ECONOMY-NIGERIA: Naira Plunges, As New Exchange Rate Introduced

By Toye Olori Reprint | | Print |

Toye Olori

LAGOS, Jan 13 1999 (IPS) - Barely two weeks after Nigeria’s military ruler, Gen Abdulsalaam Abubakar, announced the 1999 budget, the value of the local currency, naira, fell by 5.4 percent.

The bank aggregate demand for foreign exchange also rose by 57.48 percent due to the scarcity of foreign currencies in the market.

The naira dropped to 97 up from 92 naira to one US Dollar at the beginning of the week.

The plunge followed the merger of Nigeria’s dual exchange rate by Gen Abubakar about two weeks ago.

Bureau de change operators told IPS this week that they had expected the government to merge the rate by fixing a lower rate for the naira between 56 and 65 to the dollar, instead of scrapping the official rate and leaving the exchange rate to be determined by the market forces.

According to the operators, there was a rush for foreign currency after the budget, forcing the naira to tumble in the parallel market.

“Persons from as far as Kano (the main town in northern Nigeria) had visited us in Lagos asking for Pound Sterling and the dollar. The price of the Pound rose from 152 naira to 165 naira because of the rush, yet we don’t have enough foreign currency to sell to those wanting to buy,” Yisa Haladu, a currency dealer in Lagos, told IPS this week.

In his budget speech, Gen. Abubakar said “the application of the dual exchange rate continues to cause distortions in the economy and offers considerable incentive for round-tripping in our foreign exchange operations. Whereas, public expenditure is transacted at the autonomous rate, revenue is monetised at official rate giving rise to mis-match between revenue and expenditure.”

He said the abolition would remove a long-standing opportunity for personal gain by government officials.

Before the merger, the official exchange rate was pegged at 22 naira to one US dollar, while the autonomous market rate for the dollar was between 80 and 86 naira. In the parallel market, the dollar fetched up to 92.50 naira.

It’s not clear whether the CBN will be able to meet the growing demands by importers for foreign currencies.

The continued drop in the crude oil price at the international market might impact negatively on the foreign currency receipts of the government this year.

The government based this year’s budget on nine US Dollars per barrel as against 17 dollars per barrel used last year. Crude is the main foreign exchange earner for Nigeria, accounting for 95 percent of the country’s total foreign revenue.

The abolition of the dual exchange rate has been praised by Britain, Nigeria’s former colonial power. In a statement, Robin Cook, British Secretary for Foreign and Commonwealth Affairs, lauded the commitment by Nigeria’s military ruler to abolish the rate.

“Abolition of this divisive mechanism, which had facilitated corrupt practices in the past, is a vital step in the reform process and in rebuilding international confidence in Nigeria,” Cook said. “It will be welcomed by the international community as a further sign of the government’s commitment to putting the Nigerian economy on a sounder, more legitimate and sustainable footing.”

The scrapping of the rate has also been welcomed by Nigeria’s investors.

Vincent Otiono, an investment attorney, said both local and foreign investors would see the implementation of the new exchange rate as an indication of transparency in the running of Nigeria’s public sector.

The move has also been welcomed by ordinary Nigerians. “The scrapping of the official rate will only affect government officials who had taken the advantage of the dual exchange rate to commit fraud which did not benefit the ordinary Nigerians,” Lagos resident, Aliu Akeem, told IPS this week.

He said “the industries that were buying at the autonomous market last year for 86 naira a dollar will continue to buy and produce at that level. I don’t think prices will go up because of the abolition of the dual exchange rate.”