Unending pressure on Naira against Dollar

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The persistent depreciation and instability of the naira against the Dollar has continued to cause a skyrocketed inflation in Nigerian economy. This is reflected on the surge of goods and services depending on input from abroad. For instance, incessant  fall in the value of Naira from N260 to N600 in the black market has raised the price of diesel, a deregulated product from N190 per litre between January 2022 to N750 per litre in September 2022. The multiplier effect is also seen the price of newsprint which rose from N400,000 per kilogram in December 2021 to N1.25 million in September 2022. The same thing goes for local air fares which increased from N30,000 to N75,000 for Lagos to Abuja flight.

Since the advent of President Muhammadu Buhari administration in 2015, the situation with the exchange rate has been at its worst. From an exchange rate of N197 to a U.S. Dollar in 2015, the naira exchange rate has rapidly deteriorated to about N420 to a Dollar in the official market and a whopping N750 to a Dollar in the parallel market. That is a huge difference between the two markets thus creating room for huge arbitrage or round-tripping in the foreign exchange market. This is a great incentive for rent-seekers in the market who would do whatever it takes to maintain this status quo.

Despite the intervention recently by the  Economic and Financial Crimes Commission (EFCC) on the activities of Bureau De Change Operators and Central Bank stringent policies in restricting excess circulation of Dollars there’s no respite. Precisely, the Dollar to Naira exchange rate in Nigeria black market is between N709 and N725 with an average of N720.21 (as at 28/09/2022) which is not palatable for our economy.

The anti-corruption agency swung into action by summoning the Bureau De Change traders in Abuja and Lagos by threatening to clampdown on those found wanting of stockpiling and hoarding forex as authorities activates desperate measures to salvage tumbling economy.

The chairman of the anti-graft agency issued the caution while meeting with representatives of Bureau De Change operators in Abuja on Friday, early August, 2022.

He noted that the agency had intelligence about Nigerians stockpiling foreign currency which the agency will not leave any stone unturned in dealing mercilessly with saboteurs.

During an interactive session with some selected journalists at a workshop on the Effective Reporting of Economic and Financial Crimes last Wednesday, Mr. Bawa also revealed that “one achievement which most of you may not easily recognise is the impact which EFCC’s intervention in the Forex market has had on the value of the Naira. From well over N710 to the Dollar, following the Commission’s intervention, the Naira has appreciated significantly against the Dollar in the Parallel market, and we are not relenting in our efforts to check harmful speculative activities in the sector.”

Within the country and beyond, virtually everybody, including the garri seller in the market, now talks about the effect of the exchange rate on their economic transactions. Many see the exchange rate as a key determinant of the rate of inflation in the country.

These are indeed trying times for every Nigerian who is continually adjusting to the erosion of their hard-earned income through continual price increases for basic consumer items. The most common scapegoat is generally the price of the dollar. The pressure on the naira is indeed real.

The current risks to the local currency are numerous. These range from a depleting state of the foreign exchange reserves, declining foreign capital inflow, heightened political risks, narrowing fiscal space and the generally poor management of the Nigerian economy. These have proved intractable for quite some time now and the situation appears to be getting worse.

Given the high import dependence of the Nigerian economy, imported inflation has become rife such that rapid price changes to imported goods as well as local goods with a large component of imported inputs have become commonplace.

The main losers in this unending economic somersault are fixed income earners as well as the large army of the unemployed who rely on the already impoverished income earners for their sustenance. Nigeria appears to be at the crossroad in this seemingly unending crisis of the falling value of the naira vis-a-vis that of other foreign currencies, particularly the United States dollar.

Conceptually, it is known that the exchange rate, like any other price, is the outcome of the forces of supply and demand. Virtually every government, through the Central Bank, has been preoccupied with the management of these supply and demand forces in relation to the determination of the exchange rate. Their success or failure in this regard has depended on the effectiveness of the supply and demand management policies as well as local and international developments.

Aside from external exogenous factors affecting the value of the local currency, the value of the naira has been largely mismanaged by President Buhari’s administration and the facts are quite obvious in the public domain.

Experts have predicted that Nigeria’s currency, Naira, will further depreciate while the Gross Domestic Product, GDP will further grow by almost three percent.

Addressing economic stakeholders and participants at the Stanbic IBTC’s Blue Talks Enterprise Banking webinar few months ago, Muyiwa Oni, Regional Head of Equity Research, West Africa, Standard Bank Group, said that the financial institution forecasts that Naira’s value will drop as the year progresses.

He stated, “We predict that the currency, on the official market, will be around N440 per dollar. Our view is that as long as we don’t see formal reforms in the foreign exchange market, the shortage will persist.”

While noting that due to unfavourable business environments, several investors have resolved to take their money out of the Nigerian economy, Oni also said inflation will average around 15 per cent, adding that the country’s Gross Domestic Product (GDP) will grow by 2.9 per cent.

It is pertinent that the incidence of political interference needs to be addressed very soon, particularly with the President not on the ballot in the 2023 election and someone probably in search of a legacy to his name as he leaves office in 2023.

The Government should begin to introduce vigorous policies to increase Dollar and other foreign currencies supply and availability in the country. For instance, there should be insistence all politicians must carry out all transactions in Naira.

Nigerians should be encouraged to buy local – goods, education and health, among others. Local industries should be protected. Government should link the current economic situation to the promises the ruling party made in 2015. The issue of corruption in the area of smuggling and connivance by the Department of Customs and Excise should be looked into and addressed.

On the supply side, the operating environment should be improved upon, the incidences of the CBN ways and means advances minimised and the current governor of CBN absolving himself completely from political activities in order to address the exchange rate and monetary policy challenges in the economy.

The CBN Governor, Godwin Emefiele needs to be more proactive thereby synergizing with other relevant Government agencies in addressing the falling value of the naira. The burden lies with the fiscal and monetary authorities to lead the way out of the current darkness.

The federal government must do everything possible to kick against the recent plan and speculations by some foreign airlines that their tickets will be purchased in Dollars.

The MPC must find lasting solutions to the unstable depreciation in Naira before this Buhari’s tenure elapses so that the new Government in 2023 will be economy focused.