The Nigerian naira has been ranked as one of the worst-performing currencies in Sub-Saharan Africa for 2024, according to the latest edition of Africa’s Pulse, a report released by the World Bank. The report revealed that by the end of August 2024, the naira had depreciated by approximately 43% year-to-date, placing it among the region’s weakest currencies, alongside the Ethiopian birr and South Sudanese pound.
The report highlighted the challenges faced by Nigeria’s currency:
“Ethiopia, Ghana, and Nigeria are among the worst-performing economies in Africa this year, with their currencies continuing to weaken while demand for foreign exchange remains pressing. Measures to mitigate social unrest, such as doubling the minimum wage in Angola and partially reinstating fuel subsidies in Nigeria, have further strained public finances.”
Rising Demand for Dollars in the Parallel Market
Several factors have contributed to the naira’s depreciation, including heightened demand for U.S. dollars in the parallel market, limited dollar inflows, and delays in foreign exchange disbursements by the Central Bank of Nigeria (CBN).
The World Bank emphasized that the demand for dollars by financial institutions, non-financial entities, and money managers has exacerbated the pressure on the naira:
“The Angolan kwanza, Malawian kwacha, Nigerian naira, South Sudanese pound, and Zambian kwacha were the worst-performing currencies in the region. Foreign exchange shortages, driven by subdued export proceeds and rising international debt repayments, contributed to the overall weakening of African currencies.”
Despite efforts by the Nigerian government to stabilize the foreign exchange market, including the liberalization of the official exchange rate in June 2023, these measures have proven insufficient to halt the naira’s decline.
The report noted that the depreciation of the naira reflects broader economic challenges, such as dwindling foreign currency reserves and rising inflation, which have further complicated Nigeria’s economic outlook.
Economic Impact and Inflationary Pressures
The report also underscored the adverse impact of the naira’s depreciation on domestic prices, particularly for imported goods, intensifying financial strain on Nigerian consumers.
“The weakening of the naira has led to a rise in domestic prices, with imported goods becoming significantly more expensive, thus exacerbating inflationary pressures,” the report stated.
The currency’s decline has especially impacted the transportation sector, which heavily relies on imported petroleum products. Despite the government’s fiscal reforms aimed at stabilizing the economy, the World Bank projects that inflation in Nigeria will remain elevated in the coming months.
Recent Performance and Inflation Surge
Although the naira started the week with a notable appreciation of over 5%, it saw a sharp decline on Tuesday, October 15, 2024, as foreign exchange turnover continued to drop. According to NAFEM data from FMDQ, the naira depreciated significantly against the U.S. dollar, closing at N1,658.97/$1—a 6.39% decrease from N1,552.92/$1 recorded on October 14. This depreciation was coupled with a substantial 36.62% reduction in foreign exchange turnover, which fell from $343.71 million on Monday to $217.86 million on Tuesday, signaling reduced dollar liquidity in the market.
Nairametrics previously reported that the naira had hit a record low of N1,700 per dollar in the parallel market on Monday, a 0.29% drop from its earlier rate of N1,695/$1 on October 11.
Moreover, Nigeria’s headline inflation rate, after two consecutive months of decline, rose to 32.70% in September 2024, up from 32.15% in August. According to the National Bureau of Statistics (NBS) Consumer Price Index (CPI) report, this increase was primarily driven by rising transportation costs and food prices.
Currency Comparisons in Africa
While Nigeria continues to grapple with the depreciation of its currency, other African nations, such as Kenya and South Africa, have seen improvements in their currency performance. The Kenyan shilling, which faced challenges in 2023, strengthened by 21% year-to-date as of August 2024, positioning it among the region’s top-performing currencies. However, foreign exchange shortages remain a significant concern for many African economies, including Nigeria.
