Election funding driving Nigerian naira to new lows

Politicians in Nigeria are buying dollars to fund vote hunting in primary elections that start over the weekend, driving the local currency to new lows in the unauthorized parallel market, reports Bloomberg.

The naira weakened to 600 against the greenback this week in the unregulated field, according to Abubakar Mohammed, a bureau de change operator that tracks the data in Lagos, the commercial capital.

It’s the lowest the currency has traded this year in Africa’s most populous country, where the central bank maintains an official exchange rate that is tightly controlled and it seems the worse is yet to come for the local currency with officials having run out of ideas.

The naira was trading at 417.72 as of 8.51 a.m Wednesday in the authorized market, where supplies are low. The parallel market thrives on the shortages in the official version, resulting in the 44% gap between rates.

Read also: Banks’ naira card limits fuel dollar demand at black market

There is huge demand for dollars in cash from politicians competing for support from delegates in the party primaries, Mohammed said by phone. “Demand is not going to abate soon, which means more pressure for the naira, and also because dollar supply is very low,” he said.

Nigeria’s two major political parties, the ruling All Progressives Congress and main opposition Peoples Democratic Party, plan to hold primary elections for legislative, governorship and presidential candidates from the weekend to early June. Some candidates give dollars to delegates as an incentive to get their votes.

Nigeria’s central bank could be forced to devalue the naira if it continues to weaken in the parallel market. It has done so with the currency three times since March 2020 in a bid to curb demand and close the gap between the official and unauthorized rate.

The central bank should improve supply of the greenback rather than suppress demand, Aminu Gwadabe, president of the Association of Bureau de change Operators of Nigeria, said by phone. There is a “lack of confidence in the local currency” Gwadabe said.