Manufacturers in Nigeria are predicting a surge in commodity prices in response to the persistent depreciation of the Naira against the United States dollar. The Naira recently fell to N1,420/$ at the parallel foreign exchange market, prompting concerns about the impact on the economy.
Francis Meshioye, the President of the Manufacturers Association of Nigeria (MAN), expressed his apprehension about the exchange rate, stating that remaining profitable under such conditions is challenging. He emphasized that the first challenge is breaking even, as higher prices and reduced income due to expensive commodities may lead to decreased demand, affecting businesses’ bottom line.
Meshioye highlighted the need for businesses to revise their strategies during this critical and challenging time, considering the frequent fluctuations in the forex market. The current situation, characterized by the Naira’s decline, requires manufacturers to collaborate and devise viable solutions to navigate the business landscape.
The fall of the Naira has contributed to high inflation rates, reaching 28.92 percent as of December 2023, according to the National Bureau of Statistics. The Naira’s decline has been ongoing since the Central Bank of Nigeria removed the rate cap on the currency in June 2023, resulting in record lows on both official and unofficial forex windows.
While the official Investor and Exporter window showed a 1.01 percent appreciation of the Naira to N891.90/$, the parallel market saw the Naira closing the week at N1,420/$. In the cryptocurrency peer-to-peer market, the Naira was trading for N1,401.7/$ on Binance’s P2P platform.
The continued depreciation of the Naira has prompted concerns despite efforts by the Central Bank of Nigeria and the Federal Government. The government recently secured a $2.25 billion oil-for-cash loan facility from the African Export-Import Bank to boost dollar liquidity in the economy. However, the Naira’s free fall persists, highlighting the challenges faced by the economy.
Efforts are being made to address the foreign exchange shortage, including clearing part of the Central Bank’s backlog of matured foreign exchange obligations to Deposit Money Banks. The CBN has paid $2 billion of an alleged $7 billion backlog.
The CBN’s Acting Director of Corporate Communications, Hakama Sidi Alia, noted that these payments are part of the bank’s ongoing efforts to settle remaining valid forward transactions and alleviate pressure on the country’s exchange rate.
CBN Governor Olayemi Cardoso emphasized the comprehensive strategy being implemented to improve liquidity in the foreign exchange markets. He expressed confidence that the rates would eventually stabilize in 2024, attributing the expected stability to reduced petroleum product imports and the recent implementation of a market-determined exchange rate policy by the CBN. The reforms aim to streamline and unify multiple exchange rates, fostering transparency and reducing arbitrage opportunities.
Cardoso believes that a consistent and stable exchange rate will boost investor confidence, attract foreign investment, and enhance Nigeria’s appeal to global investors.
