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

Robert Hayward

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.

Safeguarding Notice:

When funds are posted to your account, in line with regulatory requirements, the regulated institutions who we work with safeguard your funds. This means that the funds shown in your payment account or e-wallet are held at reputable banks or covered by an insurance policy, and most importantly, are protected for you in the event of our partner institutions’, or our, insolvency. Our partners stop safeguarding your funds when the money has been paid out of your account to your beneficiary’s account.

 

Partner Providers:

GoodFX partners with the seven FCA-regulated entities listed below. 

Payment and e-money services (Non MIFID related products) are provided by The Currency Cloud Limited. Registered in England No. 06323311. Registered Office: Stewardship Building 1st Floor, 12 Steward Street London E1 6FQ. The Currency Cloud Limited is authorized by the Financial Conduct Authority under the Electronic Money Regulations 2011 for the issuing of electronic money (FRN: 900199). Terms of Use are available here.

GoodFX’s Payment and Foreign Currency Exchange Services are provided by Ebury Partners UK Limited. GoodFX is partnered with Ebury Partners UK Limited as a Programme Manager. Ebury Partners UK Limited is authorised and regulated by the Financial Conduct Authority as an Electronic Money Institution (Financial Services Register No. 900797). Ebury Partners UK Limited is registered with the Information Commissioner's Office, with registration number: ZA345828

ALT 21 Limited, a company incorporated in England and Wales (No.10723112) with its registered office at 45 Eagle Street, London WC1R 4FS, United Kingdom, is authorised and regulated by the Financial Conduct Authority of the United Kingdom (FRN:783837). ALT 21 Software Limited, the parent company, is incorporated in Ireland (No. 578153) with its registered office at Century House, Harold's Cross Rd, Dublin, D6W P993, Ireland. 

Payment services for GoodFX Ltd are also provided by Sciopay Ltd. Sciopay Ltd is a company incorporated in England & Wales. Registration No: 12352935. Sciopay Ltd is licensed and regulated by HMRC as a Money Service Business (MSB). Licence No: XCML00000151326. Sciopay Ltd is authorised by the Financial Conduct Authority as an Authorised Payment Institution. Firm Reference Number: 927951.

Equals Money Plc. Registered Address: 3rd Floor, Vintners’ Place, 68 Upper Thames St, London, EC4V 3BJ. Company registered in England and Wales. Registered number: 05539698. Money Service Business Registered Number: 12236741.


Interpay UK Ltd t/a TransferMate – Authorised as an Electronic Money Institution by the UK Financial Conduct Authority under registration no. 900930.

Commercial financing solutions are offered by Spark Finance Limited, which acts as a broker rather than a lender. The company's registered office is located at 18 John Stow House, London, England, EC3A 7JB, with a company registration number of 10128297. Spark Finance Limited is authorised and regulated by the Financial Conduct Authority (FRN 958123).

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