Manufacturers predict a fresh rise in commodity prices in the market in response to the continued depreciation of the Naira against the US dollar.
On Friday, the naira depreciated to 1,420 nebula to the dollar at the parallel window of the foreign exchange market.
Chairman of the Manufacturers Association of Nigeria, Francis Mesioye, said this on Saturday. punch The view is that the Naira, which has currently hovered above 1,400 Naira for two days in the parallel market, will lead to higher prices in the economy.
“It’s impossible to continue to make a profit at this exchange rate,” he said. “The first challenge is the break-even point. That means things become more expensive, and when things become more expensive, the people who should buy them… This means that they cannot earn enough money to buy things.
“Therefore, demand will be lower and that will affect our bottom line. Break-even point will be important. So what companies should do is make sure they break-even point at this point. This is a very important and very difficult time for us.”
Messioe predicted these price hikes would have little impact on consumers, whose purchasing power continues to decline.
He said frequent fluctuations in the foreign exchange market make it difficult for manufacturers to make long-term plans.
He said: “These are tough times and we need to revise our strategies. For us, it is difficult to have long-term plans and even short-term plans are difficult to incorporate economic realities into them.” You need to revise it regularly so that you can do it.”
The MAN president added that the current currency realities have created a need for manufacturers to come together and create viable solutions to continue their operations.
The depreciation of the national currency contributes to the country’s high inflation rate. According to the National Bureau of Statistics, as of December 2023, the inflation rate rose to 28.92%.
Naira continues to fall
The Naira continued to decline in the parallel market, ending the week at N1,420/$.
Since the Central Bank of Nigeria removed the interest rate cap on the national currency in June 2023, the naira has fallen to record lows on both official and unofficial foreign exchange windows.
BDC operators pointed out to Punch that the sustained depreciation of the naira follows high demand for dollars in the country.
At the official investor and exporter counter, the naira rose 1.01% to N891.90/$ from Thursday’s closing price of N900.96/$.
In the cryptocurrency peer-to-peer market, the Naira was trading at N1,401.7/$ on the Binance P2P platform at the time of filing this report. According to blockchain company Chainalysis, Nigeria is one of the countries with the largest peer-to-peer exchange volume in the world.
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From July 2022 to June 2023, Nigeria’s crypto trading volume increased to $56.7 billion, demonstrating the importance of P2P crypto foreign exchange windows.
Chainalysis says, “In fact, Nigeria is one of only six countries in the world’s top 50 countries by size that experienced a year-on-year increase in cryptocurrency trading volume during the period we studied. 9%, ranking third among these six companies.”
Despite the efforts of Nigeria’s central and federal governments, the free fall of the naira continues. Recently, the Federal Government secured a $2.25 billion oil cash loan facility from the African Export-Import Bank through the Nigerian National Oil Company to increase dollar liquidity in the economy.
In December 2023, Finance Minister and Economic Coordination Minister Wale Edun said this was the first tranche of a $3.3 billion facility from the bank. He stressed that the loan will help resolve the foreign exchange shortage that is hampering the economy.
Commenting on the January 2024 loan, Afreximbank President and Chairman of the Board, Professor Benedict Olama, said: “The initial $2.25 billion disbursement under this scheme will support Nigeria’s long-term economic stability and facilitate Nigeria’s access to import financing,” providing raw materials and essential goods, and supporting industrialization and trade. We support development efforts. ”
The CBN, for its part, has begun to clear some of its outstanding maturing foreign exchange obligations to depository banks. So far, the bank has paid $2 billion of the $7 billion owed.
CBN’s Acting Director of Corporate Communications, Hakama Sidi Aria, recently said, “These payments are in line with CBN’s continued commitment to settle all remaining valid futures contracts to alleviate the current pressure on the domestic exchange rate.” It represents a great effort.”
“This initiative by the CBN is expected to significantly boost the naira hug against the world’s major currencies and further boost investor confidence in the Nigerian economy.”
Recently, CBN Governor Olayemi Cardoso announced that the Ministry of Finance and the NNPCL would transfer foreign exchange inflows back to the apex bank to enhance the bank’s foreign exchange flows and contribute to the increase in reserves.
Speaking at the launch of the Nigeria Economic Summit Group’s 2024 Macroeconomic Outlook Report, the Governor said: We are focused on addressing the fundamental issues that have long prevented markets from operating effectively. ”
He hinted that rates would eventually stabilize in 2024. He predicted that “the expected stability in the foreign exchange market in 2024 can be attributed to the decline in petroleum product imports and the recent implementation of market-determined exchange rate policy by the CBN.” .
“The reforms aim to rationalize and unify multiple exchange rates, promote transparency, and reduce opportunities for arbitrage. It will not only increase confidence but also attract foreign investment and increase Nigeria’s attractiveness to global investors.”
Cardoso added that the country’s currency is currently undervalued and should recover soon.
IMF condemns circulation of excess naira
According to the International Monetary Fund, excessive naira circulation is one of the main reasons for the depreciation of the naira.
Recently, Dr. Christian Ebeke, International Monetary Fund Nigeria Representative, cited the reasons for the depreciation of the Naira and said: The second is structural. The market is new. These reforms were bold and required great courage on the part of the government to tolerate such a depreciation of the naira in a country where the naira had been so stable for some time.
“The market is still new. It is still in price discovery mode. Market participants are still learning how to trade in an orderly manner. These structural factors will impact the Naira as the market is new and a bit shallow. It also causes market volatility.
“And there is also uncertainty in the market. We don’t know if the parallel rate is the final rate. At some point, we might perhaps think about a fair naira rate between the parallel market and the official market. But while we’re still in the transition phase, it’s very difficult to talk about what fair value is and what we think.”
Ebeke stressed that transparency is important in the foreign exchange market, especially now that the CBN is embarking on inflation targeting. He stressed that the naira would converge to its fair value if the government strengthened its policies and addressed exchange supply issues.
The World Bank Group’s Chief Economist in Nigeria, Dr. Alex Sinart, also recently said that he believes that reducing inflation will improve the value of the naira.
He said: “The key risk to manage is that the exchange rate is the price of the naira relative to other currencies and prices in this economy are increasing very rapidly.” We have also been paying attention to the topic of inflation. Therefore, it is natural that the relative value of the naira will also come under pressure. This is further exacerbated by tight global dollar liquidity conditions.
“In order to preserve the benefits of this large-scale monetary adjustment and move to a new flexible system, it is important that not only central banks are key actors, but that other stakeholders also focus on inflation. , I think it will bring about price stability. Please support the value of the naira.”