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Nigerians may soon enjoy significantly lower prices of imported goods, should the country’s currency, the Naira, sustain its fight against the United States dollar across boards, economists noted.
Naija News reports that the newly implemented foreign exchange market system by the Central Bank of Nigeria (CBN) has been credited for the recent surge in the value of Nigeria’s currency, the Naira, against major global currencies.
Nigerian economists have expressed optimism that this development will contribute to a reduction in the country’s headline inflation, which was recorded at 33.88 per cent in October 2024.
Speaking at separate interviews yesterday, the Chief Executive Officer of SD & D Capital Management, Gbolade Idakolo, and Prof. Godwin Oyedokun, an academic at Lead City University in Ibadan, shared their insights on the latest development.
As of Monday, December 9, 2024, the Naira was valued at ₦1,538.50 per dollar, a notable improvement from the ₦1,740 rate observed on November 9 of the same year.
In terms of month-on-month performance, the Naira appreciated by ₦201.5 and ₦110 in the official and black markets, respectively, compared to the N1,740 exchange rate from November 9, 2024.
This appreciation occurred despite a slight depreciation of ₦3.5 and ₦30 against the dollar at the beginning of the week in both foreign exchange markets.
This development follows the Central Bank of Nigeria’s recent introduction of the Electronic Foreign Exchange Matching System (EFEMS), aimed at eliminating market distortions and enhancing transparency in the FX market.
It is worth noting that this is not the first instance of the Naira appreciating due to policy interventions by the Central Bank of Nigeria. However, previous gains have often proven to be short-lived and temporary.
The recent developments have influenced the foreign exchange rate applicable to import duties and cargo clearance, which stood at N1645 per dollar on Tuesday of the previous week.
In response, Idakolo emphasized that with effective oversight from the Central Bank of Nigeria (CBN), the EFEMS platform represents a transformative element for the nation’s foreign exchange market.
He pointed out that EFEMS has instilled apprehension within the parallel market, leading to a decrease in unwarranted speculation that adversely affects the Naira’s value.
Idakolo further remarked that as the Naira strengthens, the exchange rate for import duties is expected to decline, subsequently affecting the prices of imported goods.
“The newly introduced EFEMS platform by CBN for centralised bidding for forex is a game changer because of its transparency and the convergence of all previous bidding options into one platform.
“There is no room for manipulations so far, and all the quotes are shown on the platform for both bidders and sellers.
“This has created fear even in the unofficial forex market (black market) and reduced unnecessary speculations, which has negatively impacted the strength of the Naira.
“The CBN must continue to monitor the market and fulfil its regulatory obligations to all stakeholders.
“The BDCs must align to CBN’s reporting standards, and the banks must not fail to inflict heavy sanctions on erring players.
“The recent drop in the exchange rate for import duties is a step in the right direction, as clearing costs are bound to reduce, which will in turn impact the prices of imported goods.
“Clearing charges is a major component in costing imported goods, and with reduced charges, the prices will also be adjusted accordingly,” Idakolo told Daily Post.
CBN Needs To Continue Its Interventions
Oyedokun noted that the recent rise in value can be credited to interventions by the Central Bank of Nigeria (CBN), a surge in foreign exchange inflows, and a decrease in the demand for dollars.
Similar to Idakolo, Oyedokun indicated that Naira’s appreciation of the dollar might have an indirect influence on the pricing of imported goods within Nigeria.
He further explained that although the recent decline in the exchange rate for import duties may not directly affect the Naira’s exchange rate, it could still indirectly influence the prices of imported goods in the country.
“If importers can procure goods at a lower exchange rate, they may pass on these savings to consumers, leading to lower prices for imported goods,” he stated.
He, however, noted that several factors could mitigate this impact of the exchange rate drop on the prices of imported goods.
“Global Supply Chain Disruptions: Ongoing global supply chain issues may offset any benefits from the lower exchange rate.
“Domestic Economic Conditions: Domestic factors such as inflation, interest rates, and government policies can also influence the prices of imported goods.
“Importer Behaviour: Importers may not necessarily pass on the savings to consumers, opting to increase their profit margins instead,” he added.
According to Oyedokun, in order to uphold the appreciation of the Naira, the Central Bank of Nigeria (CBN) must persist in its initiatives to ensure macroeconomic stability, draw in foreign investment, and tackle structural challenges.
He further emphasized that sustaining the Naira’s value requires ongoing efforts from the CBN to maintain macroeconomic stability, encourage foreign investment, and enhance export activities.
“Additionally, addressing structural issues such as corruption, insecurity, and inadequate infrastructure will be crucial.
“It is important to note that the exchange rate is influenced by various factors, and the Naira’s appreciation may be temporary.
“Continuous monitoring and strategic interventions by the CBN will be necessary to ensure the sustainability of the Naira’s strength,” he stated.
