Naira Hits New Low as Food Import Waiver, Forex Demand Strain Market

The naira faced a fresh wave of depreciation this past week, driven by increasing demand for foreign exchange to fund overseas travel, school fees, and the recently announced food import duty waiver.

After opening September on a positive note, the naira began to weaken by Tuesday, reflecting the heightened demand for forex. In the parallel market, the currency, which stood at N1,635 to the dollar on Monday, slid to N1,640 by Tuesday, with Lagos-based Bureau De Change operators reporting further depreciation by the end of the week. By Friday, the naira traded at N1,670.

According to Musa Abbah, a BDC operator, the sharp rise in the dollar’s value was due to scarcity. “Dollar has gone up since yesterday. Dollar is scarce in the market,” he explained.

In the official market, tracked by the FMDQ Securities Exchange, the naira showed slight gains early in the week, appreciating by 0.81% on Tuesday to N1,585.77/$1, from N1,598.56 in the previous session. However, by Thursday, it had depreciated by 0.83% to N1,639.41/$1. By Friday, it gained ground again, closing at N1,593.32/$1, with a 2.81% appreciation.

The Central Bank of Nigeria (CBN) continues efforts to stabilize the naira. In August, it announced a record high of $553 million in remittances for July, a 130% increase from the same period last year. However, foreign capital inflows have dropped significantly, down 57.22% from March to $770 million by April 2024, signaling ongoing challenges in the forex market.

Economic analysts warn that the naira is likely to remain under pressure if supply is not boosted. Afrinvest, in its August market report, noted that the seasonal spike in demand for personal and business travel allowances typically leads to increased demand for forex during this period.

Ayokunle Olubunmi, Head of Financial Institutions Ratings at Agusto & Co., echoed these concerns, noting that the combination of school fees, holiday travel, and business restocking ahead of the year-end has created heavy pressure on the forex market. “Our crude oil production has not been great, and non-oil exports have not significantly contributed to forex,” Olubunmi added.

Dr. Ayo Teriba, CEO of Economic Associates, pointed to the planned food import duty waiver as another factor compounding the situation. “The government’s decision to waive duties for 180 days on food imports is putting additional pressure on the forex market,” Teriba said, suggesting that the waiver has incentivized more businesses to seek foreign exchange for food imports, further depleting the limited supply.

To address these concerns, the CBN announced the sale of $20,000 to eligible Bureau De Change operators at N1,580/$1. The move aims to inject liquidity into the market and ease pressure on the naira. Aminu Gwadebe, President of the Association of Bureau De Change Operators of Nigeria, said that even before the injection, the naira’s depreciation had eased somewhat on Friday, but emphasized the need for continued support from the CBN.

Experts continue to express concern about Nigeria’s limited forex supply, with Marcel Okeke, former Chief Economist at Zenith Bank, highlighting the lack of significant Foreign Direct Investment as a key challenge. “People are traveling for summer and paying school fees amid inadequate supply. Without sufficient foreign investment, the supply side will remain constrained,” he warned.