On Tuesday, the naira depreciated to N800/$1, a further drop from Monday’s N780 per dollar performance, after recording its biggest comeback in recent times last week.
Though it dangles around N766-N800 in the parallel market, the much-celebrated gain has been significantly erased in a matter of days. On Tuesday, the naira depreciated by 0.15%, exchanging at 446.67 to dollar in the Import and Export window.
The naira appreciated as much as N680/$1 following the 7.7% drop in US inflation, which forced the dollar to fall last week against other currencies. Naira’s gain was also attributed to a rumored plan by the US to redesign dollar notes from 2021, forcing hoarders to release their stockpile – inadvertently increasing liquidity in the parallel market.
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However, analysts said the swift erasure of the naira’s gain underscores the fact that the currency’s value lies on productivity, export and economic strength of the country. Experts have long advocated export and production-based solutions to naira’s free fall.
Nigeria’s economy is largely based on crude oil export, but has been bedeviled by poor economic growth factors such as oil theft and non-functional local refineries. More than half of the oil produced daily in Nigeria is stolen; leaving the country with a production output short of its stipulated quota by the Organization of Petroleum Countries (OPEC).
With effect from September 2022, OPEC authorized 1.830 million barrels per day (mbpd) oil output for Nigeria. But the country could barely lift above 1mbpd. Nigeria managed to produce 1.014 mbpd for the month of October; slightly exceeding the 972,394 bpd it recorded in August and September’s 937,766 bpd, according to data from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC).
The low output limits the amount of forex Nigeria could derive from oil exports. It is compounded by non-functional refineries, which forces the Nigerian National Petroleum Corporation Limited (NNPCL) to import petroleum products at international market price, spending the forex proceeds from oil exports that would have yielded enough dollar liquidity to put pressure off the naira.
Attempts by the Central Bank of Nigeria to tame the tide through monetary policies have failed as the naira continues in its downward spin.
Experts’ said one major way to boost the naira is to increase the supply of dollars by eliminating subsidies and pegs on the dollar. But hope is increasingly growing dim that the present administration will lift a finger to implement any of the experts’ recommendations.
As the 2023 presidential election draws near and the naira appears determined to touch N1,000/$1 before then, business leaders are shifting focus on the presidential candidates.
On Tuesday, the presidential candidate of Labour Party, Peter Obi, admitted during his appearance at the Lagos Business School, that this multiple exchange rate regime encourages capital flight and deters investment. He said if elected, he would remove the subsidies around the dollar to promote a single forex market.
“We will remove import and forex restrictions and insist on a single forex market. The current system penalizes exporters who bring in forex by forcing them to sell at a rate that they are unable to source for forex when they need to purchase forex,” he said.
While Nigerians now count on whoever becomes the president next year to change the fate of the naira, the troubled currency is likely going to suffer its deepest fall in history.