The increasing pressure on the Naira and the limited supply of forex at the official window are making the black market thrive in Nigeria.
This is the opinion of the World Bank in a new report on Africa and its economic future.
According to a recently released report, the World Bank said, the premium between the parallel exchange rate and the official rate widened from March 2020 until June 2023.
“Despite changing the official exchange rate to better reflect market conditions in 2021-Nigeria operated multiple currency practices.
The report revealed that the Central Bank’s efforts to restrict foreign exchange demand and keep the exchange rate artificially low were met with declining FX supply from oil revenues.
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While the parallel rate premium increased to 80% in November 2022 and then to 60% in June 2023, prioritisation of strategic sectors, imposed price ceilings and trade restrictions pushed transactions to the black market.
And this accounted for a large share of the foreign exchange transactions in Nigeria including remittances, tourism, and exports of non-oil products.
The Economic Outlook Is Bleak
“After the unification and liberalisation of the exchange rates in June 2023, the NAFEX rate converged to the parallel one, closing the gap.
However, resistance toward the increasing pressure on the Naira coupled with limited supply of FX at the official window has led to the re-emergence of the parallel market premium,” the report said.
Also, in the report, Africa’s Pulse, Sub-Saharan Africa’s economic outlook remains bleak.
It identified rising instability, weak growth in the region’s largest economies, and lingering uncertainty in the global economy as dragging down growth prospects.
Economic growth in Sub-Saharan Africa, it said, is forecast to decelerate to 2.5% in 2023, from 3.6% in 2022.
It added that Nigeria and Angola will grow at 2.9% and 1.3% respectively due to lower international prices and currency pressures affecting oil and non-oil activity.
It shows that “increased conflict and violence in the region weigh on economic activity, and this rising fragility may be exacerbated by climatic shocks.
“In Sudan, economic activity is expected to contract by 12% because of the internal conflict which is halting production, destroying human capital, and crippling state capacity”.
Economic Brunt Of Slowdown
Furthermore, the World Bank Chief Economist for Africa, Andrew Dabalen, said: “The region’s poorest and most vulnerable people continue to bear the economic brunt of this slowdown, as weak growth translates into slow poverty reduction and poor job growth.
“With up to 12 million young Africans entering the labour market across the region each year, it has never been more urgent for policymakers to transform their economies and deliver growth to people through better jobs.”
It said despite the gloomy outlook, it identified a few bright spots.
- Inflation is expected to decline from 9.3% in 2022 to 7.3% in 2023
- Fiscal balances are improving in African countries that are pursuing prudent and coordinated macroeconomic policies
- Eastern African Community (EAC) is expected to grow by 4.9% in 2023
- West African Economic and Monetary Union (WAEMU) would grow by 5.1%
However, it said debt distress remains widespread with 21 countries at high risk of external debt distress or in debt distress as of June 2023.
“Overall, current growth rates in the region are inadequate to create enough high-quality jobs to meet increases in the working-age population.
Employment Creation Will Drive Growth
Current growth patterns generate only three million formal jobs annually, thus leaving many young people underemployed and engaged in casual, piecemeal, and unstable work that does not make full use of their skills.
“Creating job opportunities for the youth will drive inclusive growth and turn the continent’s demographic wealth into an economic dividend,” the World Bank said.
World Bank Economist, Nicholas Woolley, said there was a huge job challenge in Sub-Saharan Africa.
“This will require an ecosystem that facilitates private-sector development and firm growth, as well as skill development that matches business demand,” Woolley said.
Increaing Pressure On The Naira
The report further identified policies to overcome hurdles and unleash job creation in Sub-Saharan Africa:
“Cost-effective private sector reforms focused on increasing competition, uniform policy enforcement across firm sizes, and regulatory alignment with regional trading partners.
“Governments can also help identify and support early-stage growth of businesses through more inclusive procurement practices and promotion of local businesses abroad.
“Investment in education is necessary to boost semi-skilled occupations for the region.
“Interventions that improve learning in school are more effective than those increasing school attendance alone.
“Vocational education can be useful for addressing the underemployed and those who have missed out on education as children.
“Education of girls and access to jobs for women can reduce potential productivity loss from the misallocation of female labour.
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“Cash transfers have proven effective in increasing girls’ school enrollment and attendance, as well as in curbing pregnancies among school-age girls.
”The World Bank has blamed the re-emergence of parallel currency exchange market in Nigeria on resistance toward the increasing pressure on the Naira and the limited supply of forex at the official window.”
