Nigeria’s accelerating inflation has left a negative mark on production, investor confidence, and external reserves, according to a new report by Commercio Partners.
The report, titled ‘Macroeconomic outlook for 2024: Finding rain in drought’, said the significant depreciation of the naira was rooted in global economic shocks, including the aftermath of the Covid-19 pandemic and geopolitical tensions from the Russia-Ukraine war.
Those external forces, it said, triggered adverse consequences such as heightened inflation, increased interest rates, and escalated import costs.
It added that stringent foreign exchange policies and limited dollar inflows exacerbated the erosion of the naira’s value.
It read partly, “The period from January 2023 to December 2023 witnessed a significant decline in the official exchange rate, plunging by 66 per cent from N462/$ to N1,041/$.
“Simultaneously, the parallel market recorded a rate of N1,207 compared to N755 earlier in the year, reflecting a stark disparity between the official and parallel rates.
“Nigeria’s inflation rate reached an 18-year high in November 2023, soaring to 28.05 per cent from 21.92 per cent in January 2023. This surge has amplified concerns about the naira’s strength, impacting production, investor confidence, and external reserves.”
According to the report, the persistent forex shortages, acting as a constraint on economic activity, had created a formidable challenge for exchange rate liberalisation.
It also noted that despite the efforts by the Central Bank of Nigeria to address those shortages, the widening gap between official and parallel exchange rates signalled a complex landscape.
“The recent policy shift, lifting the ban on 43 items and plans to clear unmet forex forwards, underscores a commitment to navigate these challenges.
“However, the resurfacing gap and the dwindling average daily forex turnover at the official window to $95m in September indicate the intricate nature of achieving a fully liberalised exchange rate,” the report read further.
This year, some of Nigeria’s protracted economic issues such as currency devaluation and inflation have worsened significantly, according to experts.
Inflation has soared to 28.92 per cent in December and the local currency has weakened to over 1,400/$ at the official forex market and 1,500/$ at the alternative market.
In its 2024 Economic Outlook, PricewaterCoopers Nigeria said if the Russia-Ukraine war intensifies, it could lead to increased global energy and commodity supply risks and that Nigeria may experience increased inflation and food security challenges due to grain import disruptions and high petroleum product costs.
