The value of Nigeria’s currency, the naira value in the parallel market may see an improvement contingent upon the Central Bank of Nigeria (CBN) adequately addressing the demands of importers, according to a report by Analyst Data Services and Resources (ADSR), a Nigerian data analysis and research firm.
The report, published on Saturday, highlights that the exchange rate of the naira value particularly concerning the US dollar in the parallel market, now hinges on the CBN’s ability to meet importers’ demands. This observation follows the CBN’s policy reversal on October 12, 2023, which reinstated 43 previously restricted items to access foreign exchange through official channels.
These reinstated items encompass a range of goods, including rice, cement, palm kernel/palm oil products, vegetable oil, meat, processed meat products, vegetables, processed vegetable products, eggs, turkey, chicken, and other poultry products, among others.
How reinstated items affect CBN’s supply of foreign exchange
ADSR suggests that this reintroduction could alleviate the demand pressure placed by importers on the informal market, shifting a significant portion of this demand back to the CBN. This shift could be advantageous as long as the central bank continues to increase its supply of scarce foreign exchange.
The report explains, “Having lifted the forex restriction on the 43 items, the foregoing analysis shows that there is a likelihood that forex demand at the official market will increase by around 5 percent, leading to further depreciation of the official exchange rate.
“Conversely, an appreciation should be expected at the parallel market, but this will be to the extent that the official market is able to meet the demand of importers of these 43 items.”
Naira value to increase on CBN meeting importers’ needs
ADSR emphasizes that any appreciation of the naira is contingent upon ensuring that the official market adequately meets importers’ demands, transparently. This approach is expected to reduce cases of mis-invoicing and smuggling of these items, potentially contributing to government revenue and reducing border monitoring costs.
CBN proposed a loan from the World Bank
In response to the policy reversal, the CBN has sought a $1.5 billion loan from the World Bank to assist in fulfilling its statutory obligations, with the aim of stabilizing the naira’s value in the foreign exchange markets.
While it is still early days for the policy reversal, the naira’s value in the informal market continues to decline, closing at N1,170 against the US dollar on Friday. This situation calls for more assertive measures from the central bank to increase its foreign exchange supply.
How ADSR makes its data research
ADSR based its findings on data obtained from the United Nations Commodity Trade Statistics Database (UN Comtrade), considered one of the most comprehensive trade databases globally, with over 3 billion records.
The research company focused on the volume and monetary value of 42 items imported into Nigeria through its ports and border crossings with neighboring countries. ADSR discovered that the government’s objectives, including conserving foreign exchange and promoting local production, were subjective and subject to debate. Statements from the federal government indicated that the volume and value of the restricted items had significantly reduced during the eight years of restriction.
The company acknowledged that the data it collected showed fluctuations, with some cases indicating an increase in the volume of restricted items smuggled into the country from neighboring countries during the restriction period, while others exhibited marginal decreases.
ADSR noted that for the policy reversal to succeed, Nigerian policymakers should conduct comprehensive evaluative research to enhance the effectiveness of policies. It stressed the importance of analyzing specific policies and programs to assess their intended and unintended effects, both before and after implementation.
Nigeria’s President Tinubu Approves Supplementary Budget Amid Controversy Over $35m in Frivolous Expenses
Nigeria’s President Bola Tinubu has approved a controversial supplementary budget amidst g…