The Nigerian naira has been identified as one of the worst-performing currencies in Africa in 2024, following a sharp depreciation of approximately 43% since the start of the year. This revelation was made in the World Bank’s latest Africa’s Pulse report, which monitors economic developments across the continent.
According to the report, the naira’s poor performance places it alongside other struggling African currencies such as the Ethiopian birr and the South Sudanese pound. As of August 2024, the naira has seen a significant fall, primarily due to rising demand for the U.S. dollar in Nigeria’s parallel market, limited inflows of foreign currency, and delays in foreign exchange disbursements by the Central Bank of Nigeria (CBN).
The decline in the naira is closely linked to Nigeria’s broader economic challenges. One of the key factors driving the currency’s weakness is the surging demand for the U.S. dollar. Financial institutions, non-financial end-users, and money managers have been actively seeking dollars, placing enormous pressure on the local currency. This dollar demand has outpaced the availability of foreign exchange, causing the naira to slide in value.
Despite recent reforms aimed at improving the foreign exchange market, such as the liberalization of the official exchange rate in June 2023, the situation has not stabilized. In June 2023, the CBN moved to unify multiple exchange rates, allowing the naira to float more freely against the dollar. However, this policy change has not been enough to halt the currency’s depreciation.
“The naira’s performance remains weak due to fundamental challenges in the Nigerian economy, including limited dollar reserves and inflationary pressures,” the Africa’s Pulse report noted. It highlighted that even with reforms, the market continues to struggle with limited foreign reserves and a persistent gap between the official and parallel market rates.
As the naira has weakened, inflation has taken a toll on Nigerian consumers, especially in terms of imported goods. When the local currency depreciates, the cost of importing essential products like food, fuel, and machinery rises, leading to higher prices across the board.
The removal of fuel subsidies in mid-2023 has worsened the inflationary situation. Gasoline prices have more than tripled since the subsidy removal, significantly increasing the cost of transportation and logistics. As a result, the price of basic goods and services has skyrocketed, further straining the wallets of everyday Nigerians.
The World Bank report acknowledged these inflationary pressures, stating that “the naira’s depreciation has led to a rise in domestic prices, which has made life more difficult for Nigerian households.” Many Nigerians now face a higher cost of living, with their purchasing power eroded by the ongoing economic crisis.
Despite the alarming depreciation, there has been a slight recovery for the naira in recent weeks. On October 14, 2024, the currency appreciated by 5.69%, improving from N1,641.27 to N1,552.92 per U.S. dollar. This was seen as a positive development by some market analysts, though the broader economic issues remain unresolved.
However, alongside this modest gain, foreign exchange turnover dropped by 44.27% during the same period. Lower FX turnover indicates reduced activity in the market, which can be a sign of lingering uncertainties about the naira’s long-term stability. Analysts are concerned that while the naira has shown short-term improvement, the structural challenges facing the Nigerian economy are far from being addressed.
“The recent appreciation of the naira is a welcome development, but it is important to remain cautious. The underlying factors that have driven the naira’s weakness, such as low dollar reserves and inflationary pressures, are still present,” a local economist commented on the situation.
Looking ahead, the World Bank projects that Nigeria’s economy will grow by 3.3% in 2024, with further acceleration to 3.6% between 2025 and 2026. These growth figures are driven by ongoing reforms, efforts to diversify the economy, and improvements in sectors like agriculture, manufacturing, and digital technology.
However, inflation remains a major obstacle to achieving sustainable growth. The removal of fuel subsidies and the subsequent increase in gasoline prices have created a ripple effect throughout the economy, driving up the cost of transportation, food, and other essential goods.
“While Nigeria’s growth prospects are improving, inflation will continue to weigh heavily on the economy,” the World Bank report warned. The country’s efforts to stabilize the economy through reforms must be coupled with policies that address inflation and ensure that economic gains translate into improved living conditions for Nigerians.
The World Bank has called on Nigeria to continue its reforms to strengthen the economy and stabilize the currency. It noted that further actions are needed to boost foreign reserves, improve transparency in the foreign exchange market, and reduce the country’s dependence on oil revenues.
Nigeria, as Africa’s largest economy, has long relied on oil exports as its primary source of foreign exchange. However, fluctuating oil prices and limited investment in the sector have left the economy vulnerable to external shocks. The World Bank stressed the importance of diversifying the economy to reduce reliance on oil and promote sustainable growth.
“Economic diversification is key to Nigeria’s future prosperity. The country must focus on non-oil sectors, such as agriculture, manufacturing, and digital technology, to build a more resilient economy,” the report concluded.
