Good News for Naira: “The news that the Central Bank of Nigeria (CBN) has begun to clear some of its FX backlogs has spurred an appreciation of the naira in both the official and parallel exchange markets. The naira rose to N1,004/$1 in the parallel market and around N793.28/$1 in the official window, underscoring a notable performance compared to Wednesday, when it traded at N1,142/$1 and N799.32/$1 respectively, according to FMDQ OTC Securities Exchange.”
Nigerian banks received dollars from investors and importers some years ago, which they then invested with the CBN in a market known as the Forward Dollar Market. When contracts in that Forward market reached maturity, the CBN was unable to make the payment due to a lack of liquidity in foreign exchange.
Now, the CBN is gradually settling that dollar obligation. This development enables Nigerian banks to reimburse their investors and secure additional funds, which in turn helps stimulate trade and improve FX liquidity.
This is a welcome development. Nigeria is working on the Supply side and if that happens, the pricing equilibrium will shift, ECON 101. That said, we need to think today, tomorrow and the long-term.
Why? If you live in Lagos and borrow from loan app A to pay app B, to avoid wahala, remember that one day app B will come for its money. So, to deal with the root cause and avoid wahala, you need to find that money fast to pay B.
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Nigeria, as I have noted, has tools to bring Naira down, in the short-term, as we are a resource-rich nation (gas, crude oil, lithium, etc); the challenge is maintaining the stability over the long-term. Fascinatingly, that requires productivity which goes beyond pre-selling crude oil and gas. I wish the team good luck on this. Help us make things in Nigeria and become more productive. If not, loan app B will come knocking and Naira will bleed again.
Comment on Feed
Comment 1: enator Jimoh Ibrahim Oxford economics. He recommended on Channels TV that we should borrow $100billion to clear existing debt and structure the new debt for repayment to start in 10 years. By then you would have developed infrastructure enough to drive productivity in the economy. This is not me, it’s our Senator from Ondo West.
My Response: “He recommended on Channels TV that we should borrow $100billion to clear existing debt and structure the new debt for repayment to start in 10 years.” – nothing new there. We have been doing that since 2015. The problem is that around 2019, they stopped lending us money without big collateral. That was when Emefiele pre-sold crude oil to get some cash. Maybe, we can give Goldman Sachs Ondo West (just joking) for $100b because they will not do it without something these days.
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