Manufacturers have predicted fresh hikes in the prices of commodities in the market to rise in response to the continued fall of the naira against the United States dollar.
On Friday, the naira plunged to N1,420/$ at the parallel window of the foreign exchange market.
The President of the Manufacturers Association of Nigeria, Francis Meshioye, on Saturday told The PUNCH that the naira, which has now remained at over N1,400 in the parallel market for two days, would lead to price hikes in the economy.
He said, “It is not possible to remain profitable with this exchange rate. The first challenge is breaking even. It means the prices of things will be higher, and the income is not there for people to buy things as they should buy as things become more expensive.
“So, the demand will become low, and this will affect our bottom-line. The break-even point will become critical. So, what businesses should do is to ensure that they break even at this time. It is a critical and very challenging time for us.”
Meshioye predicted that these price hikes were unlikely to resonate well with consumers whose spending power has been continuously depleted.
According to him, the frequent fluctuations in the forex market have made it difficult for manufacturers to make long-term plans.
He stated, “It is a harsh time, which means we have to revise our strategy. It is hard for us to have a long-term plan, and even the short-term plans we have to regularly revise them so that we can incorporate the reality of the economy into it.”
The president of MAN added that the current FX reality creates the need for manufacturers to come together and fashion out viable solutions to stay in business.
The fall of the national currency has been partially responsible for high inflation rates in the country. As of December 2023, inflation rose to 28.92 percent according to the National Bureau of Statistics.
The naira has continued its slide in the parallel market, closing the week at N1,420/$.
Since the Central Bank of Nigeria removed the rate cap on the national currency in June 2023, the naira has fallen to record lows on the official and unofficial foreign exchange windows.
The persistent decline of the naira is following high demand for the dollar in the country, BDC operators noted to PUNCH.
On the official Investor and Exporter window, the naira appreciated by 1.01 per cent to N891.90/$ from the N900.96/$ it closed on Thursday.
In the cryptocurrency peer-to-peer market, the naira was trading for N1,401.7/$ on Binance’s P2P platform as of the time of filing this report. Nigeria has one of the largest peer-to-peer exchange volumes in the world according to Chainalysis, a blockchain firm.
Between July 2022 – June 2023, Nigeria’s crypto transaction volume grew to $56.7bn signifying the importance of the P2P crypto foreign exchange window.
Chainalysis said, “In fact, Nigeria is one of only six countries in the top 50 by size globally whose crypto transaction volume grew year-over-year in the time period we studied. Its growth rate of 9 per cent places it third among those six.”
The naira’s free fall has continued despite efforts by the Central of Nigeria and the Federal Government. Recently, the Federal Government through the Nigerian National Petroleum Company Limited got a $2.25bn oil-for-cash loan facility from the African Export-Import Bank to boost dollar liquidity in the economy.
In December 2023, the Minister of Finance and Coordinating Minister of the Economy, Wale Edun, stated that this is the first tranche of the $3.3bn facility from the bank. He highlighted that the loan would help to resolve FX shortage that has hampered the economy.
Commenting on the loan in January 2024, Afreximbank President and Chairman of the Board of Directors, Professor Benedict Oramah, said, “The disbursement of the initial $2.25bn under the facility will support Nigeria’s long-term economic stability, ease access to import financing for raw materials and essential goods, and support industrialisation and trade development efforts.”
The CBN on its part has begun to clear part of its backlog of matured foreign exchange obligations to Deposit Money Banks. So far, the bank has paid $2bn of an alleged $7bn backlog.
The CBN Acting Director of Corporate Communications, Hakama Sidi Alia, recently said, “These payments signify the CBN’s ongoing efforts to settle all remaining valid forward transactions, to alleviate the current pressure on the country’s exchange rate.
“It is anticipated that this initiative by the CBN should provide a considerable boost to the Naira hug against other major world currencies and further increase investor confidence in the Nigeria economy.”
Recently, the CBN governor, Olayemi Cardoso, announced that the Ministry of Finance and the NNPCL would return their FX inflows to the apex bank in a bid to enhance the bank’s FX flows and contribute to the growth of reserves.
Speaking at the launch of the Nigerian Economic Summit Group 2024 Macroeconomic Outlook Report, the governor said, “We are implementing a comprehensive strategy to improve liquidity in our FX markets in the short, medium, and long term. Our focus is on addressing fundamental issues that have hindered the effective operation of our markets over the years.”
He hinted that the rates would eventually stabilise in 2024. He predicted, “The expected stability in the foreign exchange market for 2024 can be attributed to the reduction in petroleum product imports and the recent implementation of a market-determined exchange rate policy by the CBN.
“This reform is designed to streamline and unify multiple exchange rates, fostering transparency and reducing arbitrage opportunities. The resulting consistent and stable exchange rate will not only boost investor confidence but also attract foreign investment, elevating Nigeria’s appeal to global investors.”
Cardoso added that the national currency was currently undervalued and should rebound soon.
Credit: Punch
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