Naira depreciates to ₦307 on NAFEX

Data from the Investor & Exporter window of the Financial Markets Dealers Square (FMDQ) shows that the Naira appreciated by 33 kobo at the close of trading yesterday from 306.67k to 307. Data shows that the volume of dollars traded in the window which rose to $114.07m from $104.07m was responsible for the depreciation in the value of the Naira

The Nigerian Autonomous Exchange Rate Fixing is a foreign exchange dealers window (NAFEX) for exchange rate fixing between the Naira and other major foreign currencies mostly traded as pairs. The 11% rise in the demand by investors and exporters in the I & E window drove up the value of the dollar against the naira which led to a depreciation of the local currency. The rise in the value of the dollar has pushed the parallel market to 365 per dollar at a time when Nigerian families are ramping up FX for Christmas holidays and oversees shopping.

The Central Bank of Nigeria maintains a fixed exchange rate band, a limited range of +-3 within which the currency is not allowed to float without the intervention of the apex regulator. Between the end of 2014 and March 2017, the naira dropped from 165 per dollar to 510 to a dollar, this was majorly caused by a drastic drop in the prices of crude oil from $110 per barrel to as low as $28 per barrel at its worst which crashed the monthly oil receipts revenue to the federation account from $2.5bn to $400m and led to a lot of round tripping of the currency by speculators, a massive capital flight by investors who were not exactly sure of the future of the currency given the over dependence on crude oil revenues and the bleak future of the global oil market.

The conversion from the Wholesale Dutch Auction system (WDAS) and a corresponding increase in the weekly supply of dollars to the interbank market from $150m to $500m has stabilized the parallel market rate at 365 to a dollar and is guaranteed supply of the greenback for importers, travellers demanding for school fees, medical fees, shopping allowance from the market.

Kelvin Emmanuel

About Kelvin Emmanuel

The Oil producing Angola in the Southern part of Africa faces what Nigeria faced 12months ago; a distortion in its exchange rate with a difference between the official markets and the parallel black markets. One dollar through the official window buys you 166 kwanza, while one dollar through the black market buys you 400 kwanza. Nigeria faced the same challenge 12months ago, when the distortion between the official and black markets was as much as the official markets trading at 306 with the parallel market ranging from 450 through to 510. The Central Bank Governor of Angola, Jose de Massano Junior announced in Luanda “We will stop having a fixed foreign exchange, we will adopt a floating regime of foreign exchange”. Angola faces exactly the same challenges and has been applying the exact same responses to an exchange rate crisis like using its foreign reserves that was sitting at $26bn to defend the currency kwanza, with no success so far, even though the external reserves has dropped to $14bn. Angola relies on Oil receipts for 80% of its government revenue, 90% of its inflow and 50% of its GDP. Angola is a $194bn economy that has been growing at an average of 10% on the back of rising oil prices since 2002 when its 27 year old civil war that started in 1975 ended. The state national oil company Sonangol reports that it produces up to 1.8m barrels of crude oil daily, however the government that until now has being led by the family dynasty Jose Eduardo dos Santos until recently when succession saw power transferred to Joao Lourenco, reports that the oil price rout in 2015/2016 that saw prices drop to as low as $28 per barrel caused ripples across the economic structures of the government, upsetting government revenues, its ability to fund its budget, capital project funding, foreign direct investments into the economy as a result of a currency crisis that was driven by the widening of gap between the official and street window of the kwanza, that until now has been pegged in a fixed exchange rate regime to the US Dollar.