Embattled Nigeria naira faces a moment of reckoning

The Nigerian naira has been in the spotlight in the past few weeks amid challenges in Africa’s biggest economy. The official USD/NGN exchange rate was trading at 460 on Thursday, significantly higher than where it was a few years ago. However, the real rate, which Nigerians use, has jumped to over 751.

Will Nigeria’s election save the day?

The Nigerian naira has plummeted because of the botched transition to new currencies. With naira scarcity in force, millions of people have been queuing for long hours in banks and ATMs. It has also become a lucrative business for people in the black market.

As I wrote in this article, the Nigerian naira crisis is also happening as worries of the upcoming election remain. In most African countries, the election period tends to bring in a lot of tension, which discourages foreign direct investment (FDI).

Most of Nigeria’s general elections have been peaceful. However, risk analysts warn that temperatures are now so high such that violence could happen in key cities like Lagos and Abuja. We saw a similar situation happen in Kenya after the 2007 general election.

The current election pits two different political heavyweights. Peter Obi, a former banker seems to be leading opinion polls. But historically, opinion polls in Nigeria have not been highly accurate. He is challenging the ruling party candidate, Atiku Abubakar.

Nigerian naira outlook

So, will a new president save the Nigerian naira crash? Unfortunately, it is highly unlikely that the election will save the Nigerian naira because of the magnitude of the country’s challenges. First, Nigeria needs to end or reduce the amount of petrol subsidies that have led to significant budget deficits. It is not clear whether a new government will be ready to implement such an unpopular situation.

Second, trends in the tech sector have started waning. During the pandemic, we saw millions of dollars of venture capital pour into Nigeria. Recently, however, high-interest rates in the US and concerns about the technology sector worsened. The most recent data shows that investment in Nigerian startups fell by 25%.

Finally, Nigeria needs to handle its oil crisis. While Nigeria is a major oil producer, it exports crude oil and imports refined products. The new government needs to invest in refineries and also diversify the economy from oil. Historically, oil prices tend to go through boom and bursts. 

Therefore, I believe that the Nigerian naira will show some strength if the election is done peacefully and then resume the downward trend as investors embrace the new normal.

Source: https://invezz.com/news/2023/02/23/ngn-usd-embattled-nigeria-naira-faces-a-moment-of-reckoning/