USD/NGN: Nigerian naira faces an uphill battle as concerns mount

on Jun 5, 2023
  • The Nigerian naira has plunged to the lowest level on record.
  • Nigeria’s inflation is set to surge after the government ended oil subsidies.
  • The Nigerian currency faces an uphill battle in the coming months.

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The Nigerian naira is sitting at its record low as concerns about the Nigerian economy continued and as crude oil prices jumped. The USD/NGN exchange rate was trading at 460.90, where it has been in the past few days. This price is a few points below its all-time high of 464.83. The black market rate was trading at 755 while the GBP to NGN jumped to 945.

Dangote refinery fails to boost naira

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The Nigerian naira and other African currencies are hovering near their record lows as demand for the greenback continued. In South Africa, the rand was trading at 19.50 while Kenyan banks were selling the US dollar at almost 150.

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The naira has crashed despite important events in Nigeria. As I wrote here, Dangote launched the biggest oil refinery in Nigeria. The impact of this refinery was that it would change the country’s energy sector by supplying refined products. 

For a long time, Nigeria has been known for exporting crude oil and importing refined products. According to the World Bank, Nigeria imports refined products worth over $11.3 billion per year while exporting crude petroleum worth over $41 billion. 

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Therefore, by having its own refinery, Nigeria can boost its exports of refined products and reduce its total exports. 

At the same time, the new Nigerian administration is working on deregulating the energy market. In a statement, NNPC, the giant state-owned oil firm, said that it will start unwinding swap contracts with traders. This means that private companies will now be able to import gasoline directly.

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The Nigerian naira has also fallen after the new administration scrapped oil subsidies in a measure meant to save the state billions. As a result, petrol prices have surged, leading to more inflation concerns. Nigeria’s inflation now stands at over 25%.

What next for the Nigerian naira?

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The decision by the new Nigerian administration is similar to what the Kenyan administration did a few months ago when it ended petrol subsidies. The impact has been that inflation has surged and the Kenyan shilling slumped to a record low. 

There is a likelihood that there will be protests in Nigeria since people have been accustomed to low petrol and diesel prices. Therefore, amidst all these, and with inflation set to rise, there is a likelihood that the Nigerian naira will continue slumping. 

Further, as we have seen with several African countries, more people will likely start moving to the safety of the US dollar. Complicating the situation in Nigeria is the fact that the country operates multiple exchange rate, making it difficult to track currency movements. Therefore, the official USD/NGN exchange rate could rise to 500 in the coming months.

The other challenge is in the aviation sector, where international airlines have seen their cash held in Nigeria. IATA believes that the Nigerian government has blocked the repatriation of over $800 million to companies like Emirates, Saudi Cargo, and Cargolux.

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