Naira remains weakest currency in Sub-Saharan Africa despite slight appreciation

Despite slight appreciation of the Naira at the weekend, the World Bank has listed Nigeria’s local currency as being among the worst-performing currencies in Sub-Saharan African in the first ten months of 2023.

According to figures obtained from Aboki forex, the naira was bought and sold for 1,140/$ and 1,150/$1 at the weekend on the parallel section of the foreign exchange market as against the 1,310/$ on Thursday.

Over the past two weeks, the Naira has been hitting new lows, as it sold as low as N1300/$ at the black market, and N848/$ at the official market. However, within the past few days, the currency has been on an upward swing, as it appreciated to N789.84/$ on Friday.

But in a report by the World Bank the Nigerian Naira has posted a year-to-date depreciation of about 40 per cent, making it the weakest currency in Sub-Saharan Africa, alongside the Angolan Kwanza.

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Other currencies with significant losses include the South Sudanese pound which has depreciated by about 33 per cent YTD, the Burundian Franc which has depreciated by 27 per cent YTD, the Congolese Franc (18 per cent), Kenyan Shilling (16 per cent), Zambian Kwacha (12 per cent), Ghanaian Cedis (12 per cent), and Rwandan Franc (11 per cent).

The weakening of the naira was triggered by the Central Bank of Nigeria’s (CBN) decision to remove trading restrictions on the official market. For the kwanza, it was the decision of the central bank to stop defending the currency as a result of low oil prices and greater debt payments.

In the report, it was highlighted that between March 2020 and June 2023, there was a widening disparity between the parallel market exchange rate and the official exchange rate.

The disparity widened to as much as 80 per cent in November 2022 and dropped to 60 per cent in June 2023.

The prioritization of strategic sectors and the imposed price ceilings and trade restrictions pushed transactions to the parallel market, which started to account for a large share of the foreign exchange transactions in the country, including for remittances, tourism, and exports of non-oil products.

After the unification and liberalization of the exchange rates in June 2023, the NAFEX rate converged to the parallel one, closing the gap.

However, resistance toward the increasing pressure on the Nigerian naira coupled with limited supply of FX at the official window has led to the reemergence of the parallel market premium.

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Figures obtained from the Central Bank of Nigeria on movement of foreign reserves showed that the country’s external reserves recorded $76.82m accretion in one week, after it moved up from $33.249bn on October 19, 2023 to $33.326bn as of  the end of October 26, 2023.

It had earlier lost $841.75m in three months after it fell from $34.07bn as of July 7, 2023, to $33.23bn as of October 5, 2023.

Meanwhile, an economist and Chief Executive Officer, Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, attributed the naira appreciation to the Supreme Court judgment that brought finality to the litigation around the presidential election. He said the judgment removed uncertainty in the economy.

“The pronouncement that the President made about efforts to boost the liquidity in the forex market may have also affected the level of confidence and influenced expectations because if people have expectations that liquidity will improve and the naira will appreciate, they would quickly begin to offload the dollars they have at a lower rate.

“We need to seize the opportunity to push down the demand for foreign goods. We must reduce the demand for the dollars. We can have the naira appreciate better.”