Nigeria’s currency, the naira, suffered a blow yesterday as it dropped to N1,670 per dollar in the parallel market, down from N1,660 the previous day. Similarly, the official market reflected signs of strain, with the naira losing value to exchange at N1,550 per dollar compared to Tuesday’s N1,549.
The recent fluctuations highlight the intensifying disparity between the Central Bank of Nigeria (CBN)-regulated Nigerian Foreign Exchange Market (NFEM) and the unofficial black market, where the exchange rate margin has widened to N120. On Tuesday, this gap stood at N111 per dollar, showcasing a marked N9 difference within just 24 hours.
Dollar Demand Outpaces Supply
Currency analysts attribute the naira’s continued decline to mounting pressure on Nigeria’s forex reserves as demand for dollars far outweighs available supply. “There is an unrelenting surge in dollar demand from importers and travelers, which the official market cannot meet. This pushes people to the black market,” an anonymous trader in Lagos explained.
Furthermore, businesses reliant on imports are bearing the brunt of the rising exchange rates, with many struggling to adjust to higher operational costs. “We’re in survival mode,” said Mr. Adewale Alabi, an electronics importer. “The fluctuating rates eat into our margins, and now some of us are forced to adjust our prices daily to stay afloat.”
Forex Policy in Question
The disparity between the official and parallel market rates has once again put the CBN’s foreign exchange policies under the microscope. Critics argue that the central bank’s efforts to stabilize the naira, such as frequent interventions and adjustments to its monetary framework, have been insufficient.
Economic analyst Dr. Gloria Ogundele suggested that the widening forex gap underscores systemic inefficiencies. “The failure to align both markets only fosters speculative activity and encourages illicit trading, worsening the pressure on the naira,” she said.
Recently, the CBN introduced measures aimed at improving dollar liquidity, such as granting banks more flexibility to sell forex at market-driven rates. However, this approach appears to have had limited success as the dollar demand from critical sectors, including manufacturing and infrastructure, remains unmet.
Historic Trends and Current Struggles
The naira’s value has been on a downward trajectory for years, driven by several factors, including lower foreign direct investment, declining oil revenues, and reduced foreign reserve buffers. A weak global market for oil, Nigeria’s primary revenue generator, has compounded the currency’s challenges.
Although Nigeria’s foreign reserves were reported to be around $33 billion earlier this month, this figure has declined from $39 billion recorded last year, according to the CBN. A diminishing reserve makes it harder for the government to defend the currency effectively.
Compared to five years ago, when the naira exchanged for about N365/$ in the parallel market, the current rates highlight the extent of Nigeria’s economic troubles.
Experts Call for Immediate Reforms
Policy analysts and stakeholders are urging immediate reforms to stabilize the currency. Suggestions include creating incentives for diaspora remittances, diversifying the nation’s revenue sources, and aligning fiscal and monetary policies to tackle inflation and forex shortages comprehensively.
Some critics also believe that increased local production and reduced dependence on imports could strengthen the naira. According to a 2024 World Bank report, Nigeria imports goods worth billions annually, much of which can be locally produced with the right investments in technology and human capital.
The continued drop in the naira’s value has left Nigerians worried about further inflationary pressures, particularly on essential goods. With food inflation already hitting a record high earlier this year, households face growing difficulties in affording basic commodities.
