The Nigerian Naira is trading at the black market at N511 to $1.
This fall in the value of the Naira in the black market is in variance with the official rate which is at N305, that translates to a difference of over N200. To be clear the real value of the Naira is the black market rate because that rate captures the dynamics of demand and supply.
The N511 rate is NOT the problem, the problem is the Federal Government is planning and managing a $500b economy with a N305 exchange rate. in effect, the FGN budget does not reflect reality. There are other issues
There are implications….
- A wide margin fuels corruption: with a margin of N200 between official and black market rates, if a Nigerian gets $1,000 from the CBN Interbank Market, he can theoretically sell $100 to the black market at N511, making a 67% return. one has to ask if the other $900 can return a 67% return. keep in mind the FGN pay “only” 18%. Thus this is a significant magnet for corruption. we should wonder if it makes any economic sense to actually do business and create jobs, its much easier to round trip (take $ from Interbank and sell to black market)
- Not only is the margin between official and black market rate an absurd N206, its near impossible to get N305 by business that create jobs. CBN has to organise “special seasons” to clear backlog of dollar requests by local business. Tgis is the main problem, the CBN market is no meeting demand, thus by simple economics, the dollar demand will go up, and the exchange rate tilts in favour of the dollar.
- Then there is lack of clarity. Different products have different rates to access dollars, eg to import Nigerian Importers of petrol get $ from CBN at a different rate from importers of say machinery…..
- Exports. If a Nigerian farmer sell Cocoa at $1,000 a ton, what rate will he prefer? N305 or N511? Thats why CBN has negligible $ inflow
Way forward?
Devalue the Naira, close the gap. Inflows will return, Naira will gain strenght
