The recent move by the Central Bank of Nigeria to erase the N379 official exchange rate from its website has raised concerns about the devaluation of the currency that has long struggled amidst declining government revenue and foreign exchange.
The immediate impact is a further depreciation of the naira at both the parallel market (N490/$ – N500/$) and I & E window (N412/$ – N415/$).
However, exchange rate policy ambiguities and forex market shortages continue to linger, worsening the business environment for manufacturers. Even though the CBN has made moves toward naira convergence at the I&E window, forex rationing has continued.
Economic experts believe that there is a high probability that forex rationing will increase the exchange rate pressures at the autonomous market, which could impede growth in the manufacturing sector.
Currency volatility according to experts would heighten import costs and increase imported inflation. The impact on economic agents/ average citizens is largely dependent on who bears the final burden of higher costs.
If manufacturers decide to absorb the costs, corporate margins will likely remain squeezed. However, if they decide to pass the burden to the already embattled Nigerian consumer, disposable income will be negatively affected.
Available records show that in April, the average daily turnover fell by 13.4 per cent to $57.7 million from $66.63 million in March.
The Executive Vice Chairman, Alpha African Advisory, Mr Mustafa Chike-Obi told Nigerian Tribune then, that Nigeria’s industrial base is low and the only option open to the country is not protectionism but to have a weak currency.
– Blueprint