In a startling turn of events, the value of the naira has taken a nosedive to unprecedented levels, sending shockwaves across every aspect of life and propelling inflation figures to levels unseen in decades.
The naira’s journey from N450 to the dollar officially and N750 in the parallel market has now reached an alarming street rate of N1200, fluctuating between N950 and N1000 in the official market. As the foreign exchange (FX) market concluded its trading for the year, the naira saw a staggering 96.55% loss against the dollar at the official market.
Year-end trading data from the Nigeria Autonomous Foreign Exchange Market (NAFEM), compiled by FMDQ, revealed a 96.55% depreciation in the naira, quoting the dollar at N907.11 on the last trading day of 2023 compared to N461.61 at the close of 2022.
On a daily basis, the naira experienced a 13.04% appreciation, with the dollar quoted at N907.11 on Friday, in contrast to N1,043.09 on Thursday.
Buyers and sellers engaged in high-stakes transactions, quoting the dollar as high as N1,224.10 on Friday, showing a considerable strength compared to N1,235.65 on the preceding day. Meanwhile, the parallel market witnessed a 62.16% loss, with the dollar selling for N1,200 on the last trading day of 2023, a significant jump from N740 in 2022.
The exchange rate gap between the official and parallel markets widened to N293 in 2023, surpassing the N279 gap observed in 2022. The World Bank attributed this volatility to ongoing adjustments in the foreign exchange market.
Despite efforts to stabilize the exchange rate, the premium in the parallel market fluctuated, briefly rising to pre-June levels in October 2023. The World Bank suggests that additional measures may be required for market stability, and the Central Bank of Nigeria (CBN) is expected to implement further monetary policy tightening to bolster the naira’s value.
Demand for dollars remains high for various purposes, including school fees, medical bills, tourism, and importation of goods. With limited supply in the official market, individuals and businesses have turned to the parallel market for foreign currency.
CBN’s decision to merge all FX windows into the Investors and Exporters (I&E) forex window in June 2023, now NAFEM, aimed to streamline the market. However, challenges persisted, leading to the restoration of 43 prohibited items from access to foreign exchange in October 2023.
Governor of the CBN, Yemi Cardoso, emphasized the importance of stabilizing the exchange rate. He highlighted ongoing efforts, including settling forward foreign exchange obligations and allowing market forces to determine exchange rates through the Willing Buyer – Willing Seller principle.
The inflation rate, which started the year at 21.82%, surged to 28.2% in November, indicating a rapid rise in the prices of goods and services. While global inflation is projected to decline, the CBN has consistently raised benchmark interest rates to combat inflation.
The manufacturing sector bore the brunt of the foreign exchange scarcity throughout the year. Otunba Francis Meshioye, President of the Manufacturers Association of Nigeria (MAN), stressed the need for comprehensive efforts to overcome challenges such as power supply, insecurity, inadequate infrastructure, and forex shortage. He urged the government to prioritize investment in infrastructure, combat insecurity and corruption, and introduce incentive policies to boost domestic production and attract foreign investment.
