28 mars 2024

African Economy: The Naira Depreciates

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The naira was trading at N630 to the dollar on Tuesday as it lost value versus the dollar. However, due to the currency's persistent scarcity, the official market saw it selling at N430 to the dollar, causing a deflation of N200.

The naira declined as a result of end-user demand because of the dearth of dollars and the rise in the number of Nigerians hoarding them as a safe haven.

Despite several worldwide currencies depreciating versus the dollar, the naira, which serves as Africa's primary reserve currency and the continent's largest economy, has been hit the worst.

Even if it's true that many currencies throughout the world have declined in value against the dollar, the naira is in a worse position because Africa's biggest economy and top oil producer continues to import oil products, which distorts the country's export margins.

The naira's genuine mirror, Nigeria's economy, is in terrible shape. Over 90 million Nigerians, or over 40% of the population, are extremely poor. Nigeria has yet to fully recover from the devastating effects of Covid-19; growing insecurity that has hampered agricultural activities is having a different impact on Nigeria's food security; food inflation, according to the NBS, was about 18 percent; and food prices are expected to rise in the coming years. Food production is expected to decline due to fertiliser shortages caused by the Russian-Ukrainian war.

The N17 trillion budget for 2022 is fueled by a $6 trillion deficit, the majority of which will be used to pay down debt.

The local currency's value is steadily declining, and the country is still not producing much; the rates of unemployment and underemployment were 33 and 22 percent, respectively.

Nigeria's foreign exchange reserves are decreasing as a result of the Central Bank's sustained participation in the foreign exchange market to preserve the stability of the local currency.

The Nigerian National Petroleum Company (NNPC) Limited, which has for many months failed to deposit its required funds into the Federation Account, which is jointly managed by the Federal, State, and Local Governments, despite a decline in oil production, rising subsidies, and high production costs, complicates the liquidity of the Nigerian currency despite high oil prices.

Because our manufacturing sector is so heavily dependent on imported raw materials, the extreme depreciation of the currency has the following repercussions for economic actors: high production costs; high operating costs across all industries.

Market analysts claim that in order to sustain interest in the local currency, the nation must work to transform itself into a production economy in the medium to long term. If Nigeria is unable to export high-quality goods while addressing the problem of oil theft, which costs the nation billions of dollars annually, the exchange rate will be under pressure in a crisis.

 

Ch_Tah

© Photos Credits : AfrikMag