The naira continued its appreciable performance against the US dollar on November 12, 2021, at the black market, it closed at NGN525 at the close of business on Friday.
On Thursday, at the close of trade, it appreciated against the dollar at the parallel market on Thursday to trade at N540 per dollar. and NGN530 in some places.
Some of the Bureau De Change and their agents give two major prices on Friday: NGN525 and NGN530 depending on the quantity of trade.
In Osogbo, Osun State capital it traded at NGN520/1$, again depending on the quantity of trade. While some of them are afraid to buy because most of them depend on the price in Lagos, Nigeria’s commercial hub centre.
Consistent FX policy
One of the bold steps the Central Bank of Nigeria took in July was the stoppage of sales of forex to the hundreds of Bureau De Change operators spread across the country.
The action sparked a hike in the exchange rate and three months after the new FX policy, it launched its digital currency eNaira, the first Central Bank Digital Currency (CBDC) in Africa.
Although eNaira has the same value as the fiat currency (naira), the naira digital version was predicted to impact the fiat currency
While it may be difficult to precisely say what led to the appreciation of naira at the fx market, the CBN forex policy was predicted in July by some financial analysts that consistency of the apex bank in its policy would cause a natural crash of the dollar, Euro, GBP, and other foreign currencies in the fx market.
One of the analysts specifically stated that the policy may force BDCs out of the forex market, but some of the operators stated that they have other sources where they buy USD.
Nigeria exports its crude oil for refining at overseas companies and re-imports the products which also have some negative implications on the country’s forex
Also, it’s an economy that largely depends on the importation of goods and services, CBN was also guilty of this at a time, the price of which trickle down to the final consumers.
In fact, the CBN commissioned a foreign blockchain company to design its digital currency, meaning it had to make payments in foreign currency. A continuous gain of the naira may naturally bring down the price of some products.
Economic policy direction
The body language of the government in terms of its economic policies could either cause panic among investors or build their confidence.
For instance, Nigeria’s apex bank on Wednesday, November 10, 2021, disclosed that it would make available for manufacturers single-digit credit facilities.
Mr Godwin Emefiele, CBN governor who spoke at the Nigeria International Partnership Forum in Paris, France, appealed to foreign investors to come to Nigeria for greater returns on their investments.
“We want to ensure that the manufacturing sector can access capital at a single-digit rate of not more than nine percent. It should be easy for you (investors in manufacturing) to access credit at single digit with two years moratorium.”
While it’s easier to make promises, foreign investors, most times, rely on data and the attitude of the government to its local manufacturers. For instance, the recently launched 100 for 100 policy to boost local manufacturer with NGN5billion will boost the confidence of foreign investors if the apex bank shows maximum transparency in the selection process.
In terms of data, Nigeria is poor while some of its economic policies have also forced a lot of SMEs out of the market, these two parameters matter and will play a huge role in the exchange rate of Naira against major currencies in the fx market.