Nigeria’s external reserves gained $3.98bn in three weeks, rising above the $40bn mark, according to data obtained from the Central Bank of Nigeria.
The CBN data showed that the reserves rose to $40.76bn on October 20 from $36.78bn as of the end of September.
The reserves, which had maintained a growth trajectory in recent weeks, rose by $2.76bn in September from $34.02bn at the end of August.
A professor of economics and Chairman, Goldmark Education Academy, Benin City, Mike Obadan, said the value of a country’s currency is determined by the strength of the economy in terms of its production capacity and productivity, structure, and diversification of the export production base.
Obadan, who is a former director-general, National Centre for Economic Management and Administration, Ibadan, Nigeria, said, ‘A vibrant and diversified productive real sector of the economy saves a nation the disbursement of scarce foreign exchange for the import of finished goods and production inputs, especially where these could be produced locally, and reduces pressure on foreign exchange demand.
“In the same way, an export-oriented production base contributes substantially to foreign exchange supply which in turn strengthens the local currency.
“But in Nigeria, these desired attributes have not been achieved. Hence, the heavy dependence of the country on the oil sector for foreign exchange and government revenue creates instability in the naira exchange rate.”
According to him, there is a direct correlation between the oil market and the naira exchange rate.
“When the oil market is enjoying a boom, other things being equal, the naira exchange rate strengthens/appreciates. But when there is a slump in the market, characterised by low prices, accretion to external reserves drops and the naira exchange rate depreciate,” Obadan said.
He said the industrial and agricultural sectors had also not been helpful in stabilising the exchange rate.
According to him, the manufacturing sector imports most of its raw materials and equipment but ends up with little value addition to Gross Domestic Product and insignificant export earnings.
“Although the agricultural sector contributes over 24 per cent to the GDP, its contribution to foreign exchange earnings is also very low,” he added.