By Omoh Gabriel
The naira has been projected to further depreciate in the coming years and may exchange for N202.7 to a dollar by 2015 according to International Monetary Fund evaluation of Nigeria macro economic indices. Projection by the multilateral institution said that in 2009, the naira will exchange on the average for N148.7 to the dollar while in 2010, it will go for N149.9 to the dollar. In 2011, the naira is projected to exchange for N155.1 to the dollar and in 2012, it will exchange at N166.1 to the dollar. IMF data projection on the exchange rate of the naira further indicates that in 2013, the exchange rate of the naira will depreciate further to exchange for N177.7 to the dollar and that in 2014, it will exchange for N189.9 to the dollar and in 2015, N202.7 will exchange for one dollar. As at today, the naira is already exchanging officially at N150.4 to the dollar at the official market. At the parallel market, it goes for as low as N155 to the dollar.
CBN official figures show that in 2004, the naira exchange rate at the official market as at the end of December was N132.86 while it was N138.71 in the bureau de change. In 2005, the exchange rate of the naira to the dollar was N130.29 at the official market and N141.93 at the open market by the end of that year. CBN data equally show that in 2006, the exchange rate of the naira firmed up to an average of N128.29 in the official market and N129.32 in the open market. In 2007, the naira further strengthened to exchange on the average for N118.21 at the official market and N121.07 in the open market. In 2008, it lost some value to exchange for N126.48 officially and N137.65 at the open market. In 2009, the naira lost more value to the dollar to exchange for N153.48 in the open market. Last year, the naira suffered some value loss and exchanged for N154.57 to the dollar according to the CBN. This trend in the loss of value in the nation’s currency is expected to continue and would by IMF projection, exchange for N202.7 to the dollar in the next four years.
A communique issued by the Monetary Policy Committee of the CBN and signed by the CBN Governor, Sanusi Lamido Sanusi admitted that ‚ÄúBetween end-2009 and end-2010, the Naira/Dollar exchange rate depreciated by N1.08 or 0.72 per cent, to N150.66/US$ from N149.58 /US$ at end-2009, as against 15.65 per cent depreciation recorded at the end of 2009. The average premium between the CBN transaction rate and the BDC‚Äôs as at end-2010, was 1.83 per cent, compared with 8.58 per cent in 2009″.
But financial experts say that following the addition of the Chinese Yuan to tradeable currencies in the Nigerian financial system by the Central Bank of Nigeria, there are strong indications that the exchange rate of the naira to the dollar will improve in 2011. This is because many countries may begin to move their currencies away from the dollar which has served for over 50 years as the reserve currency of the global financial system.
Also this is hinged on the belief that the pressure on the Nigerian financial system to buy dollar for Chinese transactions would reduce, thereby reducing pressure on the naira. The Executive Secretary/Chief Executive Officer, Finance Houses Association of Nigeria, Mr. Benn Nwokike, recently confirmed this position and said that Chinese investments in Nigeria were growing, and the CBN‘s directive was timely. He said the Chinese economy was growing faster than strong economies like the United States, adding that the addition of the yuan to a list of currencies that could be used for trade settlement in the domestic foreign exchange market, was an economic decision that would pay-off in the short-run and the long-run.
”This will reduce demand for the dollar, improve the condition of the naira, and give the authorities the ability to manage the exchange rate,” Nwokike added.
In the same vein, a Chartered Accountant, Tax and Management Consultant, and the Chairman, DCSA Consults, Chief Denis Alaribe, maintained that the move would further improve the volume of trade between Nigeria and China, with positive implication on the overall economic performance.
China is encouraging countries to use the yuan for trade settlement and diversify bilateral trade, away from the dollar and about one third of Nigeria‘s imports come from Asia, most of them from China, the CBN said recently.
The data for 2009 indicated that Asian imports into Nigeria‘s economy rose by 6.6 per cent during the year, while imports from Western nations declined 4.4 per cent, reflecting its shifting trade pattern.
However, a recent report conducted by Citigroup said: “ The macroeconomic outlook for Nigeria is very encouraging with real GDP expected to grow 7.4% (IMF forecast) in 2010. Notably, the CBN is expecting real GDP growth of 7.78 per cent in 2010 and reported growth of 7.69 per cent in 2010. Additionally, the inflation outlook for Nigeria is stable, with the IMF forecasting single-digit inflation from 2011 to 2015. Finally, we would add that, with low debt and a healthy current account balance, Nigeria is well positioned to deliver on its robust growth outlook.”
The report further said: “ We expect Nigeria’s nominal GDP growth (18% p.a., 2009- 13E) to translate into deposit growth of 24 per cent p.a. over the same period. In absolute terms, we are forecasting system deposits to grow from N9.5 trillion to N22.4 trillion. Relative to Nigeria’s GDP, the penetration of system deposits should increase to 45 per cent of GDP by 2013 (from 38% of GDP in 2009).
“On the asset side, we are forecasting limited loan growth in 2010 (2% yoy) and then accelerated loan growth between 2011 and 2013 (20% p.a.). We believe the sluggish credit growth in 2010 is reflective of (i) current trends (private sector credit up 5% yoy as at August) and (ii) bank cautiousness following the national audit in 2009 and uncertainties over future regulation.
“In 2011, we expect the banks to begin to deploy their excess liquidity and grow rather aggressively (30% yoy). Thereafter, system loan growth should grow at a multiple of 1.2x nominal GDP growth (i.e. in line with its historical average of 1.2x nominal GDP growth).
In absolute terms, we are forecasting system loans to grow from N7.9 trillion (US$52 billion) in 2010 to N14.7 trillion (US$83 billion) in 2013. With regards to bank liquidity levels, we are expecting system loan-to-deposit ratios to fall to 69% at year-end 2010 and then to 66% by year-end 2013.”
Nigeria needs to muster up courage to implement appropriate reforms with regard to industrial and trade policies aimed at reducing import dependence. Substantial foreign exchange is expended annually on JVC Cash calls and importation of petroleum products due to the delay in implementing much needed reforms in the oil sector. The country is also expending foreign exchange on import of food items such as rice whereas what is needed is the implementation of policies that will lead to food security and total self sufficiency. The only way to maintain a stable exchange rate is for Nigeria to import less and increase domestic production of imported items.
Nigeria Economic Indicators
2009 2010E 2011E 2012E 2013E 2014E 2015E
Real GDP Growth
– IMF 7.0% 7.4% 7.4% 7.2% 7.1% 6.1% 6.0%
Nominal GDP Growth
– IMF 2.2% 23.4% 16.6% 17.3% 16.8% 14.9% 14.7%
CPI (% yoy)
– IMF 11.9% 11.2% 8.5% 8.5% 8.5% 8.5% 8.5%
Exchange Rate (NGN/US$, Avg)
– IMF 148.7 149.9 155.1 166.1 177.7 189.9 202.7
