Dollar scheme introduced back in March 2021 to drive more diaspora inflows into the banking system.
In May 2021, the CBN formally took concrete steps towards rate unification between the official and IEFX rates.
But the global lender said there remained a 20 per cent premium between this unified rate and the parallel market rate.
“While this may indeed encourage the use of the formal channels, it is not clear that incentive payments will increase remittances to the country,” the World Bank remarked on the CBN’s Cash4Dollar scheme.
‘What CBN can do to ease situation’
When contacted on what the apex is doing to arrest the situation, the acting Director, Corporate Communications at CBN, Osita Nwanisobi, promised to respond to the enquiry as he was away from the office but did not as of the time of filing this report.
However, CBN Governor, Godwin Emefiele, on Monday, told investors in the UK that he expected the true value of the naira to be between N430-440 to the dollar and not the black-market rate which closed at about N500/$1.
The World Bank recommended that CBN should allow the IEFX market function as it should by allowing a more market-friendly approach for exchange rate transactions. Rather than allow an unreliable way of reporting exchange rate prices.
The World Bank believed a return to a flexible exchange rate regime (post-2015 and pre-2020) will allow for limited interventions by the CBN.
“Until oil companies are allowed to sell FX receipts to IEFX bank participants, CBN would still have an important role to play as a supplier of FX. In this scenario, participating banks in the FX market will start to play an expanded role that goes beyond just executing buy/sell orders of its clients to start acting as market makers, meaning that they start to quote two-way prices buying and selling on its own behalf and carrying a stock of FX.
“With increased flexibility, the CBN could start intervening only to smooth large fluctuations and work toward ensuring a single, market-driven rate,” it recommended.
Managing Director, Qeeva Advisory Limited, Matthew Ogagavworia, said: “A unified exchange rate will help curtail the unbridled demand for the naira as those who speculate on the currency will no longer find room for the arbitrage.
“A lot of people are moving positions from the naira to the dollar because they want to preserve the value of the capital especially in the face of the uncertainty that hovers around the Naira.”
He said the free fall of the naira was caused by many factors that were beyond the CBN, adding that the country must find a way to reduce the dependency on oil to fund its expenditure.
By Sunday M. Ogwu, Christiana T. Alabi (Lagos), Simon E. Sunday, Chris Agabi & Faruk Shuaibu (Abuja)