ICYMI: The Upsides Of A Weak Naira Explained

ICYMI: The Upsides Of A Weak Naira ExplainedThe World Bank has highlighted that by August 2024, the Ethiopian birr, Nigerian naira, and Sudanese pound are among the worst-performing currencies in Africa, with the naira depreciating approximately 43% year-to-date. Chika Mbonu, a banker, noted the naira’s decline compared to other African currencies, while the Kenyan shilling gained over 21% in value during the same period.

Bloomberg ranks the naira among the world’s ten weakest currencies, with the Zambian kwacha and Angolan kwanza also in the mix. This currency weakness is attributed to fluctuating commodity prices, inflation, and limited dollar liquidity, which allows Western economies to exploit vulnerabilities in developing nations.

However, there is potential for the naira to strengthen if President Bola Tinubu’s economic team can leverage large-scale production in the real sector, focusing on exports of goods where Nigeria holds a comparative advantage. Investment banker Dr. Nnaemeka Obiaraeri argues that Nigeria’s issues are more about productivity than currency itself.

To bolster the naira, foreign reserves should be accumulated and the currency further devalued strategically, encouraging exports and enhancing industrial capacity. This approach aims not only to strengthen the naira but also to shift Nigeria’s economy away from import dependency, tapping into markets in wealthier countries.

Policymakers should seize this opportunity to revitalize Nigeria’s economy, which is hindered by unsuitable economic policies influenced by international financial institutions. Lower-priced goods from nations with weaker currencies often attract foreign consumers, a strategy successfully employed by major economies like the U.S. and China.

A key opportunity lies in promoting the export of petroleum products from Nigerian refineries to countries with stronger currencies. Despite the removal of subsidies, the naira’s depreciation makes smuggling profitable in neighboring West and Central African markets. Nigeria could capitalize on this to reclaim the estimated N132 trillion in revenue lost to subsidies.

Finance Minister Wale Edun, speaking at a G20 meeting alongside Central Bank Governor Yemi Cardoso, simplified the path to strengthening the naira by suggesting that increasing petroleum production is essential.

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