Naira, Nigeria’s currency, which continued its depreciation on Monday, is said to have lost 94.87 in five years according to Bismarck Rewane, managing director/chief executive officer of Financial Derivatives Company Limited.
After trading on Monday, naira weakened marginally by 0.04 percent as the dollar was quoted at N436.50/$ compared to N436.33 per dollar quoted on Friday at the Investors and Exporters (I&E) forex window, data from the FMDQ said.
Most foreign exchange dealers who participated at the FX auction on Wednesday maintained bids between N425.00 (low) and N437.00 (high) per dollar.
The daily foreign exchange market turnover increased by 51.13 percent to $99.78 million on Monday from $66.02 million recorded on Friday.
In his presentation at Lagos Business School (LBS), Rewane pointed out the causes of naira depreciation, which included market structure, restrictive policies, low oil sales and revenue, rationing of forex supply, and capital flight.
He admitted that Nigeria is not alone in terms of currency depreciation. Other African countries are grappling with currency weakness.
South Africa’s currency depreciated by -9.64 percent from 15.530 in June 2022 to 17.027 in August 2022. Also Ghana’s currency depreciated by 31.19 percent from 7.566 in June 2022 to 9.926 in August 2022.
In Nigeria, naira closed at N707 per dollar on Monday at the parallel market, after crossing N715/$. Rewane puts the effective exchange rate at N690 per dollar.
He was concerned that top manufacturers are complaining about limited forex supply. He said 12 months ago – forex bought ratio stood at 25 percent through the Central Bank of Nigeria and 75 percent through other sources.
But currently, he said the forex bought ratio is 5 percent through the CBN and 95 percent through other sources.
According to him, exchange rate adjustment to N470/$ will free up N600bn per month to the Federation Account Allocation Committee (FAAC).
Oil production rose marginally by 0.51 percent to 1.183mbpd in July. Gross external reserves lost 0.41 percent to close the month at $39.02bn. Africa’s largest economy’s foreign reserves is now 6.72 percent below the 2021 peak of $41.83bn, adding that import and payment cover fell by 0.56 percent to 8.85 months.
Nigeria has a multiple exchange rate system. The World Bank had said allowing further gradual adjustment in the Investors and Exporters Foreign Exchange (IEFX) rate, where the CBN manages the price, would help eliminate misalignment and alleviate persistent FX pressures.
Naira depreciation has been attributed to dollar shortage as Nigeria continues to struggle with diversifying and improving foreign exchange inflows.