The value of the naira had dropped to never-before-seen lows, affecting all aspects of life and driving inflation in the country to decades-high levels.
The naira’s value has risen from N450 to the dollar at the official end and N750 to the dollar at the parallel market to selling at N1200 on the streets and hovering between N950 and N1000 at the official end.
The foreign exchange (FX) market ended for the year on Friday, with the naira losing 96.55 percent of its value against the dollar on the official market.
At the end of 2023 trading, naira depreciated by 96.55 percent year-on-year as the dollar was quoted at N907.11 on Friday compared to N461.61 quoted at the end of 2022 at the Nigeria Autonomous Foreign Exchange Market (NAFEM), data compiled from the FMDQ indicated.
On a day to day basis, naira appreciated by 13.04 percent as the dollar was quoted at N907.11 on Friday as against N1,043.09 on Thursday.
Willing buyers and willing sellers quoted the dollar as high as N1,224.10 on Friday stronger than N1,235.65 quoted on the spot trading on Thursday. The lower rate strengthened to N700 on Friday from N720/$ quoted on the spot on Thursday.
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Naira fell to N1,043.09 per dollar on Thursday after depreciating to an all-time low of N1,099/$1 on December 8, 2023.
At the parallel market, also known as black market, naira lost 62.16 percent or N460 per dollar as the dollar was sold for N1,200 on Friday, the last trading day of 2023, from N740 in 2022.
The exchange rate gap between the official and the parallel market remained wide at N293 at the end of 2023, wider than N279 in 2022.
According to the World Bank, the FX market has remained volatile and is still in a period of continuing adjustment to the new policy approach.
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Following the announcement to merge all the official FX windows and reaffirmation of the willing buyer-willing-seller (WBWS) mechanism at the official FX rate, there have been significant fluctuations in the exchange rate, in both the official and parallel markets.
While the parallel market premium fell significantly in July 2023 following the announcement to merge FX windows, it re-emerged in August 2023 and, in October, even briefly rose to pre-June levels.
The premium changes significantly on a daily basis, as the official exchange rate has fluctuated up to 26 percent in one day and the parallel market rate has also been volatile.
On exchange rate policy, the World Bank said additional measures can be taken to increase market stability. The CBN has reaffirmed its commitment to the WBWS mechanism, yet liquidity in the official (NAFEM) market has remained thin. Further monetary policy tightening is expected to help underpin the value of the naira.
Demand for dollars for school fees payments, medical bills, tourism, importation of inputs and other goods are high across major commercial banks.
Faced with limited supply, manufacturers, investors and individuals have resorted to the parallel market to purchase foreign currency.
On June 14, 2023, the CBN collapsed all segments of foreign exchange markets into the Investors and Exporters (I&E) forex window, now NAFEM.
A circular signed by Angela Sere-Ejembi, director of financial markets, said applications for medicals, school fees, business travel allowance and personal travel allowance (BTA/PTA), and SMEs would continue to be processed through deposit money banks.
In October 14, 2023, the CBN restored the 43 items prohibited from access to foreign exchange, eight years after, a move seen to usher in a single exchange rate.
“Stabilising the exchange rate is another critical aspect of our efforts,” said Yemi Cardoso, governor of the CBN.
According to him, “to ensure stability, curb speculation, and restore confidence in the foreign exchange market, we have initiated the payment of unsettled forward foreign exchange obligations, and these payments will continue until all obligations are cleared. This intervention has already had a positive impact on liquidity and has led to a significant appreciation of the exchange rate at certain points. The CBN also recently lifted the ban on 43 items from accessing the official foreign exchange market, allowing market forces to determine exchange rates based on the Willing Buyer – Willing Seller principle. We are witnessing clear progress in stabilising the Nigerian foreign exchange market.”
Inflation which was at 21.82 per cent at the beginning of the year has so far risen to 28.2 per cent as of November this year, an indication that the rate at which prices of goods and services are rising is faster than it used to.
Global inflation is forecasted to steadily decline from 8.7 per cent in 2022 to 6.9 per cent in 2023 and 5.8 per cent in 2024, due to tighter monetary policy measures and lower international commodity prices.
Whilst the Monetary Policy Committee of the Central Bank of Nigeria (CBN) has consistently hiked benchmark interest rate to curb the spiralling inflation, which has steadily headed north, the CBN governor, Dr Olayemi Cardoso, had said the apex bank under his leadership will be focusing on using orthodox methods to bring down the level of inflation in the country.
The scarcity of foreign exchange hit hard on manufacturers in the country throughout the year.
The president of Manufacturers Association of Nigeria (MAN), Otunba Francis Meshioye said that “currently, the cost of manufacturing is daily rising owing to scarce and unavailable manufacturing inputs that continue to shrink profitability and threaten the existence of the critical sector of the economy. More worrisome is the fact that the sector that should propel job creation, productivity, and economic growth is enmeshed with a series of challenges that constantly limit its contribution to the Gross Domestic Product.”
He explained that such challenges as epileptic power supply, insecurity, inadequate infrastructure, shortage of forex and naira depreciation are prevailing issues that are impacting negatively on the sector, saying that “if Nigeria manufacturers will compete effectively, then a comprehensive and concerted effort needs to be deployed by the government to overtake the binding constraints that limit local production and then seek to attract foreign investment that will bring about a reduction in the forex chase and ensure sufficient forex inflow that the country clearly requires.
“With a new administration steering the seat of governance, it is pertinent that all hands must be on deck to achieve a vibrant economy that can compete favourably. To start with, the government needs to prioritise investment in infrastructure and power, combat insecurity and corruption as well as introduce incentive policies that would make domestic production more attractive as against the importation of finished products.”