ACCORDING to the latest edition of Africa’s Pulse, a report by the World Bank, the Nigerian naira has been ranked among the worst-performing currencies in Sub-Saharan Africa in 2024.

THE report noted that as of the end of August 2024, the naira had depreciated by approximately 43% year-to-date, positioning it alongside the Ethiopian birr and South Sudanese pound as one of the region’s weakest currencies.

IT read: “Ethiopia, Ghana, and Nigeria are among the worst performing in Africa this year, and their currencies continue weakening while demand for foreign exchange remains pressing. Measures to mitigate social unrest associated with the high cost of living in Angola (doubling of the minimum wage) and Nigeria (partially reinstating fuel subsidies) are putting pressure on their public finances.”

SEVERAL factors have contributed to the depreciation of the naira, including a surge in 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 noted that demand for dollar  by financial institutions, non-financial entities, and money managers has intensified pressure on the naira.

THE current government under President Bola Tinubu floated the naira after years of sticking with a hard peg that scared away investors and drained the country’s external reserve. This floating means that buyers and sellers of foreign currency in the official FX market are now allowed to quote rates they find comfortable, as against previous practice where rates were dictated by the CBN.

A country’s currency becomes valuable when that currency is needed for cross-border transactions i.e., imports and exports. This is what drives the value of the exchange rate.

FLOATING  Naira could have both positive and negative implications on Nigeria’s economy. It could potentially attract more foreign investment but also increase exchange rate volatility inflation.

THEREFORE, dollar shortages persist and businesses also face constant policy uncertainty and power cuts. Findings revealed that the government used 68% of the revenue it collected in the first half of 2024 to service debt, an improvement on past years but still not leaving much for anything else.

DESPITE the Nigerian government’s foreign exchange market reforms, including the liberalisation of the official exchange rate in June 2023, the efforts have not been sufficient to stabilize the currency. The naira’s depreciation is symptomatic of Nigeria’s broader economic issues, including dwindling foreign currency reserves and rising inflation.

THE devaluation of the naira has intensified inflationary pressures, making imported goods and services more expensive and reducing the purchasing power of Nigerians. The currency’s decline, coupled with rising fuel prices, has particularly impacted the transportation sector, which relies heavily on imported petroleum products. Despite fiscal reforms aimed at stabilizing the economy, the World Bank projects that inflation in Nigeria will remain elevated in the coming months.

WE understand that one of the conditions for accessing external loans is the devaluation of the nation’s currency. The idea behind currency devaluation is the attraction of foreign direct investment, establishment of foreign countries in Nigeria to benefit from cheap labour, and to discourage the importation of foreign goods into the country. However, we have seen that the reverse of the intentions of the currency devaluation had occurred over the years. Many foreign industries have left the country over the years; foreign direct investment has grown less and Nigeria (ns), having killed the local industries, are depending and feasting more on foreign goods. Hence, Nigeria(ns) need more foreign currencies. As the demand for more foreign currencies soars, so also the exchange rate takes  a flight.

THE only solution to the continours dip of the Naira is the reduction in the demand for foreign currencies through the reduction of imports. This can be achieved with the country’s possession of a functioning and reliable refinery. Government should look at areas where the spending of international currencies can be curtailed. For example, why should we even import the Naira that we spend? Nigeria could revive and own the national carrier for international flights, have a national cargo airline, and consciously invest in the import substitution enterprises in Nigeria.

AGRICULTURE, among others, remain a major sector of the Nigerian economy, accounting for up to 35% of total employment in 2020.

SINCE Nigeria has vast arable land and a favourable climate, The Hope urges that we invest more in agriculture, which was our main stay during the first republic; before the discovery of oil. We also canvass that the country’s textile industry that contributed to the GDP in the 70s be revived to boost the economy. Taking these steps will help to grow the economy and save the naira from continuous free fall.

WE also appeal to the government to discourage the dollarisation of the economy by promoting local production in order to reduce dependency on imported goods, which will help to balance trade deficit as well as address the high demand for dollar and reduce the pressure on naira.