A recent report revealed that Nigerian economy continues to be plagued by persisting foreign exchange uncertainty, a consequence of reduced oil production and a lack of foreign currency inflow. As a result, Nigeria financial stability and global image as an attractive and business-friendly hub are being significantly impacted. Interestingly, President Bola Ahmed Tinubu recently made assurances that obstacles to investment had been eradicated, yet the prevailing challenges persist. However, it is crucial to establish a seamless repatriation process to instill confidence in investors, an aspect highly sought by any individual or entity engaged in business activities within Nigeria.
Foreign investors also seek a conducive economic landscape characterized by robust foreign exchange liquidity and an assurance of a profitable investment and also consistent and predictable returns. Recent statistics indicate that foreign enterprises encountered huge financial losses surpassing N900 billion solely due to the devaluation of the Naira in the year 2023. A comprehensive analysis unveils the substantial decline of Nigeria currency value against foreign currencies, losing more than 500 percent of its value in the past eight years. Also, the country is grappling with crippling inflation, currently at 27 percent.
Nigeria’s overall public debt surged to reach N87.38 trillion.
The major cause for concern is the liquidity problem faced by Nigerian forex market, wherein the Central Bank of Nigeria (CBN) has amassed more than $10 billion in forex contracts with commercial banks and local businesses in an attempt to address this challenge. This dilemma has adversely affected the airline industry, while manufacturers continue to struggle in obtaining foreign exchange for importing essential raw materials. Prof. Cyril Usifoh, the president of the Pharmaceutical Society of Nigeria (PSN), informed the media that the escalating prices of medication were directly correlated with the exorbitant foreign exchange rates required to import Active Pharmaceutical Ingredients (API).
Mallam Nuhu Ribadu, the National Security Adviser, disclosed that the country was left in financial bankruptcy by the previous administration. However, he said that the current administration is diligently striving to fulfill required needs. The Debt Management Office (DMO) has reported that Nigeria’s overall public debt surged by 75.29 percent in the second quarter (Q2) of 2023, reaching a staggering ₦87.38 trillion. The situation escalated due to the misuse of Ways and Means, funds acquired directly from the CBN Act, and was expected not to surpass 5 percent of the previous revenue. However, this was extensively misused, compelling the Senate to promptly revise the legislation and raise it to 15 percent.
Exchange rate for the country remains unsettling.
Abubakar Bagudu, the Minister of Budget and Economic Planning, detailed the proposed budget for 2024. He outlined spending plans projected at 27.5 trillion naira ($34.7 billion), with ₦8.25trn specifically designated for debt servicing. Other parameters include ₦1.3trn for statutory transfers, ₦10.26trn for non-debt recurrent expenditure, and ₦7.78trn for personnel and pension costs.
Due to the securitization of the Ways and Means at a 9 percent interest, the federal government’s debt climbed up, leading to a rise in debt service amounting to ₦22.7 trillion.
Experts argue that the prevailing macroeconomic conditions in the nation do not correspond with the set parameters. The inflation rate has spiraled to over 27 percent, while the country’s oil production struggles at approximately 1.3 million barrels per day, falling below the OPEC quota. Furthermore, the exchange rate remains unsettling. During the 58th annual Bankers Dinner held in Lagos, the Central Bank of Nigeria governor, Olayemi Cardoso, expressed positive remarks regarding the forex market liquidity, emphasizing notable progress.
A well-operating market should result in abundant FX liquidity.
Recent weeks have witnessed notable enhancements in FX market liquidity, according to his statement. This positive response can be attributed to the tranche payments made to 31 banks, strategically aimed at resolving the backlog of FX forward obligations. Thorough verification measures have been implemented to ensure that only valid transactions are given due approval. A well-operating market should result in abundant liquidity in foreign exchange (FX), wherein daily trade volumes could surpass $1.0bn. Moreover, if we adhere to disciplined practices and maintain a strong commitment, it is possible to rebuild foreign exchange reserves to levels comparable to other economies, Cardoso added.