Falling Naira Value Forces Businesses, Companies To black Market

Anxieties Rise as Dollar Sells for 455 NAIRA In black Market
Anxieties Rise as Dollar Sells for 455 NAIRA In black Market

Falling Naira Value Forces Businesses, Companies To black Market – With the value of the naira further declining to N504 to the dollar, businesses and corporates are resorting to sourcing foreign exchange at the parallel market as turnover at the Nigeria Autonomous Foreign Exchange (NAFEX) market continues to plummet.

This is as the 30-day moving average of the external reserves continue to decline. As at July 8, 2021, it had declined to $33.12 billion, down from $35.64 billion which it was at the beginning of the year. Total turnover as of July 8, 2021 at the NAFEX window also known as the Investors’ and Exporters’ window, decreased by 24.5 per cent to $526.79 million with trades consummated between N400 to N460 to the dollar.

Speaking at the bi-monthly forum of the Finance Correspondents Association of Nigeria (FICAN), immediate past director-general of the Lagos Chamber of Commerce and Industry (LCCI), Dr. Muda Yusuf, noted that the foreign exchange market faced liquidity constraints in the first half of 2021, with forex being inadequate to meet rising demand.

To him, “the supply of foreign exchange was inadequate to meet rising demand. The rate premium between the Nigerian Autonomous Foreign Exchange Rate (NAFEX) and the parallel market rate averaged around 20 per cent. Several businesses and corporates encountered difficulties in sourcing foreign exchange at the formal segment of the market and were forced to source the greenback at the parallel market.

“Foreign exchange illiquidity aggravates investment risk which could negatively impact asset quality in the banking system. Foreign currency-denominated loans account for about between 30 per cent and 35 per cent of banks’ loan book. Foreign exchange volatility is associated with risks relating to asset quality and financial stability.”

Yusuf, who spoke on ‘Nigerian economy in first half 2021 & outlook for the financial services sector,’ said financial service institutions need a conducive business climate to create more avenues for investment and that more profitable asset classes are needed for profitable investments to take place.

He further stressed the need to address the structural, policy, institutional and regulatory constraints in the business environment which would also result in a reduction in non-performing loans in the banking sector.

He, however, noted that despite the pandemic and the resultant effect on the economy, the Nigerian banking industry remained resilient.

Yusuf said the borrowing spree of the federal government was hurting the economy as it escalates the already high rate of inflation in the country.

According to him, the facility usually comes at a huge cost  to the taxpayer as the government paid  N480 billion interest on the N1.8 trillion facility granted to it through the ways and means window between January and May 2021.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Financial Watch. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Be the first to comment

Leave a Reply

Your email address will not be published.