The naira experienced significant fluctuations across different exchange markets on Friday, September 27, 2024. While the parallel market saw the naira depreciate to a new low, the official Nigerian Autonomous Foreign Exchange Market (NAFEM) offered a glimmer of hope with a slight appreciation. These contradictory movements have left economists and everyday Nigerians alike grappling with the implications for the country’s economic stability.
As the sun rose over the bustling currency exchange points in Lagos, Nigeria’s commercial hub, traders were met with a sobering reality. The naira had weakened further against the dollar, reaching N1,700 in the parallel market, a stark decline from Thursday’s rate of N1,675.
I’ve been in this business for over two decades, and I’ve never seen anything like this,” said Alhaji Musa, a veteran currency trader at the popular Okota market. “People are panic-buying dollars, fearing it might hit N2,000 soon.”
This sentiment was echoed across various trading points in the city, with many expressing concern over the rapid depreciation.
In contrast to the parallel market’s gloomy outlook, the NAFEM presented a more optimistic picture. Data from FMDQ revealed that the indicative exchange rate for NAFEM improved to N1,540.78 per dollar, a significant appreciation from Thursday’s N1,576.1.
Dr. Olumide Adebayo, a financial analyst at Lagos Business School, offered his perspective: “The appreciation in NAFEM is a positive sign, but we must view it in context. The widening gap between official and parallel rates suggests underlying structural issues that need addressing.
Alongside the rate fluctuations, NAFEM saw a notable decrease in trading volume. The market recorded a 36.4% decline in dollar turnover, dropping to $212.31 million from the previous day’s $334.05 million.
“This reduction in volume could indicate a wait-and-see approach by major players,” explained Mrs. Funke Oladipo, Head of Treasury at a leading Nigerian bank. “With such volatility, many are likely holding off on large transactions until there’s more clarity.”
The day’s movements resulted in an expanded gap between parallel and NAFEM rates, growing to N159.22 per dollar from Thursday’s N98.9. This widening spread has raised concerns about market fragmentation and its potential impact on businesses and consumers.
A large disparity between official and parallel rates often leads to arbitrage opportunities and can distort economic decision-making,” warned Professor Chukwuma Soludo, a former governor of the Central Bank of Nigeria, in a phone interview.
The naira’s fluctuations are more than just numbers on a trader’s board; they have real-world implications for Nigerians across all walks of life.
In the bustling Balogun Market, Lagos’s largest textile hub, merchants are feeling the pinch. “Every time I restock, the prices go up because of the dollar rate,” lamented Mrs. Adenike Ogunlesi, who sells imported fabrics. “I’m afraid I might have to close shop if this continues.”
The impact extends beyond small businesses. Large corporations are also grappling with the currency instability. Mr. Oluwaseun Ajayi, CFO of a major manufacturing company, shared his concerns: “The unpredictability makes it challenging to plan. We’re constantly revising our budgets and pricing strategies to stay afloat.”
As news of the naira’s movements spread, all eyes turned to the Central Bank of Nigeria (CBN) for a response. In a hastily arranged press conference, the CBN Governor assured the public of the bank’s commitment to stabilizing the currency.
We are closely monitoring the situation and will take necessary measures to ensure market stability,” the Governor stated. Our recent policies aimed at improving liquidity and transparency in the forex market will bear fruit in due course.
However, some economic experts remain skeptical. Dr. Ngozi Okonjo-Iweala, a respected economist and former Finance Minister, cautioned: “While short-term interventions might provide temporary relief, what Nigeria needs is a comprehensive economic reform package to address the root causes of currency instability.
As the weekend approached, speculation was rife about what the coming week might hold for the naira. Some analysts predict further depreciation in the parallel market, while others are hopeful that the NAFEM appreciation signals a turning point.
“It’s a crucial time for businesses to review their forex exposure and hedging strategies,” advised Mr. Tunde Lemo, a former Deputy Governor of the CBN. Diversification of currency holdings and exploring local alternatives to imports could provide some cushion against volatility.
For ordinary Nigerians, the advice is more straightforward. “Focus on value preservation,” suggested financial advisor Mrs. Yewande Zaccheaus. Consider investments that have historically held up well during periods of currency instability, such as real estate or dollar-denominated assets, if accessible.
As Friday drew to a close, the nation held its collective breath, wondering what Monday’s opening rates would bring. One thing remains clear: in Nigeria’s dynamic economic landscape, the only constant is change.
