The exchange rates of the Naira to other trading currencies are important factors that shape the volume and value of items imported into Nigeria.
As a highly import dependent nation, consumption at home, to a large extent, is subject to the vagaries of international trade.
This means the more the Naira is devalued, the higher the cost of importation. This is evident in the value of imported items in the last few months corresponding to the decreasing worth of the naira relative to other international currencies especially the US dollar and the Chinese Yuan/Renminbi.
The level of demand for foreign exchange at the international foreign exchange market, receipts from the sale of crude oil determines the extent the Central Bank of Nigeria (CBN) will make foreign exchange available to individuals and businesses.
Naira exchange rate in 2022
The year 2022 was one of the toughest years for Nigerian currency, the Naira, both at the official and black market.
In 2022, Naira depreciated by 2.4 per cent and 30.1 per cent in the Investors’ & Exporters (I&E), and the parallel market rates respectively.
Consequently, the premium (the gap) between the official and the parallel markets expanded from N55 (18 per cent of the official rate) at the beginning of the year to N294 (65 per cent) at the end of 2022.
Naira also consistently made it to the list of worst performing currency in the world, closing 2022 at N461 official rate compared to N422 it traded at the first day of last year.
The performance was worst at the black market, as during the year Naira fell to as low as N800 to a dollar.
Naira to Chinese currency exchange rate
Yuan/Renminbi is another international currency of interest to Nigerian public officials and businesses.
One, China, whose official currency is Yuan/Renminbi, is a major trading partner of Nigeria.
Second, China is one of Nigeria’s largest creditors. In this regard, the movements in Naira/Yuan exchange rates are of interest to everyone in the country.
Check on CBN website shows that Naira also depreciated in value against the Yuan albeit marginally.
At the start of 2022 one Yuan/Renminbi exchanged at N64.88 at the interbank market.
At the end of the year the value of Naira dropped to N65 for one Yuan/Renminbi.
Although the changes are marginal, these changes meant that importers were forced to pay more to bring goods from China.
How exchange rate affected imported products in 2022
According to the National Bureau of Statistics foreign trade report, in the first nine months of 2022(January to September), a total of N17 trillion was spent importing goods from around the world.
In the third quarter alone (July to Sept 2022), N5.66 trillion worth of goods were brought into the country.
NBS in its report revealed that in the third quarter, Nigeria spent N1.19 trillion on fuel importation (Motor spirit, ordinary). The amount spent is 13.98% or 147.14 billion higher than the N1.05 trillion spent in the same quarter of 2021.
Breakdown shows that there was a consistent increase in how much Nigeria spent in fuel importation every quarter in 2022.
This is another item that recorded increased import in 2022 largely due to the increased cost of petroleum products in the global market and also weak Naira.
In third quarter 2022, N261.59 billion was spent on gas oil import. This is more than N225.63 billion spent in the same period of 2022.
Just like in other items, the cost of importing the product was on the rise consistently from January to September.
Durum wheat (Not in seeds)
For the third most imported item in the first nine months of 2022, however, there was a change.
Data show that Nigeria spent N252.62 billion in the third quarter. This is lower than the N315.17 billion spent in 2021.
Check shows that the difficulty of importing from Ukraine, Nigeria’s main source for wheat, due to the ongoing war with Russia played a role.
What does the future holds
The Naira has kicked off 2023 just as it ended 2022. However, experts believe there is hope given the expected foreign exchange reforms when a new government comes into power.
Ripples Nigeria reported that Bismark Rewane, CEO of Financial Derivatives Co Ltd predicted a positive change in Nigeria’s foreign exchange market.
According to him, expected reforms will narrow the gap between the Investors and Exporters (I&E) segment of the FX market and the parallel market window from N747/$1 in 2022 to N680/$1 in 2023 due to a positive and bright outlook for the economy this year.
Rewane made the postulation in his Nigerian Economic Outlook 2023 document.
His words: “In 2023, exchange rate adjustment is inevitable, and when this happens and there are fewer administrative controls in the forex market, there will be more investment flows into the economy, which will help Naira defend against the dollar”
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