According to the latest report by the Economist Intelligence Unit (EIU), Nigeria’s local currency, the naira, and several other African currencies may undergo additional devaluation in 2024. The report indicates that although the impact of this devaluation is expected to be less severe than the experiences in the current year, several African countries, including South Africa, Nigeria, Ghana, Kenya, and Zambia, witnessed significant double-digit percentage weakening of their currencies against the USD in 2023.
Notably, the Central Bank of Nigeria (CBN) announced the floating of the naira at the official Investors and Exporters window (IEFX), resulting in the official rate depreciating from an average of N465/$ to around N750/$. Despite efforts by the CBN to manage the naira’s exchange rate, the currency fell against the U.S. dollar at both the official and parallel markets, with an official rate of N795.41/$ at the close of business on Tuesday.
The EIU report emphasizes that Zimbabwe is expected to be the only exception among Southern African economies, with South Africa, Namibia, and Botswana likely to experience moderate levels of currency depreciation. The report predicts currency depreciation against the US dollar across much of Africa in 2024, with Egypt, Ethiopia, Angola, and Nigeria facing currency weakening.
Concerning Nigeria, the report indicates that the naira will continue to face pressure if the CBN pursues unsupportive monetary policies. It notes that the CBN lacks the “firepower” to clear a forex backlog estimated at $7 billion, contributing to a lack of confidence in the market.
“In Nigeria, an unsupportive monetary policy implies that the naira will remain under pressure, while the central bank lacks the firepower to adequately supply the market or clear a backlog of foreign-exchange orders, which will keep foreign investors unnerved.”
For African countries tied to the Euro, such as the CFA countries, the report highlights that their currencies will fluctuate in alignment with the U.S. dollar and the Euro.
