Nigeria’s local currency, the naira, has been ranked among the 10 worst-performing currencies globally, according to a report by Bloomberg.
The report highlights that five of the worst-performing currencies are from Africa, including the Zambian kwacha, Angolan kwanza, and the naira.
The decline of African currencies is attributed to several factors, such as economic challenges, unstable commodity prices, inflationary pressures, and a lack of dollar liquidity. It notes that many African economies, heavily reliant on oil exports, are particularly vulnerable to falling oil prices.
Keonethebe Bosigo, a portfolio manager at Mazi Asset Management, remarked that while oil prices are significant, the real issue lies in poor currency management and economic imbalances. He explained that the naira’s challenges stem from not allowing it to adjust, resulting in overvaluation and a subsequent loss of confidence.
Irmgard Erasmus, an economist at Oxford Economics, commented on the naira’s struggles, citing persistent issues with liquidity and dollar supply. Despite reforms aimed at liberalizing Nigeria’s current account following President Tinubu’s election in 2023, the currency continues to face substantial pressure.
“The naira remains undervalued relative to its long-term neutral value due to ongoing liquidity and dollar supply issues,” Erasmus said. He added that while declining Brent crude prices have exacerbated the situation, improvements in dollar liquidity could potentially support the naira’s recovery over time.
Erasmus noted that the naira should be trading around N1,100 per dollar without distortions, compared to its recent close of N1,544/$. However, he warned that without major policy reforms and improved dollar supply, the outlook for the naira remains uncertain.
