The Nigerian naira has been listed as one of the worst-performing currencies in Sub-Saharan Africa for 2024, according to the World Bank’s latest Africa’s Pulse report. The report, which highlights economic trends across the continent, revealed that by the end of August 2024, the naira had depreciated by approximately 43 percent year-to-date. This sharp decline placed it alongside the Ethiopian birr and South Sudanese pound as one of the weakest currencies in the region.
Causes of Depreciation
The depreciation of the naira has been attributed to a combination of factors, with increasing demand for U.S. dollars in Nigeria’s parallel market being one of the major drivers. The parallel or black market has seen heightened activity as businesses and individuals seek U.S. dollars due to limited dollar inflows through official channels. The Central Bank of Nigeria (CBN) has faced delays in disbursing foreign exchange, further complicating access to dollars and intensifying the pressure on the naira.
Additionally, inconsistent monetary policies by the Federal Government and the Central Bank have been highlighted as key contributors to the naira’s decline. These policies have resulted in market uncertainty and reduced investor confidence, exacerbating the naira’s struggles in the foreign exchange market. The lack of a cohesive strategy to address Nigeria’s foreign exchange crisis has made it difficult for the country to manage its reserves and stabilize the currency.
Regional Comparison
While the naira has faced significant challenges, other currencies in Sub-Saharan Africa have shown mixed performances. The Kenyan shilling, which also struggled in 2023, has rebounded significantly in 2024. By the end of August, the shilling had strengthened by 21 percent, making it one of the top-performing currencies in the region. The South African rand, another currency that faced difficulties in the previous year, has also demonstrated signs of recovery.
In contrast, Nigeria continues to grapple with dwindling foreign currency reserves and persistent inflation. The sharp depreciation of the naira has further worsened inflationary pressures, particularly for imported goods, which have become more expensive for Nigerian consumers. With the naira losing value, the cost of essential items such as food, fuel, and medical supplies has surged, impacting the purchasing power of ordinary citizens.
Impact on Nigeria’s Economy
The ongoing depreciation of the naira has raised concerns about the broader health of Nigeria’s economy. Inflation, which has been fueled by the rising cost of imports, has eroded the real incomes of many Nigerians. The weakening of the currency has also made it more difficult for businesses that rely on imported raw materials and equipment to maintain operations, further stifling economic growth.
The World Bank’s Africa’s Pulse report underscores the need for Nigeria to address its foreign exchange challenges and implement coherent policies to restore confidence in the naira. Without decisive action, the depreciation is likely to continue, placing additional strain on the country’s already fragile economy.
In conclusion, as the naira remains among the worst-performing currencies in Sub-Saharan Africa, Nigeria faces mounting challenges that require immediate policy interventions to stabilize the currency and mitigate its impact on the broader economy.
