Naira unification worsens export drive six months after

BY EMEKA EJERE

Nigeria is yet to record any gain from the decision of the Central Bank of Nigeria, CBN, in June, 2023, to allow the naira to trade more freely, as persistent weak non-oil exports conspired with other factors to keep the local currency battered.

Rather than serve as an incentive to increase exports, the devaluation policy has seen the naira lose more than 40 percent of its value against the dollar since June, the biggest loss over such period among currencies tracked by Bloomberg.

Contrary to expectations, the share of non-oil exports in Nigeria’s total exports in the third quarter of this year remained abysmal. Data from the National Bureau of Statistics (NBS), shows that non-oil exports accounted for 6.5 percent of total export proceeds for the period, the lowest since Q2 2019.

Experts are worried that Nigeria lacks the necessary infrastructure needed to grow businesses, especially a developed transport systems, such as roads and railways that are connected to the nation’s seaports. This, they say, has constantly made production costs higher in the country, making locally manufactured goods less competitive in the international market.

While the devaluation makes it look like the country’s non-oil exports increased by 54 percent year-on-year, it does not necessarily mean that its export volume increased over the period. Contribution of non-oil export to total exports declined both year-on-year and on a quarter-on-quarter basis.

On a quarter-on-quarter basis, it declined by N11 billion from N688.7 billion in Q2 2023 to N677.6 billion in Q3 and its contribution to total exports also declined from 10.7 percent to 6.5 percent in the same period. Nigeria’s non-oil exports were valued at N2.02 trillion ($2.02 billion) in the first nine months of 2023, according to data from the foreign trade report.

“Nations at times deliberately decide to devalue their currencies to increase their exports but we are not benefitting from the recent devaluation, and this is because of the lack of competitiveness of our products,” said Obiora Madu, CEO at Multimix Group.

According to him, Nigerian commodities are more expensive than others in the international market as producers constantly struggle with poor infrastructure that often makes their products costlier when compared to their peers globally.

Worrying trajectory

The naira depreciated on Friday to N1,250 per dollar in the parallel market from N1,230 per dollar on Thursday. It, however, gained 23.51 percent against the dollar in one week to close at N889.86/$ on the official Investors and Exporter (I&E) window on Friday.

This is a N209.19 gain from the all-time official low of N1,099.05/$ it fell to the previous week’s Friday, according to data from the FMDQ Securities Exchange. The local currency had fallen to an all-time low to cap what has been a turbulent couple of months for it.

The N1,099.05/$ is the lowest rate the naira has officially closed since the Central Bank of Nigeria (CBN), adopted the I&E window as the official trading channel for the naira. Last Friday, the naira opened trading at N901.12/$ before closing at N889.86/$.

Despite its recovery, the national currency is not out of the woods yet with dollar shortages persisting in the country. The World Bank recently disclosed that since May, the naira has depreciated by 41 per cent in the official market and by 30 per cent in the parallel market, leading to higher cost of importation and partly contributing to elevated levels of inflation, which jumped to 28.20 percent as of the end of November.

In June, the CBN declared, “The Central Bank of Nigeria wishes to inform all authorised dealers and the general public of the following immediate changes to operations in the Nigerian Foreign Exchange Market: Abolishment of segmentation. All segments are now collapsed into the Investors and Exporters window. Applications for medicals, school fees, BTA/PTA, and SMEs would continue to be processed through deposit money banks.

“Re-introduction of the ‘Willing Buyer, Willing Seller’ model at the I&E Window. Operations in this window shall be guided by the extant circular on the establishment of the window, dated 21 April 2017 and referenced FMD/DlR/ClR/GEN/08/007. All eligible transactions are permitted to access foreign exchange at this window.”

Since then, the naira has weakened steadily to solidify its place as one of the worst-performing currencies in Africa. The World Bank recently stated, “So far this year, the Nigerian naira and the Angolan kwanza are among the worst performing currencies in the region: these currencies have posted a year-to-date depreciation of nearly 40 per cent.”

If inflation is not arrested, the Washington-based bank expects more Nigerians to fall below the international poverty line by 2024.

It said, “With inflation continuing to rise, the bank predicted, “The share of Nigerians living below the international poverty line is expected to peak in 2024 at 38.8 percent before beginning a gradual decline, as inflation cools down and economic growth picks up.”

In its December Edition of the Nigeria Development Update, the Bretton Woods institution, however, expressed confidence that the naira will recover when it said, “Similarly, while the depreciation of the naira contributes to short-run inflation, over time a more transparent, market-reflective, and flexible exchange rate, underpinned by monetary policy tightening, is also likely to be more stable, thereby easing the pressures on inflation.”

Commenting on the issue of volatility recently, the CBN governor, Olayemi Cardoso, disclosed that the CBN is working to minimise the volatility of the naira against the dollar. He noted that the bank is taking a comprehensive look at all its different FX policies in the past in a bid to rethink its FX approach.