Nigeria's Naira Continues to Declines Against Dollar Amid Modest Economic Uptick

Nigeria's naira declined 0.83% against the US dollar at the NAFEM window, settling at N1,402.67 per dollar. The currency's depreciation occurred despite a slight increase in dollar transactions and a modest uptick in Nigeria's Purchasing Managers' Index.

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Emmanuel Abara Benson
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Naira Declines Against Dollar Amidst Modest Economic Uptick

Naira Declines Against Dollar Amidst Modest Economic Uptick

On May 3, 2024, the Nigerian naira experienced a 0.83% decline against the United States dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM) window, settling at N1,402.67 per dollar.

This depreciation comes despite a slight increase in dollar transactions and a modest uptick in Nigeria's Purchasing Managers' Index (PMI) to 51.1 in April.

Why this matters: The stability of the naira has significant implications for Nigeria's economy, affecting the purchasing power of its citizens and the attractiveness of the country to foreign investors. A volatile currency can also lead to inflation, reduced economic growth, and decreased living standards.

The naira's decline at the NAFEM window represents a loss of N11.71 compared to the previous trading session on Tuesday, April 30, when it exchanged at 1,390.96 to a dollar. Throughout the day, the naira fluctuated, reaching an intraday high of N1,445.00 and a low of N1,299.42 against the dollar.

Despite the naira's depreciation, the total daily turnover at the NAFEM window saw a modest increase, reaching $232.84 million on Thursday, up from $225.36 million recorded on Tuesday. This 3.32% rise in dollar transactions suggests a slight uptick in foreign exchange activity.

In the parallel market, also known as black market, the naira weakened further against the dollar. On May 2, the exchange rate stood at N1,380 per dollar, marking a 1.45% drop from the N1,360 rate observed on April 30. The widening gap between the parallel market and NAFEM rates has narrowed to N22.67 from N40.96 on Tuesday.

The naira's decline comes amidst ongoing efforts by the government to stabilize the currency and combat unauthorized forex dealings. The Economic and Financial Crimes Commission (EFCC) recently obtained an interim court order to freeze 1,146 bank accounts belonging to individuals and companies suspected of engaging in money laundering and terrorism financing.

Aliko Dangote, the chairman of Dangote Group, described the devaluation of the naira from ₦460 to ₦1,400 as "the biggest mess of the year 2023." He stated that the devaluation had a significant impact on his company's performance and that many other companies, particularly those in the food and beverages sector, have also been affected and may face challenges in distributing dividends.

On a slightly positive note, Nigeria's PMI, a key indicator of economic health, saw a modest increase to 51.1 in April from 51.0 in March. This uptick, attributed to the naira's recent gains, has eased inflationary pressures and boosted business activity in the country to a three-month high.

The naira's continued volatility in the foreign exchange market presents the Nigerian government with the vital task of implementing effective measures to stabilize the currency and create a more conducive environment for businesses. The long-term stability of the naira will be crucial in attracting foreign investment, promoting economic growth, and improving the overall well-being of the Nigerian population.

Key Takeaways

  • Nigerian naira declined by 0.83% to N1,402.67 per dollar at NAFEM window.
  • Dollar transactions increased by 3.32% to $232.84 million despite naira's decline.
  • Nigeria's PMI recently rose to 51.1 in April, easing inflationary pressures.
  • Naira's volatility affected purchasing power, economic growth, and living standards.
  • Government efforts to stabilize the currency and combat unauthorized forex dealings continue.