As of 2024, the Nigerian naira has emerged as one of the worst-performing currencies in Sub-Saharan Africa, experiencing a steep decline of approximately 43% year-to-date by the end of August. This troubling trend is detailed in the latest edition of Africa’s Pulse, a report from the World Bank that highlights the currency’s decline alongside other struggling currencies like the Ethiopian birr and South Sudanese pound. The naira’s depreciation can be attributed to various interconnected factors, including a surging demand for US dollars in the parallel market, constrained dollar inflows, and delays in foreign exchange disbursements from Nigeria’s central bank. Many financial institutions, money managers, and non-financial end-users are driving this intense demand for dollars, which is contributing to the naira’s continuing depreciation.
Despite efforts by the Nigerian government to stabilize the currency through foreign exchange market reforms, including the liberalization of the official exchange rate initiated in June 2023, these measures have not been sufficient to halt the naira’s downward trajectory. As the demand for foreign currency remains high while reserves dwindle, the economic landscape continues to be challenging. The naira’s depreciation is not an isolated occurrence but reflects broader economic issues within Nigeria, including ongoing inflationary pressures that are impacting the cost of living and straining consumers. The reduced value of the naira translates to higher prices for imported goods, exacerbating the financial difficulties faced by the average Nigerian.
In contrast to Nigeria’s struggles, some African currencies that faced similar challenges in previous years are showing signs of improvement. For instance, the Kenyan shilling has appreciated by 21% year-to-date as of late August 2024, highlighting a notable recovery. The continued weaknesses in the naira, however, emphasize that many African economies still grapple with foreign exchange shortages and exchange rate pressures. These currency fluctuations affect the stability of pricing systems across different markets, leaving economic operators in Nigeria particularly vulnerable as they attempt to navigate an unstable environment.
Despite the ongoing struggles, there have been brief periods of recovery for the naira; for example, it appreciated by about 5.69% against the dollar on October 14, 2024. This rise saw the exchange rate improve markedly, moving from N1,641.27/$1 to N1,552.92/$1 within a few days. However, this recovery is accompanied by a staggering drop in foreign exchange turnover, which fell by 44.27%, indicating continued volatility in the currency market. The mixed signals from the exchange rate and turnover figures underscore the complex factors impacting Nigeria’s economic landscape, suggesting that while short-term gains in the exchange rate are promising, they may not be sustainable without underlying systemic changes.
Looking ahead, the World Bank has offered a cautious outlook for Nigeria’s economic growth, forecasting a modest expansion of 3.3% in 2024, with expectations of slight acceleration to 3.6% in the years 2025-2026. This outlook hints at a gradual improvement, driven primarily by macroeconomic and fiscal reforms that are anticipated to yield results over time. Notably, inflation, which peaked dramatically in June 2024 at 34.2%, has shown signs of easing but remains high, indicating the fragile state of the economy. As inflation rates began to decline in subsequent months, new developments, particularly regarding fuel prices, could jeopardize these improvements.
The removal of fuel subsidies in mid-2023 has led to significant increases in gasoline prices, further exacerbating inflation and impacting transport and logistics costs across Nigeria. Initially, gasoline prices tripled, later spiking by an additional 40-45% in September 2024, which is anticipated to reverse any progress made in lowering inflation rates. These rising costs not only strain individual consumers but also complicate business operations as companies adapt to the increasing expenses. The dynamic interplay of currency depreciation, inflation, and overall economic challenges underlines the urgency for Nigeria to implement robust economic policies to stabilize the financial landscape and stimulate growth in the face of ongoing challenges.
