Nigerian economists are expressing optimism about the recent appreciation of the Naira against the U.S. dollar, asserting that, if sustained, it could lead to a significant reduction in the prices of imported goods and ultimately lower the country’s headline inflation, which stood at 33.88 percent as of October 2024.
These insights were shared by Gbolade Idakolo, the Chief Executive Officer of SD & D Capital Management, and Professor Godwin Oyedokun of Lead City University in Ibadan, told pressmen.
On Monday, December 9, 2024, the Naira settled at N1,538.50 per dollar, marking a notable improvement from the N1,740 exchange rate recorded a month earlier on November 9.
This represents a month-on-month gain of N201.5 and N110 in the official and black markets, respectively.
Despite a slight depreciation by N3.5 and N30 at the start of the week, the Naira’s overall trajectory signals a positive trend that experts believe could have far-reaching economic benefits.
The Central Bank of Nigeria’s (CBN) recent introduction of the Electronic Foreign Exchange Matching System (EFEMS) is being credited as a key driver of the Naira’s resurgence.
The EFEMS platform, designed to eliminate distortions and promote transparency in the foreign exchange (FX) market, has streamlined the bidding process for forex by centralizing all previous mechanisms into a unified system.
According to Idakolo, this initiative is a “game changer” for the nation’s FX market, fostering greater accountability and minimizing opportunities for manipulation.
Idakolo highlighted that the EFEMS platform has also instilled a sense of caution within the parallel market, commonly referred to as the black market.
This shift has reduced speculative trading activities, which have historically undermined the Naira’s strength. He noted that the CBN must sustain its regulatory oversight to ensure the platform’s effectiveness, emphasizing the importance of imposing heavy sanctions on erring market players, including Bureau De Change (BDC) operators and banks.
The appreciation of the Naira has already begun to influence the FX rate used for import duties and cargo clearance. Last week, this rate was reported at N1,645 per dollar, a reduction that has the potential to lower clearing costs and, consequently, the prices of imported goods.
This development is particularly significant for an economy heavily reliant on imports to meet consumer demand.
Idakolo further explained that the reduction in import duty rates is a positive step toward addressing inflationary pressures.
He noted that imported goods constitute a significant portion of Nigeria’s consumption basket, and any decrease in their prices would have a direct impact on inflation.
However, he cautioned that sustaining this progress would require consistent policy implementation and monitoring by the CBN.
Professor Oyedokun echoed these sentiments, stressing that the Naira’s appreciation must be sustained to achieve long-term economic benefits. He highlighted the need for complementary fiscal policies to support the CBN’s monetary interventions.
According to him, the government must address structural issues, such as infrastructure deficits and energy costs, which continue to drive production expenses for local businesses.
While acknowledging the positive strides made, both experts warned against premature celebrations, citing Nigeria’s history of short-lived currency recoveries. They emphasized that the Naira’s appreciation is contingent on the CBN’s ability to maintain transparency in the FX market and curb illicit practices.
In conclusion, the recent gains in the Naira’s value, driven by the innovative EFEMS platform, present an opportunity to address some of Nigeria’s most pressing economic challenges.
By reducing the cost of imported goods, these gains could ease inflationary pressures and enhance the purchasing power of consumers.
However, sustaining this progress will require unwavering commitment from policymakers, regulators, and market participants to ensure long-term stability in the foreign exchange market.
