The naira plunged further at the official window on Tuesday, closing at an all-time-low of N1,482 against the United States dollar.
The local unit had closed at 1,348 against the greenback on Monday after the FMDQ Security Exchange review the methodology used for the calculation of its rates.
This came as the Central Bank of Nigeria released a circular to authorised dealers on financial market price transparency, warning them against engaging in sharp practices.
The bank stated that its attention had been drawn to the practice of some dealers and their customers in reporting inaccurate and misleading information on transitions in the financial market.
It stated that the behaviour was not compliant with ethical standards… “and deliberate attempts to create price distortions by reporting false transaction details amounts to market manipulation which will not be tolerated and henceforth face sanctions.”
Meanwhile, members of the organised private sector and economists expressed concerns over the development, saying the fall of the local unit at the NAFEX window would likely lead to business shutdowns, job losses, hikes in the prices of commodities and services, and high inflation.
Economists and private sector bodies that spoke to The PUNCH on Tuesday expressed worries over the fall in the value of the naira.
They said the depreciation of the naira at the official window to N1348.63/$ at the close of trading on Monday had wider implications for the economy.
However, the naira plummeted further on Tuesday, falling to N1482.57/$ as of the end of trading. On Monday, FMDQ Securities Exchange, which calculates the exchange rate of the country, revised the methodology used to set the exchange rate. This some experts believe is a technical devaluation of the national currency.
In a market notice, FMDQ stated, “This revision aims to address recent fluctuations and challenges encountered in the Nigerian Foreign Exchange (‘FX’) Market.”
It noted that the new measures taken would ensure that NAFEX and NAFEM rates accurately reflect market conditions.
It explained, “These revisions are focused on enhancing the accuracy and reliability of the NAFEX and NAFEM rates determination process, with a focus on data availability and integrity involving a rigorous data validation process, including tolerance checks which shall be applied by FMDQ Exchange, subject to internal policies and procedures.”
These moves by FMDQ and CBN were aimed at closing the gap between the official and parallel rates of the foreign exchange market. The NAFEM rate closed at N1348.63/$ on Monday, a lot closer to the parallel rate which closed at N1,450/$.
On Tuesday, the naira closed at N1482.57/$, a 9.93 per cent decline from its Monday rate. On the parallel market, it remained stable at N1,450/$ on Tuesday. On the cryptocurrency peer-to-peer market, the naira was trading for N1,439.5/$ on Binance’s P2P platform as of the time of filing this report.
The naira’s new fall on the official window is set to bear fresh consequences for the average Nigerian, experts have said. The naira continues to tumble despite the best efforts of the apex bank and Federal Government.
Recently, the CBN governor, Olayemi Cardoso stated that the national currency was currently undervalued, and that the bank was working to stabilise the exchange rate.
He said, “In our efforts to stabilise the exchange rate, we must prioritise transparency and create a market environment that creates a fair determination of exchange rates ensuring stability for businesses and individuals alike.”
LCCI reacts
The Lagos Chamber of Commerce and Industry told The PUNCH on Tuesday that many production factories would shut down if the government failed to clamp down on speculators and save the naira.
Speaking, the President of the Lagos Chamber of Commerce and Industry, Gabriel Idahosa, blamed the unrestrained activities of currency speculators as the major reason behind the continued devaluation of the naira.
He noted that the country’s forex crisis was largely due to declining exports. Idahosa said, “Nigerian economy hardly plays by the book. In this particular case, it is just a bunch of wicked people who are hoarding the dollars. The CBN cannot control the value of the naira. It is people who export or refuse to export that control the value of the naira.
“As long as we don’t export, dollars will be scarce, and anything scarce, the price will go up. It is scarce because we have refused to export. We just sit down and blame CBN and the government. Let’s stop living in this dream world where our problem is the CBN.
“As far as foreign currency is concerned, our problem is with us, Nigerians. Let us look at our dining tables every day, all the products there, how many of them are produced locally?”
Idahosa highlighted that due to how the naira has been devalued, players in the real sector of the economy would have no option but to keep implementing price hikes to stay in business.
He noted that companies were already folding up in the country and that more would join once they were stretched to breaking point because of the current exchange rate regime.
He added, “Once your customers can no longer afford your products, you would either resort to getting local raw materials or you close shop. Companies are already closing. It is happening already.
“Some of the multinational companies that close did so for this exact reason because the prices of products will become too expensive if you keep buying dollars from the parallel market. Those are the big companies, there are others I do not know about.”
NACCIMA speaks
The rapid depreciation of the naira would likely lead to more factory closures, the President of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture, Dele Oye, said.
According to him, the present currency crisis has been exacerbated by panic buying of dollars by people who have no need for the currency but continue to purchase it to protect their funds from devaluation.
He told The PUNCH, “Companies are already closing up. The reason they are closing is because they are not able to sell their current stock. Some of them entered contracts for certain supplies at a particular price. By the time they approach the market for raw materials, the price has gone up. So, it is going to create room for all sorts of disagreements and litigation. So, when they cannot sell, they close.
“We all know that stability is an important element of business. The currency issue is a major catalyst behind inflation. It affects planning. It affects production. Businesses are afraid to produce because when they do, they cannot recoup to be able to restock. So, if they sell their products are the current rate, they won’t be able to restock. So, what that means is that almost all economic activities will come to a standstill.”
SMEs kick
Businesses are already dying because of the forex crisis and the inflationary pressure in the economy, according to the President of the Small Business Owners Association of Nigeria, Femi Egbesola.
He expressed concern that despite verbal assurances from the government of favourable policies that will enable businesses to thrive, there has been little or no action by policymakers to help businesses navigate through the current business headwinds which have been themed by the incessant devaluation of the naira.
He said, “The exchange rate situation is killing business by the day. Businesses are dying by the day. Those businesses that are not dead are ailing. Many businesses are folding up. Today, an aluminum company called to inform me that they are closing by Friday after injecting a loan of about N30m about two months ago, inflation has eaten it up.
“One major indicator of inflation is forex. You cannot plan, today you go to the market, it is N1,300, tomorrow it is N1,400, next tomorrow it is N1,500. You know most of our input is imported. We import raw materials, we import equipment, and there is an extent you can pass these costs to consumers. When the purchasing power of consumers is near zero, you can’t pass it on to them.
“The government is also not helping matters. The tariffs keep increasing. The levies keep increasing. Lagos State has just introduced another levy on businesses. It is killing. If we are to read the body language of the government, it is like they are not interested in micro and small businesses.”
On his part, the Vice President of the Nigerian Association of Small-Scale Industrialists, Segun Kuti-George, told The PUNCH, “We are closing down. It is happening. Businesses are shutting down.”
Agricultural products are not spared, the President of the Coalition Network of Stakeholders in Agricultural Mechanisation, Ola Oladimeji, lamented.
Earlier in the week, manufacturers had hinted that they might implement fresh hikes in the prices of commodities in the market.
The President of the Manufacturers Association of Nigeria, Francis Meshioye, said, “It is not possible to remain profitable with this exchange rate. The first challenge is breaking even. It means the prices of things will be higher, and the income is not there for people to buy things as they should buy as things become more expensive.
Economists lament
Without fixing supply gap issues in the economy, the naira will continue to fall. Economic analyst, Bismarck Rewane, said, “It doesn’t matter which window. Unless there is a sufficient supply of dollars in the foreign exchange market in Nigeria, the situation will remain the same.”
For the Chief Executive Officer, Economic Associates, Ayo Teriba, the depreciating exchange rate is reflective of poor foreign reserves.
He said: “Nigerians are concerned about what is happening to the exchange rate but they are not discussing the issue with the reserves.
“If you want to solve a problem, you have to look at the root cause of the issue. Foreign exchange stability comes down to reserve adequacy. Foreign reserve adequacy equals foreign exchange stability. Foreign exchange inadequacy equals exchange rate instability. So, it is an informed conversation to be saying, ‘Naira is volatile, it has gone up to N1,400, where will it go next?”
Emphasing the importance of fixing Nigeria’s foreign reserves, the expert stated that if foreign reserves are not gotten to adequate levels, anything and everything can go wrong,
Teriba continued, “So exchange rate and inflation are mere symptoms of inadequate foreign reserves.” He added that clearing backlogs like the apex bank has been doing was not enough if the foreign exchange is inadequate.
He further stated, “Get the reserve right and the exchange rate will reflect that the reserve is right and other variables will also be right and you won’t need to have a committee to review the minimum wage. If we can grow the reserve and stabilise the exchange rate, living costs will fall and all other tariffs as well and people can have peace of mind.”
The Managing Director, Cowry Assets Management Limited, Mr Johnson Chukwu, believes the CBN efforts at unifying the exchange rate are commendable but pointed out some of the downsizes.
According to him, with the official rate moving to over N1,300/dollar, fuel prices and food prices are expected to go up as well. He also stressed the need for the CBN to fund FX demand at the official window to stabilise the exchange.
He said, “With the depreciation of the naira at the official window to over N1,300, it is expected that fuel prices as well as food prices will go up. The new rate will impact diesel prices, and this will translate to an increase in transportation costs and food prices. Also, for imported products, it is expected that the new exchange rate will translate to higher prices of goods and services.
“The major issue to contend with here is. The CBN needs to meet FX demand at the official market to avoid a situation where the black-market rate starts going up again. The issue of funding demand is a major one that has to be addressed.”
The International Monetary Fund believes the naira is not trading at its fair rate against the dollar yet. Nigeria’s Country Representative, International Monetary Fund, Dr. Christian Ebeke, recently said, “There is also uncertainty in the market.
“I am not sure that the parallel rate is the ultimate rate. At some point, we may think about a fair naira rate that is probably between what we see in the parallel market and the official market. But it is very difficult while you are still in the transition phase to talk about what is a fair value and what we are seeing.”
