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  • Robert Hayward

The Naira's dance towards Christmas: We look at Nigeria's currency issues

When it comes to the Naira's journey as Christmas approaches, it's a tale of uncertainty, political intricacies, and volatility. Given so many of our clients, and the charities they support, operate in the region, we thought we'd take a closer look at what's been happening in Nigeria's financial landscape.

With 79 days left in 2023, and with Naira having just sailed cleanly through the 1000 mark for the first time ever, many with assets stranded in Nigeria will be wondering what might happen between now and year end.

Christmas is a very powerful force in Nigeria, and its impact days on the next 73 days of those 79 should not be overlooked.

But let's start back at the turn of the year...

In the earlier months of 2023, many corporations and impact investors with holdings in Nigeria found themselves in a dilemma. Election time in Nigeria often brings political instability, which in turn triggers currency volatility.

So, what was the prevailing sentiment? "Let's wait and see."

In June 2023, the Naira took a 36% plunge when multiple exchange rates were streamlined. This move, which aimed to create a more stable foreign exchange market, resulted in a record low of 750 Naira to the dollar on the official market.

Then, in August, a startling revelation shook the markets. More than 40% of foreign reserves held by the Central Bank of Nigeria were tied up in encumbered assets, meaning they were not as accessible as previously believed. Instead of the expected 7.8 months of imports, it turned out to be only 4.5 months.

The Naira dipped again.

At this point, the market found itself in a tricky situation. Going backward to a more managed exchange-rate regime appeared unstable and prone to devaluations. Going forward, the adoption of a fully floating exchange rate would require scrapping various import restrictions. That would be a politically risky move with no guarantee of success.

So, where does this leave Nigerians and those holding US dollars? The latter group is holding on to their dollars, well aware of the funding gap and the potential for their dollars to buy more Naira in the future.

As a result, over the past five months, we've seen the Naira gradually slipping below the 1,000 mark. But can we hope for a reversion to even the 750 mark anytime soon?

Now, we're not here to speculate on currency movements or offer financial advice. However, we do keep a close eye on the news, and there are a few public resources that might provide some clues:

So, if you squint your eyes and analyse the situation, does it suggest a USD funding gap that might lead to a year-end rate of 750 or 1,250?

The answer is not crystal clear.

For those who believe it's not 750 and are seeking liquidity options, it could be time to act.


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