Naira Depreciates by 8.9% in the First Trading Day of 2024
The Nigerian naira’s start to the New Year has been marked by a significant depreciation, experiencing an 8.97% decline against the dollar on January 2, 2024. Closing at N988.46/$1, this downward trend persisted despite a substantial injection of $2.25 billion by the African Export-Import Bank (Afreximbank) aimed at alleviating the country’s forex crunch.
Afreximbank, in an effort to address the acute liquidity shortage in the foreign exchange (FX) market, disbursed part of its $3.3 billion foreign exchange support facility to the Nigerian government. This support initiative was initiated following the unification of the FX market by the Central Bank of Nigeria (CBN) on June 14, 2023.
The Naira’s depreciation to N988.46/$1 on January 2, 2024, reflects a notable loss of N81.35 or an 8.97% decline from the N907.11 it closed at on the preceding Friday. The intraday high and low were recorded at N1130/$1 and N744.50/$1, respectively, highlighting a substantial spread of N385.50/$1.
Forex turnover at the close of trading amounted to $15.38 million, signifying an 82.78% decrease compared to the previous day’s figures. Meanwhile, at the parallel forex market, the naira depreciated further, exchanging at N1,220/$, marking a 0.41% decline from the last trading day of December 2023. Peer-to-peer transactions also witnessed a decline, trading at N1,209.75/$, representing a 0.89% drop from N1,199.0/$ at the close of December 2023.
Despite the release of $2.25 billion from the $3.3 billion foreign exchange support facility by Afreximbank to Nigeria’s Federal Government, traders maintained their positions, and the market sentiment remained unchanged. The agreement, officially signed on December 29, 2023, marked a significant milestone in financial cooperation, complemented by a $150 million deal between the involved entities.
In this strategic financial arrangement, Afreximbank played a crucial role as the Mandated Lead Arranger, collaborating closely with the United Bank for Africa (UBA), which assumed the role of the Local Arranger. The facility, with a total transaction value of US$3.3 billion, was secured through Afreximbank to augment dollar supply, addressing Nigeria’s current FX supply challenges in the NAFEM official trading window.
The first tranche of the transaction, amounting to US$2.25 billion, was designated for deposit into an account at the Central Bank, aiming to alleviate forex liquidity pressures. UBA also served as the Onshore Depository Bank in this arrangement, while the Nigerian National Petroleum Corporation (NNPC) played a pivotal role in facilitating the financing of the transaction as the principal financier. Major oil trading firms, including Sahara Energy, Vitol, Oando, and Gunvor, participated as sub-lenders, contributing to the collaborative effort with $100 million to the facility.
Despite these concerted efforts by key stakeholders to address liquidity challenges, the persistence of the naira’s depreciation underscores the complexity of the economic factors influencing Nigeria’s forex market. Traders and market participants continue to observe developments closely, navigating through the intricate dynamics of the financial landscape. The success of these initiatives in stabilizing the forex market and restoring confidence will depend on a multifaceted approach and sustained collaboration among stakeholders in the Nigerian financial ecosystem.
