The premium between official and parallel market rates of the foreign exchange market widened to N130 per dollar after the Central Bank of Nigeria (CBN) stopped dollar sales to Bureaux de Change (BDCs), a report by Afrinvest West Africa has shown.
In the Nigerian Banking Sector Report entitled: ‘Resilience amid endemic and pandemic constraints’, the investment and research firm said CBN removed the official spot rate of N379/$1 from its website in May, this year, replacing it with the NAFEX rate of N410.50/$1, effectively devaluing the currency.
Group Managing Director, Afrinvest West Africa, Ike Chioke, explained that while this move temporarily brought the exchange rate unification closer by reducing the spread between the parallel market and official rates to N91.25/$1 in June 2021 (from N116/$1, “we maintained our position that this was not sufficient to calm the pressure”.
Accordingly, the report said the spread has continued to widen – increasing to N94/$1 by the end of July, this year, despite the recovery in crude oil prices above the $70 bbl threshold. This increased divergence was further worsened by the CBN’s stoppage of forex supply to Bureau De Change (BDC) operators, as the spread crossed N130/$1 on September 10, 2021, and with no sign of a near-term improvement at sight.
The report said the 60.7 per cent year-on-year surge in import bills to N13.8 trillion recorded in first half of 2021 driven by the devaluation of the naira and weak capacity to fill the demand gap mounted pressure on the forex reserve as demand for forex increased.
“On the other hand, supply remains subdued because of low export earnings and dwindling reserves, following the impact of COVID-19. As the demand for imports accelerated, speculation on the Naira increased, with the CBN depleting the reserves to meet demand through the official channels. The forex reserves which opened the year at $35.4 billion declined by 5.9 per cent to $33.3 billion by the end of first half of 2021,” it said.
Former Director-General, Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf said forex crisis is the biggest challenge facing businesses. It is affecting many businesses, especially those in manufacturing.