By Ken Afor
The Nigerian naira is one of the worst-performing currencies in Africa, according to the World Bank.
It stated that since a devaluation in mid-June, the currency has fallen by nearly 40% against the US dollar.
The world bank explained in a report titled “Africa’s Pulse: An analysis of issues shaping Africa’s economic future (October 2023 | Volume 28).”
It stated that, “So far this year, the Nigerian naira and the Angolan kwanza are among the worst performing currencies in the region: these currencies have posted a year-to-date depreciation of nearly 40 per cent.
“The weakening of the naira was triggered by the central bank’s decision to remove trading restrictions on the official market. For the kwanza, it was the decision of the central bank to stop defending the currency as a result of low oil prices and greater debt payments.”
According to the World Bank, South Sudan (33%), Burundi (27%), the Democratic Republic of the Congo (18%), Kenya (16%), Zambia (12%), Ghana (12%), and Rwanda (11%) were among the other currencies that have suffered significant losses so far in 2023.
It was noted that in some African nations’ inflationary issues are being exacerbated by rates on parallel exchange markets.
When the official Investors and Exporters window of the foreign exchange market opened in June 2023, the Central Bank of Nigeria ,CBN, instructed Deposit Money Banks to remove the rate cap on the naira and permit the currency to freely float against the dollar and other major world currencies but the naira has officially declined from N473.83 to about N800.
The bank highlighted the growing discrepancy between the unofficial and official exchange rates of the naira, noting that this had been the case from March 2020 until June 2023.
According to the report, as the Central Bank’s response to limit foreign exchange demand and maintain the exchange rate artificially low were met with declining FX supply from oil revenues, the parallel rate premium increased to 80% in November 2022 and then to about 60% in June 2023.
The NAFEX rate was able to converge to the parallel rate, thereby closing the gap, it claimed, thanks to the unification and liberalization of exchange rates in June 2023.
It added, “However, resistance toward the increasing pressure on the Nigerian naira coupled with limited supply of FX at the official window has led to the reemergence of the parallel market premium.”
The Washington-based bank noted that Nigeria’s growth rate would slow from 3.3% in 2022 to 2.9% in 2023.
While non-oil economic activity, particularly industry and services, still supported growth, it was noted that policy actions to remove fuel subsidies and unify the exchange rates might be having a short-term negative impact on these activities. The country’s oil production had continued to fall short of the OPEC+ quota due to capacity issues and lower international oil prices.
The manufacturing and service sectors of Nigeria’s economy experienced a decline in activity in August, according to the World Bank. It stated that “weak business confidence and rising input costs are driving the contraction of activity.” It emphasizes that there seems to be less business confidence in Nigeria.
The world bank revealed that households’ purchasing power was anticipated to decline in the near future in response to the recent reforms of the new Bola Tinubu administration.
It said, “The incoming Tinubu administration implemented a series of reforms that included the removal of fuel subsidies and the devaluation and unification of the exchange rate system. Petroleum prices have more than tripled since the subsidies were lifted at the end of May.
“The naira has weakened by nearly 40 per cent against the US dollar since the mid-June devaluation. Although these measures are intended to improve the fiscal and external accounts of the nation, their inflationary effects in the near term can erode the purchasing power of households and weigh on economic activity.”
