The Rise And Fall Of The Naira: Experts Tell Neusroom What Must Be Done To Stabilise The Currency
The gains witnessed by the naira, Nigeria’s currency, within the last month, have been wiped out by a steep fall in value. In April 2024, the naira traded at below ₦1000/$, only to reside within the first two weeks of May, losing 40 percent of its value, and becoming the world’s worst-performing currency.
Since June last year, when President Bola Tinubu relaxed foreign-exchange controls in a bid to unify the different exchange rates operating in the country and attract foreign investors, the naira has been unstable against the dollar.
There have been policies initiated by the Nigeria Central Bank (CBN) to stabilise the currency and restore value. In late February 2024, Yemi Cardoso, CBN Governor, increased the Monetary Policy Rate (MPR) from 18.75 percent to 22.75 percent. A month later, the apex bank increased it again to 24.75 percent during a second Monetary Policy Committee meeting in Abuja on March 26, 2024. Also, the Nigerian government announced it had successfully cleared all verified backlogs of foreign exchange it inherited from past administrations.
What was witnessed was a steep appreciation of the naira, from ₦1,900 to the dollar recorded in February to around ₦1,000.
However, the naira has lost its rally gains and now trades at around ₦1,466 against the dollar.
Reasons For Naira’s Depreciation
Several reasons have been cited for the recent depreciation of the naira. Data from CBN showed that total direct FX remittance into the country dropped by 6.28 percent to $282.6 million in the first quarter of 2024. Also, the country’s Foreign Reserve dropped from $33.9 billion in March to $32.3 billion in May. While some experts attribute this drop to the apex bank’s effort to defend the naira by selling dollars to Bureau De Change, CBN said the drop was a result of debt repayments and other standard financial obligations.
Nigeria, a country whose crude oil export in Q4 of 2023 accounted for 81.23 percent of all exports, according to data from the National Bureau of Statistics, equally imported far more than it exported.
In an exclusive interview with Emmanuel Adetayo, a financial officer with one of Africa’s fastest-growing companies, he said that although the CBN has been making good policies in the right direction, the concern is how efficient these policies are under some other economic conditions.
What Must Be Done To Save The Naira
To solve the country’s currency volatility and mitigate its depreciation, Adetayo said Nigeria needs to drastically increase crude oil production.
“We need to increase production. Basically, now, the main thing we export is our crude. We need to even capitalise on the crude we export. Currently, we are not the highest producer of oil. Angola has overtaken that,” he said.
Oil theft, corruption, and the general rise in insecurity in the country’s Niger Delta region, where oil wells are predominantly located, have contributed to the fall in production, which affects not only exports but also the country’s major source of FX. According to data from CBN, while domestic production of crude dropped from 1.43 million barrels per day in January to 1.23 million barrels per day in March, export of the product also dropped by 19.3 percent.
“There was a time when we produced over 2 million barrels per day. As it is now, we are producing less than 1.4 million barrels per day. And that fall is having a drastic effect not on the economy alone but our FX,” Adetayo explained.
Damilare Akanni, a data and financial analyst, also told Neusroom that another way to ensure the long-term strength and stability of the naira is to digitalise exports.
“Exporting in Nigeria requires a lot of bureaucratic processes that don’t encourage Nigerians to export goods,” he said. “If we can digitalise exports, Nigeria can export more non-oil products and attract FX into the country.”
Adetayo also noted that Nigeria needs to reduce importation, particularly in the area of fuel.
“We need to reduce our importation. When we import, we import a lot regarding fuel. The one that requires a lot of dollars in our importation chain is the importation of refined fuel,” Adetayo said.
He added, “The refined fuel we are talking about is Jet Fuel, Diesel, and PMS. These three are very pivotal to our economy. A lot of production companies make use of diesel. Our aviation sector makes use of Jet fuel; the majority of cars in Nigeria use PMS.”
