Dear Subscriber,
The naira’s slide and the crisis of false expectations
After the CBN postponed its monetary policy committee meeting for the second time under the new governor, the naira continued its volatile dance due to dollar illiquidity, renewed fears of a potential naira scarcity, and speculative attacks. On November 20, the naira gained at the NAFEM window to N750/$. However, by November 23, it slid by a whopping 21.58% to close at N956.33/$. YTD, the naira has lost 36% in the parallel market.
The naira’s free fall is happening despite the CBN’s attempt to partially clear its forex backlog ($6 billion). The apex bank has unsuccessfully anchored market expectations post the FX liberalization due to a lack of transparency and speculators continue to go long on dollar positions. We expect this currency volatility to overconfidently spill over into 2024 until forex inflows become substantial and sustainable.
It’s a regional disease!
Unsurprisingly, currency volatility is not peculiar to Nigeria. There has been a rapid depreciation of currencies across Africa, against the greenback. YTD, the Ghanaian cedi, Egyptian pound, Angolan kwanza, and Kenyan shilling have lost 22.5%, 20%, 39%, and 20% respectively.
The fundamental determinants of currency value, including inflation, the balance of trade, terms of trade, and investment inflows, will continue to work against African currencies until national debt levels are reduced and inflationary pressures ease. This could happen, as global monetary policy potentially eases in 2024.
Tourism is a game-changer
However, to support Nigeria’s foreign exchange needs, the government needs to intensify its diversification efforts. One move is to revive the tourism sector, which has the potential to create 2.6 million new jobs and contribute an average of 5.4% to overall GDP over the next decade. Nigeria currently ranks 110th on the global tourism index due to major structural issues like poor infrastructure, visa barriers, and insecurity. Unlocking Nigeria’s hidden potential in the tourism sector will positively contribute to government revenue and employment.
In this edition of the Prism (Biznomics), the FDC Think Tank delves into an in-depth analysis of these recent economic developments and their wide-ranging impacts on households and businesses.
Enjoy your read!
