LAGOS: The naira plunged Monday as Nigeria’s government allowed the currency to float, with business welcoming the move as an overdue step towards reviving Africa’s biggest economy.
Nigeria had pegged the naira to the dollar at 197-199 since March 2015, even as other oil exporters let their currencies devalue in the wake of plummeting global crude prices. At around 1425 GMT, the naira stood at 255 against the US dollar, about a quarter below the now-defunct dollar peg.
President Muhammadu Buhari has previously said he would not “kill the naira” by letting it devalue but the Central Bank of Nigeria (CBN) last week announced the currency would now be “purely market-driven”. Analysts believe the naira will settle at about 250 at the inter-bank market moderated by the CBN, compared with 350 to the greenback on the black market. Nigeria is looking for a way out of an economic slump caused by the global fall in crude prices that has led to spiralling inflation, slowing growth, a weakened naira and forex shortages.
Businesses said the new policy will stimulate economic activity which has been stalled by an overvalued currency and a lack of foreign exchange, particularly for imports, because of capital controls. “The scrapping of the fixed exchange rate will reduce speculation and hoarding of dollars,” said Tope Oluwaleye, of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA). Those with dollars would be encouraged to part with it and make the currency available for other businesses and importers, he told AFP. “Businesses will be able to plan. The economy that has been strangulated because of scarcity of foreign exchange will come back to life, jobs will be created and productivity will increase,” he added. Oluwaleye said with increased productivity, the naira would appreciate in the long run, while Abolaji Odumesi, a Lagos-based drinks distributor, said flexibility would boost investment. “With a huge population, Nigeria is an investment destination. Investors will leverage on the size of the population to bring in their money,” he said. “There is going to be in-flow of investments into the economy and when this happens, importers will get forex at lower rates.”
But Odumesi, a former banker, said he was worried about the negative effects of devaluation on imports.
“The immediate impact on the people is a rise in prices of goods and services since we do not produce things in this country. With devaluation, the cost of imports will rise,” he said. Inflation in Nigeria soared to more than six-year highs of 15.6 percent in May.
Local media on Monday put the backlog of forex demand by manufacturers and importers at some $4 billion (3.5 billion euros). CBN spokesman Isaac Okorafor said on Monday the bank would “clear all the backlog of forex demand in the country through spot and forward settlements”. The move was designed to “engender confidence, ensure credible price formation and sustain the integrity of he Nigerian inter-bank forex market”, he added.
Nigerian stocks reacted positively to the new policy and soared 7.4 percent in the three days after the announcement last Wednesday after two trading days in the red.
At the close of trades on Friday, the Nigerian Stock Exchange (NSE) All-Share Index stood at 29,247.27 points.—AFP
