Despite a rise in remittances and other foreign inflows, Nigeria’s naira has depreciated sharply against the dollar. The naira lost 50.80% of its value, closing at N1,608.73 on the Nigerian Autonomous Foreign Exchange Market (NAFEM) by July 31, 2024, compared to N791.42 a year earlier. In the parallel market, it depreciated by 46.15%, ending at N1,610 from N867 on July 26, 2023.
Thank you for reading this post, don't forget to subscribe!Over the past year, Nigeria recorded $553 million in remittances, alongside a $3.3 billion AfreximBank oil facility and $2.25 billion from the World Bank Group. Consequently, the country’s external reserves rose by 8.36%, reaching $36.79 billion by July 31, 2024, up from $33.95 billion a year earlier.
However, the influx of foreign currency highlights a paradox. While these inflows bolster reserves, they also intensify the naira’s depreciation. High remittances can lead to increased demand for dollars, worsening the naira’s decline. This dependency on foreign currency inflows can create structural imbalances, diverting focus from necessary economic reforms.
Comparatively, Nigeria’s performance contrasts with Egypt, which attracted over $20 billion in foreign investments, partly due to favorable interest rates and IMF support. Charlie Robertson of FIM Partners noted that Nigeria’s lack of substantial external financial backing and its independent economic adjustments have not sufficiently stabilized the naira or attracted significant foreign investment.
Despite Nigeria’s efforts to improve its trade balance and economic conditions, such as reintroducing the retail Dutch auction system, the naira remains under pressure. The CBN’s recent policy adjustments have led to a slight decline in reserves by 1.16%, or $430 million, over two weeks.
Net foreign exchange inflows surged to $25.4 billion between January and June, driven by capital importation and remittances. However, this growth underscores a growing demand for dollars for education, healthcare, and personal travel, which strains Nigeria’s reserves further.
In summary, while diaspora remittances are vital for Nigeria’s foreign exchange, they also exacerbate the naira’s depreciation by increasing dollar demand. Structural economic reforms are crucial to address these issues and achieve long-term stability.
