Manufacturers are anticipating a surge in the prices of commodities as the naira’s value weakens against the dollar, slumping to a record low of N1,420/$.
Francis Meshioye, President of the Manufacturers Association of Nigeria (MAN), speaking to Punch, warned of impending challenges to the profit line, urging businesses to strive for breakeven amidst the adverse exchange rate.
“It is not possible to remain profitable with this exchange rate. The first challenge is breaking even. It means the prices of things will be higher, and the income is not there for people to buy things as they should buy as things become more expensive,” he told the newspaper.
“So, the demand will become low, and this will affect our bottom-line. The break-even point will become critical. So, what businesses should do is to ensure that they break even at this time. It is a critical and very challenging time for us.”
Meanwhile, the Central Bank of Nigeria (CBN) initiated efforts to alleviate pressure on the exchange rate by clearing a $7 billion backlog.
“These payments signify the CBN’s ongoing efforts to settle all remaining valid forward transactions to alleviate the current pressure on the country’s exchange rate,” Hakama Sidi Alia, the acting director of corporate communications at the CBN, affirmed.
CBN Governor Olayemi Cardoso, speaking at the launch of the Nigerian Economic Summit Group 2024 Macroeconomic Outlook Report, outlines strategies to enhance liquidity and stabilise the foreign exchange market.
“The expected stability in the foreign exchange market for 2024 can be attributed to the reduction in petroleum product imports… The resulting consistent and stable exchange rate will boost investor confidence and attract foreign investment,” he predicted.
However, the International Monetary Fund (IMF) attributes the naira’s decline to excess circulation. Christian Ebeke, Nigeria’s Country Representative at the IMF, highlights structural factors affecting the market’s stability and emphasises the importance of transparency.
“One is the fact that you have excess naira in the market. The second one is structural; the market is new. These reforms are bold; the government needed a lot of courage to let the naira depreciate like that in a country where the naira has been quite stable for a while,” he said.
“The market is still new. It is still in its price discovery mode. Market participants are still learning how to transact in an orderly fashion. These structural factors affect the naira because the market is new and a little bit shallow, which is also responsible for volatility in the market.
“Then, there is also uncertainty in the market. I am not sure that the parallel rate is the ultimate rate. At some point, we may think about a fair naira rate that is probably between what we see in the parallel market and the official market. But it is very difficult while you are still in the transition phase to talk about what is a fair value and what we are seeing.”
Alex Sienaert, Nigeria’s Lead Economist at the World Bank Group, underscores the impact of inflation on the naira’s value.
“The key risk to manage is that the exchange rate is the price of the naira relative to other currencies… To safeguard the benefits of this major currency adjustment… [we need to] bring about price stability, which will support the value of the naira,” Alex Sienaert said.
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