The persistent instability of the Naira relative to the US dollar has a chilling effect on investor sentiment toward the Nigerian economy.
The country’s currency rose against the dollar last week, providing some relief. It was trading at N970/$1 on the parallel market, up from N1300/$1 the week before.
Naira currency rates on Monday ranged between N1000 to N1020 per dollar, signaling a dismal start to the week. This indicates a small decline from the N970/$1 rate over the weekend.
At the official FMDQ market, the Naira fell to N809.02/$1 from N780.03/$1 on Friday, a 4.24 percent depreciation.
Meanwhile, Nigeria’s FX reserves rose from September’s $33,240 million to October’s $33,340 million.
Since the Central Bank of Nigeria floated the currency in the FX market on June 14, the Naira has continued to fluctuate, according to DAILY POST, sparking concerns among industry stakeholders.
In an interview broadcast on Monday, financial analyst Kalu Aja told Channels Television that he believes a sustained Naira stability is unachievable.
The Naira’s value is totally dependent on crude oil exports. Unless we witness considerable crude oil exports, the currency will remain unstable.”
Aja’s statement comes as the National Bureau of Statistics reports that Nigeria earned N5.14 trillion from the sale of crude oil in the first three months of 2023, up from N4.9 trillion in the previous quarter.
The current trend in the forex market is indicative of a currency that is having difficulty finding its fair value in the marketplace, according to Prof. Segun Ajibola, a prominent economist and former President and Chairman of the Council of the Chartered Institute of Bankers, who spoke with DAILY POST on Monday.
He argues that in order for the Naira to recover its former strength, the Central Bank of Nigeria and the federal government must make concerted efforts to remove the foreign exchange supply rigidities.
The current situation with the Naira to US dollar exchange rate is indicative of a currency that is having trouble establishing its true value in the market. Although the exchange rate in Nigeria has improved from its recent low of over N1300 to the US dollar, there is still little reason to celebrate.
“Sustained efforts must be implemented to address supply rigidities if the Naira is to regain sustainable strength.” If the global oil market remains volatile, Nigeria’s currency market will remain unsteady. And even then, the exchange rate would be subject to huge fluctuations.
Amidst unchecked demand for dollars for imports, it is imperative that non-oil foreign exchange profits be relentlessly pursued to sustain an enhanced supply of dollars to the market. Anything short of this will merely cause unprecedented swings in the foreign currency market, the type that has been experienced in the market for weeks now.
Borrowing, drawing down reserves, and other means of increasing the availability of dollars are transitory measures at best. In order to effectively manage the country’s foreign exchange market, he said, “we need to think outside the box.”
Prof. Godwin Oyedokun, a professor at Lead City University in Ibadan, said that maintaining the Naira’s spike at the forex is a difficult problem that calls for an all-encompassing answer.
He suggested seven measures the government may take to stabilize the Naira and reduce its volatility on currency exchange markets.
The government can keep the Naira’s gains against the dollar going in various different ways. Some ideas are as follows:
The government’s priority should be on implementing measures that result in stable and predictable monetary conditions. Setting interest rates that encourage investment while discouraging excessive speculation that could contribute to currency volatility is optimal.
Building and keeping a sufficient amount of foreign exchange reserves is critical to supporting the value of the Naira. To improve the influx of foreign cash, the government should prioritize measures that attract foreign investors and stimulate exports.
“Encourage export diversification: The Naira’s exposure to swings in global oil prices is exacerbated by the country’s reliance on oil exports. Government policy should prioritize industries other than oil production in order to broaden the country’s export base. The Naira would be relieved of some of its stress if this happened.
Reduce Inflation: Excessive inflation destroys purchasing power. In order to control inflation, the government should employ sound fiscal policies, such as restrained expenditure and reasonable tax rates. This would increase the Naira’s credibility and entice investors at home and abroad.
To lessen the need for foreign exchange, it is important to fortify domestic manufacturing sectors. Incentives, infrastructural investment, and capacity-building programs should all be available from the government. This would encourage economic growth and relieve the strain on the Naira.
Transparency and accountability in government financial activities, including those involving foreign cash, should be prioritized. The Naira’s value would be protected from corruption, illegal money transfers, and speculative activities if this were to happen.
Improve confidence among investors by talking to both domestic and international investors on how to make their investments safer and more profitable. To increase foreign investment and strengthen the Naira, the government should prioritize enhancing governance, establishing the rule of law, and resolving security concerns.
Maintaining the Naira’s gains against the Dollar is a difficult challenge that calls for a holistic strategy. These recommendations serve as a springboard, but he stressed the need for ongoing monitoring, review, and revisions to account for the dynamic nature of the economic climate.
Meanwhile, Mr. Idakolo Gbolade, CEO of SD & D Capital Management, has advised the government to tighten its supply of foreign currency.
“The stability of the Naira is contingent on sufficient forex to interfere in the market. As the airlines have said, just 10% of their backlog has been cleared, this may explain the recent drop. This demonstrates that the CBN must do more to restore public trust.
Our potential to increase revenue, as shown in foreign reserve holdings, is impacted by fluctuations in crude oil revenue, which is one of the country’s key sources of revenue.
“The government should intensify its intervention by supplying more forex to clear the backlogs and meet new requests.”
Mismob Media