Naira extended its decline against the dollar to 714 in the parallel market on Tuesday, losing 73.25 percent of its value in nine years as foreign exchange shortage persists in the country.
The naira, which stood at 191 per dollar on August 28, 2014, has weakened on the back of rising strong dollar, import demand, oil theft, fuel subsidies, currency speculation, high money supply and weak productivity, according to analysts.
Many Nigerian businesses, especially manufacturers who import raw materials, are affected by the rising cost of dollars.
“Foreign exchange crisis and inflation rate affect everything. The buying power of naira is going down, and it is affecting our turnover. A container of raw materials that used to cost us N8 million to import into the country is currently costing about N32 million,” Michael Iweka, chief executive officer, Mackingdom Ind. Co. Limited, said.
He said a lot of companies’ equipment are being dismantled and sold cheaply by courts and banks because the manufacturers could not meet up with their loan obligations.
“You can go to the Owede area of Lagos and see for yourself. Some of those machines were used as collateral to obtain a loan. The manufacturers are suffering a lot. Some of the companies have folded up,” he said.
Nigeria’s total imports, which consist of oil, non-oil and informal cross-border trade, declined by 12.70 percent to $50.10 billion in 2021 from $57.39 billion in 2012, data from the Central Bank of Nigeria show.
Muda Yusus, chief executive officer of Centre for the Promotion of Private Enterprise, said the foreign exchange crisis has led to severe stress on manufacturers because most of them depend on imported inputs.
He was concerned that the situation has resulted in escalation of production costs, which affects prices. “When prices go up, it affects sales, turnover and capacity utilisation.”
Yusuf said some of the manufacturers that could not cope had to scale down production and some of them have actually suspended operations due to the forex issue.
According to him, to get equipment, machinery and spare parts is difficult because of the dollar crisis.
He said some manufacturers could not access forex to pay their creditors abroad or enjoy credit lines from their suppliers and that their relationship with their business partners had been affected.
“The problem is also about scarcity of dollars or liquidity squeeze creating a whole lot of problems, which affects companies’ profitability.”
The aggregate forex inflow into the economy fell by 17.3 per cent to $5.42 billion in May from $6.56 billion in April. Similarly, total forex outflow declined by 20.7 per cent to $3.13 billion from $3.95 billion in April, according to the CBN’s monthly economic report.
Further analysis shows that forex inflow through the central bank decreased by 14.2 per cent to $2.12 billion in May from US$2.47 billion in the preceding month, largely attributed to a 47.2 per cent decline in crude oil export receipts. Autonomous inflow also fell by 19.2 per cent to $3.31 billion from $4.09 billion, due to decreases in total over-the-counter purchases.
The naira depreciated by 0.06 percent as the dollar was quoted at N436.50 on Monday as against the last close of N436.25 on Friday at the Investors and Exporters forex window.
Most currency dealers who participated at the forex auction on Monday maintained bids between N434.00 and N437.00 per dollar.
On July 27, 2022, the CBN stopped forex sales to the Bureau De Change and channelled the sale of dollars to commercial banks for legitimate needs.
The naira has depreciated by 25 percent at the parallel market, one year after the CBN shut down the Abokifx platform. Abokifx is an online platform that collates and publishes exchange rates at the unregulated foreign market.
The local currency, which stood at N570 per dollar on September 17, 2021, weakened to over N710/$ this year.
The CBN, after the Monetary Policy Committee meeting in September last year, accused Abokifx of carrying out an illegal activity that undermined the economy.
Godwin Emefiele, governor of the CBN, said the apex bank had been studying the activities of Abokifx in the last two years, before the clampdown.
He said the owner of the platform, Oniwinde Adedotun, was involved in illegal forex trading. “He is a Nigerian, living in England, we will track him, Oniwinde, we will track you. “We cannot allow you to continue to kill our economy,” Emefiele said at the time.