Last updated on December 31st, 2022 at 07:12 am
It would have been the craziest thought if anyone ever mentioned in 2015 that a US dollar would be NGN700 when converted to Nigerian Naira in the next seven years. But it has even gone beyond that rate.
It is an embarrassing reality today that $1 has crossed NGN800, so where do you see USD to NGN rate by December 2022?
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When the former ruling party People’s Democratic Party (PDP) was handing over the leadership baton to the All Progressive Congress (APC) on May 29, 2015 USD/NGN was less than NGN200.
But here is Nigeria’s economy on its knees. The exchange rate between the USD and NGN has skyrocketed as the exchange rate of USD/NGN closed at NGN745 in the black market on October 17, 2022, and fell to reach the lowest at NGN805 against the USD on Monday, October 31, 2022, while the CBN seemed to be helpless.
Several forex exchange policies like raising the interest rate to 15.5% aimed at taming the rising inflation, the official elimination of the Bureau De Change Bureau (BDCs), an announcement to redesign NGN200, NGN500, and NGN1,000, and the banning of abokiFX from publishing black market rates among other policies rolled out by Nigeria’s apex bank remain ineffective, instead, the naira continues to lose value against the United States currency.
The seemingly radical and fire brigade approach of the CBN was unable to help the naira regain its value, though historically, the Naira used to be better than USD in the 70s.
The disparity between Official and Blackmarket Rate
While the CBN official rate is pegged at NGN436.06, the black market keeps shooting to the sky, closing at NGN805 Monday, October 31, 2022.
That’s a difference of over NGN300. That has never happened in the history of Nigeria. Many factors can be attributed to the poor performance of the naira against other tier-1 currencies on the global market.
Naira Redesign announcement
On October 27, 2022, the governor of the Central Bank of Nigeria (CBN) Godwin Emefiele announced plans to redesign Nigeria’s higher denominations, from NGN200 upwards.
The plan, according to Emefiele, was for the CBN to take total control of Nigeria’s currency as more than 80% of naira are outside the vaults of the commercial banks in the county.
He also claimed that the issuance of new notes would be one of the security measures against terrorists and bandits across Nigeria.
At the time the apex made the announcement, USD/NGN was NGN765 at the black market rate. But a day after, it attained a new low at NGN780 to USD. The rate was NGN565 at the beginning of 2022.
At the time of this report, $1 is sold at NGN805 on the black market. The black market is an unofficial rate that the CBN doesn’t recognize, but it is more accessible to Nigerians who need forex to perform business transactions across the border.
USD/NGN may reach NGN/$1 by December 2022 – FX traders
Meanwhile, financial economists, analysts, and foreign exchange traders in Nigeria have expressed divergent views about the plan of the CBN to redesign the naira.
Some of them believe “it is a good plan taken at the wrong time”, especially when Nigeria preparing for the 2023 general elections.
Some of them say it was a fantastic move by the CBN to take full control of the currency that is being hoarded by individuals, especially politicians vying for major elective posts in the 2023 general elections.
Those who expressed pessimism about the naira redesign said the rate might reach NGN1,000/USD by the end of 2022.
They said the daily depreciation of the naira against the USD and major international currencies is a pointer that the naira was most likely to fall further to NGN1000 to the dollar by the end of the year (2022).
For instance, a day prior to the announcement by the apex bank to redesign the naira, the exchange was NGN765, less than 24 hours later it fell to NGN780/USD, and three days after (October 31, 2022), it reached a new low at NGN805/USD. It’s a free fall.
Nigerians await the result of Tompolo surveillance
In a move to increase revenue from crude oil, the giant embarrassing move the government took was to appoint and award oil surveillance contract to a former militant leader Government Ekpemepulo aka Tompolo.
Human rights lawyer Femi Falana described the FG’s contract pipeline surveillance to Tompolo as a “colossal embarrassment” to Nigeria’s Navy and the entire security agencies in the country.
Less than a month after Tompolo’s assignment kicked started, he uncovered over 50 illegal pipelines used by unnamed powerful individuals to steal crude oil.
It is expected that the result will have a positive impact on Nigeria’s foreign exchange market, but it may not be immediate because other factors are going to play a big role.
Will USD/NGN reach a new high?
So, will the exchange rate between USD/NGN be NGN750, NGN800, NGN850, NGN900, or NGN1000 by the end of 2022?
Several times, economists and financial analysts have stated that Nigeria needs to produce and export more than import for the naira to bounce back to its earliest glory.
One such piece of advice is for the country to step up its game in blocking financial loopholes and stealing its crude oil in oil-producing states in the Niger Delta.
For instance, the 2023 general elections draw nearer. Politicians are believed to be piling up USD, GBP, and EUR ahead of the election.
By January 2023, international students and travelers will put more pressure on Nigeria’s FX market.
Though there is a special FX application portal created for PTA/BTA by the CBN for this purpose, it is obvious that the Central Bank of Nigeria has been finding it difficult to meet the demands of those who need them for foreign travel.
Demand has been higher than supply in recent times, no wonder it takes between three to four weeks before PTA applications are honoured.
Verdict:
On October 17, we predicted NGN800/USD, but it reached a new low on Monday, October 31, 2022, at NGN805/USD. With the new trend, NGN900/USD is most likely.
Final thought:
The recent action by the government in sanitizing crude production to increase sales will significantly increase Nigeria’s earnings in foreign exchange. This will lower the pressure on the pressure.
It is hoped that there will be the availability of FX to meet the demands of the Nigerians if the government is sincere about the job Tompolo is doing in the Niger-Delta
So, over to you, where do you see the US dollar to Naira rate by December 2022?
