Against the backdrop of the abysmal performance of Nigeria’s currency in the international market, financial analysts have indicated that the Naira is still facing more distortions that could further erode its value.
Meanwhile the local currency sustained the depreciation trend yesterday hitting N1,710/$ in the parallel market, as against N1,690/$ the previous day.
The Naira also faced similar fate in the official market, depreciating to N1,660/$ from N1,659/$ the previous day.
A World Bank report earlier in the week had said that Naira is among the worst performing currencies in the world so far in 2024.
Commenting on the situation, David Adonri, Analyst and Executive Chairman at Highcap Securities Limited, said: “The Naira has been battered severely by its persistent depreciation since last year following its floating.
“However, there is still a lot of distortion surrounding its value because CBN is still indirectly influencing it’s price thereby thwarting the market mechanism that ought to efficiently allocate the currency”.
Giving reasons for the woes of the local currency, Adonri stated further: “The precarious situation of the economy, huge fiscal deficit and excessive public borrowing together with dwindling forex income have battered the Naira”.
Making a recommendation for better performance, he said, “To strengthen the Naira, government must run austerity on its recurrent expenditures, balance it’s budget and mobilize the domestic factors of production to drastically cut down on imports.
“There is actually a correlation between the value of the Naira and the inflation rate. Galloping inflation has been eroding the value of the Naira.
“If government takes supply side of the economy seriously, inflation will be tackled”.
Also commenting, Tunde Abidoye, Head, Equity Research, FBNQest Securities, said that efforts to strengthen the Naira must start with increased crude oil production.
While agreeing with the assessment of the Naira by the World Bank as the worst performing currency globally, Abidoye highlighted measures that are needed to strengthen the Naira noting that the Cardoso led Central Bank of Nigeria, CBN, has done a lot to enhance the workings of the forex market, and ensure transparency.
He stated: “From my perspective, the things that need to be done are: In the near term – drive increased crude oil production. Oil production has to be taken up to maybe 1.8mbpd to 2mbpd;
Commenting on the poor state of the Naira compared to peers across Africa, Dr. Ayodeji Ebo, MD/Chief Business Officer, Optimus by Afrinvest, blamed the free float of the Naira for the adverse situation, saying that economic variables tied to the Naira currently makes it impossible to float the currency.
He stated: “The free-floating of the naira led to its dismal performance. Nigeria does not have the ability to float its currency given the several economic variables that are tied to the naira.
“A managed float is more appropriate where the CBN devalues intermittently. The current free-floating makes it difficult for businesses to plan, especially since the demand for the greenback keeps increasing.”
Commenting as well, the national President of Oil and Gas Service providers Association of Nigeria, OGSPAN, Mazi Colman Obasi, said: “The same World Bank that adviced Tinubu not to listen to Nigerians in hardship is also saying that Naira is among the worst performing currency in the world.
“The problems of Nigeria are not in the World Bank, it is right here in Nigeria. The only way to strengthen Naira is local production of what we eat and what we buy and what we export.
“But the preoccupation of this administration is buying of jet aircraft to fly all over the world. Then construction of Lagos-Calabar Coastal highways whereas what Calabar need is functional seaport.
“Until we move from consumption to production Naira will remain valueless and worst performing currency in the world.”
Have negative, positive effects – ASBON
President, Association of Small Business Owners of Nigeria (ASBON), Dr. Femi Egbesola, said that the Naira losing value has two opposite side effects – negative and positive.
His words: “On one hand, most of our inputs – raw materials and machineries – are imported and paid for in dollars. With the devalued naira, all these become very expensive. This erodes our working capital and also makes our products very expensive, as the burden is passed to the end consumers in our local market.
“On the other hand, it makes our products very cheap, affordable and highly competitive in the international market. Thus, this has opened a wide access to export market and international trade for us, hereby enabling us to sell at a relatively cheap prices due to lower Naira value and in return, earning foreign exchange which becomes highly profitable when translated to Naira back home.”
Highlights ongoing economic challenges – NACCIMA
In his comment, President of Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Dele Oye, said: “The substantial depreciation of approximately 43% highlights the ongoing economic challenges, primarily driven by soaring demand for US dollars in the parallel market and inadequate dollar inflows. This instability has created a precarious situation for businesses, complicating import dependencies and increasing operational costs. Companies may struggle to maintain pricing stability, ultimately impacting consumer purchasing power and overall economic growth.
“CBN’s perceived lack of appreciation for its critical role in managing currency stability raises serious questions about its strategy and responsiveness to market dynamics. The slow disbursement of foreign exchange to currency exchange bureaus further exacerbated the situation, revealing a disconnect between policy implementation and the realities faced by businesses.
“A more proactive and transparent approach from CBN is essential to restore confidence, ensure a fair economic environment, and safeguard the interests of Nigerian businesses in these challenging times.”
