How Africa is suffering from currency devaluations
Nigeria is facing a historic foreign exchange (FX) crisis but this problem is not unique to Africa’s biggest economy as findings showed three other African countries have also suffered a similar fate.
Several economic and political factors, such as inflation, government instability, reduced foreign direct investment (FDI), and fluctuating capital flows, have been associated with the weakness of some other African currencies.
The naira has been on a steady decline since the Central Bank of Nigeria (CBN) floated it in June 2023, collapsing all the segments in the FX market into the Investor’s and Exporters’ Window. It depreciated to as low as 1,534.39 per dollar last Monday at the Nigerian Autonomous Foreign Exchange Market.
The FX market experienced a significant 56.58 percent decline in dollar supply on Wednesday, just two days after witnessing a surge in liquidity driven by the CBN’s interventions.
The impact of this depreciation is felt keenly by businesses and households across Nigeria.
Businesses reliant on imported goods face increased costs as the value of the naira decreases, potentially leading to higher prices for consumers.
Companies with foreign debt find their repayment obligations escalating, putting further strain on their finances.