Nigerian businesses are bracing for further naira depreciation in the coming months, with recovery anticipated only after six months, according to a recent report by the Central Bank of Nigeria (CBN).
The Business Expectations Survey published by the CBN revealed that the firms are pessimistic about the situation of the exchange rate in October, November and the next three months.
“Respondent firms expect the naira to depreciate in the current month, next month and next 3 months. However, they expect an appreciation in the next 6 months,” the survey shows.
Businesses, especially manufacturing companies have continued to grapple with a lingering exchange rate crisis which is yet to stabilize in spite of varying interventions by the apex bank.
Adding to their woes is the growing unsold goods inventory, which, according to the Manufacturers Association of Nigeria (MAN), hits N1.24 trillion in the first half of 2024.
The naira has shed around 50 percent of its value year-to-date, closing at N1,698.50/USD as of November 13th, 2024. This is despite the CBN’s interventions in the FX market to maintain the exchange rate below the NGN1,600 level.
Likewise, data from the Financial Market Dealers Quotations (FMDQ) shows that the naira depreciated to an intraday high of NGN 1,700 on November 7th, marking its lowest level since February 2024.
“Although the CBN’s monetary policies have improved the nation’s foreign reserves, ongoing FX volatility and inflationary pressures may deter foreign investors,” said analysts at Lagos-based FBNQuest Capital Research.
“This could lead to reduced capital inflows, which are crucial for economic growth and development”.
The manufacturing sector, a critical part of the economy, remains highly vulnerable to FX volatility, as firms continue to report increasing levels of unsold inventory amid rising production costs and weakening demand.
MAN recently urged the Federal Government to address the ongoing FX scarcity and rising dollar rates, which are leading to a notable slowdown in the sector’s growth.
The effects of the country’s high inflation rate and FX pressures are evident, as Nigeria’s score in the ABSA African Financial Markets Index dropped by one point to 64 points.
The ABSA Index, which tracks financial progress in 29 African countries, evaluates market accessibility, openness, and transparency and serves as a benchmark for policymakers globally.
Despite the drop in its score, Nigeria maintained its third-place ranking on the ABSA index, trailing South Africa and Mauritius, which scored 87 and 77 points, respectively.
According to the CBN’s survey, high interest rates, insecurity, high or multiple taxation, inadequate power supply, unfriendly economic conditions and financial problems continue to plague firms in Nigeria.
Businesses are also contending with high inflationary pressures which has continued its uptrend in September and further rising to 33.88 percent in October with analysts predicting a further rise in coming months.
Despite these macroeconomic challenges, the report stated that business optimism of the economy is high, leading to plans to hire more and expand in November, except for the construction sector.
“An analysis of the sectors showed that Agriculture had the highest prospect for employment and expansion in November 2024,” the report said.
