Market News

By Bamidele Ogunwusi

Dollar shortage at the official foreign exchange market has reached an all-time high as it has left an abysmal wide gap between the official rate and the black market rate.

This is happening after a brief con­vergence spurred by the Central Bank of Nigeria’s (CBN) actions last month.

With banks and black-market deal­ers left to source for FX to remain in business, supply seems to have dried up completely, putting end-users in a dilemma.

The exchange rate briefly touched N1000 against the dol­lar on the parallel market before strengthening back to close at N865 on Friday as dealers were stuck in a one-way track ahead of a central bank monetary policy meeting which starts today and ends tomorrow in Abuja.

The CBN last month allowed the naira to float in a bid to uni­fy the multiple exchange rates and to lure foreign investment to shore up liquidity in an economy struggling with dollar shortage.

As expected, the self-induced devaluation initially helped nar­row the gap between the naira’s exchange rates on the official window and the black market but pressure is gradually building up, especially from individuals pay­ing for expenses abroad.

The naira has been swing­ing widely on the official mar­ket since the devaluation as it touched a new low of N765 on Friday at the official market.

The inability of the CBN to meet the official market demand has driven many towards the black market, causing prices to surge due to unprecedented demand for the currency and as a result, there is a wide gap between the two markets.

Daily Independent gathered that the dollar shortage on the official market have seen custom­ers turning to the black market, helping to widen the gap between the spot rate and the black mar­ket.

Analysts believe that the nai­ra will remain under pressure as long as many Nigerians scramble to acquire dollar for essential ex­penses, such as tuition, medical care, and import bills.

The widening gap between the naira’s official exchange rate and the parallel market rate is the widest seen since the currency’s unification, largely driven by an insatiable demand for the US dol­lar that surpasses the available supply.

Initially, the CBN hinted at allowing free trade until the cur­rency achieved a market-relevant level.

However, market participants are now expressing concerns that the high demand for foreign ex­change might lead to further de­preciation of the local currency.

Several factors contribute to this predicament, including a significant influx of foreign cur­rency from non-oil sources, such as remittances, tourism, and non-oil exports, into the black market.

Significantly, despite the uni­fication of the naira, Nigeria’s foreign exchange reserves have been declining in recent months, reaching $33.9 billion, the lowest level in two years.

As it seems, experts are wor­ried that the principle of willing buyer-seller foreign exchange trading could have negative short-term effects on the Nige­rian economy, as sellers seek the highest bidder for their US dollar, potentially undermining the ob­jectives of the CBN.

Stephen Iloba, an economist, said the development has defeat­ed the willing buyer, willing seller approach as there are only will­ing buyers and not willing sellers.

He said, “What we are seeing is that the dollar has been going up. It means there are fewer will­ing sellers and this will continue until there is a drop in demand or there is enough supply pumped into the market.”

Simon Amadi, an activist and a forex dealer, said there must be a shift in Nigeria’s economic out­look going forward.

He said, “The stability of the naira we are all craving for can­not come until there is a holistic attempt to revamp some policies of the government, especially the country’s monetary and fiscal policies, political stability, secu­rity, and investor confidence in the economy”.

He also asked the CBN to be ready to implement new policies.

“To address these challenges, the CBN, the president and his eco­nomic team should prioritise in­vestments in education and skills development to cultivate a skilled workforce capable of driving in­novation and entrepreneurship while simultaneously tackling the issue of high insecurity, which could boost remittance inflows.

“There should also be an im­provement in the quality of ed­ucation at all levels, as this will reduce the number of Nigerians seeking education outside the country which ultimately will increase the demand for dollars”.

Dr. Muda Yusuf, founder and Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), said the huge outstanding un­met requests by the CBN would continue to exert pressure on the exchange rate in the coming months.

Yusuf is also seeking the gov­ernment’s intervention to rein in the social impacts of the market reforms, especially the removal of subsidy on premium motor spirit (PMS) that has increased the pump price of the product by over 300 percent in some parts of the country.

“Urgent measures need to be put in place to mitigate the soar­ing cost of living and the esca­lating operating and production costs, especially for businesses.

“Inflationary pressures may intensify in the near term, the exchange rate may come under pressure in the short term as forex demand backlog exerts pressure on the official forex window”.