Naira may depreciate further in 2021, says Report

A survey carried out by the Statistics Department of the Central Bank of Nigeria has revealed that the Naira may further depreciate in 2021 due to the economic crisis facing the country.

The report, titled, ‘December 2020 Business Expectations Survey Report’ added that there might also be a steady rise in interest rate from December till the next six months.

The Naira witnessed a sharp fall in recent weeks, reaching its lowest on November 30, 2020, when it exchanged for N500/$1. Since then, the dollar has been hovering between N460 and N470. As of Friday, however, one dollar exchanged for 465 in the parallel market.

In the survey, respondent firms expressed pessimism on the macro economy, while their outlook on the volume of business activities, average capacity utilisation, the volume of total order and financial condition (working capital) were positive.

The CBN stated that respondent firms identified insufficient power supply, unfavourable economic climate, competition, high interest rates, unclear economic laws, financial problems, unfavourable political climate, access to credit, insufficient demand, lack of equipment, lack of materials input, and labour problems as major factors constraining business activities in December 2020.

On the business outlook, the report showed that at -15.2 index points, the overall confidence index on the macro economy was pessimistic in December 2020 while respondents were optimistic in their outlook for the month of January 2021 with a confidence index of 29.4.

The respondents also expressed optimism in the overall business outlook for February and June 2021 as shown in a greater confidence of the economy with 39.2 and 55.2 index points respectively.

Speaking on the implications of the report, a former President, Association of National Accountants of Nigeria, Dr. Sam Nzekwe, explained that all the plans for recovery of the economy were presently based on oil, and that volatility in oil price would continue to affect the economy because the country was not producing.

For the naira and inflation to moderate, he said, the economy must start producing and security must improve.

Also, the Director-General, Lagos Chamber of Commerce and Industry, Dr Muda Yusuf, said the macroeconomic fundamentals, the structural factors and the policy choices would determine the exchange rate and inflation outcomes in 2021.

He added, “For instance, a rise in oil price and output could change the narrative regarding the exchange rate and our foreign reserves. Some of these variables are difficult to predict.

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The President, Chartered Insurance Institute of Nigeria, Muftau Oyegunle, said it was unlikely that much could be done on the inflation rate because the crisis in the North had drastically cut down food supply, whereas food supply from the North is a major source of food items in the country.