The recovery of the nation’s currency, the naira, against the dollar in the last two months have been described as artificial and cosmetic by analysts.

This is despite the claim by the Association of Bureau de Change of Nigeria (ABCON) that the naira recovered because of the clearance $7 billion forex backlog forward commitments and the Central Bank of Nigeria’s (CBN) recall of the BDCs at the retail end of the forex market.

Defending ABCON’s analysis where the naira recovered N660 to the dollar in about two months, Dr. Aminu Gwadabe, ABCON President, said the recognition of BDCs as the third leg of the foreign exchange market and an effective exchange rate transmission mechanism in forex management did the magic.

“The reconsideration of the BDCs into the main stream foreign exchange market has not only demystified illegal economic behaviours such as hoarding, rent seeking, round tripping and FX holding position, but also led to the emergence of exchange rate convergence”, he had said.

Gwadabe said that the stability in exchange rate has already started to have positive impact on the prices of goods and services, noting for instance that the price for international school fees has dropped by 15 percent; cost of medical tourism reduced by 20 percent and prices of air fares for local and international trips dipped by 25 percent.

“The current developments in the foreign exchange market has started reining in inflation as prices of most necessities are becoming relatively lower in the market. In a more serious note, the positive impacts include also heightening confidence of the public in the local currency as it eliminates currency substitution behaviour which hitherto had being adding pressure on our local currency”, he added.

Gwadabe said the success story is unending as naira trades at N1,255/$ on Saturday, even lower than N1,269.765 rates BDCs were advised to sell.

Analysts, who spoke with Daily Independent, said the country has not seen any significant improvement in oil export production or in balance of trade between Nigeria and other countries, attributing this to the reason prices of goods have not being coming down.

To Stephen Iloba, an economist, Nigerians should not rely on the recovery seen in the forex market as it will be premature to do so.

He said, “I don’t think what we see in the forex market is realistic. We are still facing cost-push inflation as increase in the price of domestic or imported inputs (such as oil or raw materials) pushes up production costs.

“Firms are faced with higher costs of producing each unit of output they tend to produce at lower level of output and raise the prices of their goods and services.

“Seeing all these, the development in the forex market seems irrelevant as things are still very expensive”.

Cyril Ampka, an Abuja-based economist, said that the clearance and settlement of $7 billion backlog to businesses is not enough to bring down the value of the dollar.

He said, “Clearing the backlog only made foreign countries richer because those forex are repatriated to their home country. More that 80 percent of the settlement are not in our country. So, where did the naira find the strength from?

“I think we should ask the government, especially the Central Bank of Nigeria (CBN) to explain the reason behind the sudden and gradual recovery of the naira.

“If you ask me, I will tell you that the CBN is back to the era of defending the naira. Manufacturers are still not getting enough dollars to buy raw materials and implements needed to boost production.

“Looking at the oil sector, our production capacity is still under threat of illegal bunkering. Our output is still poor”.

As for balance of trade, most analysts believe it will boost the nation’s currency if it is positive to the country.

Nigeria recorded a N1.4 trillion trade deficit between October and December, last year, according to data compiled by the National Bureau of Statistics (NBS).

Between October and December 2023, Africa’s largest economy export totalled N12.69 trillion, and total imports stood at N14.11 trillion, indicating a trade deficit of N1.41 trillion.

A trade deficit occurs when a country’s imports exceed its exports during a given period. In simpler terms, it means a country is buying more goods and services from other countries than it is selling to them.

“In the fourth quarter of 2023, Nigeria’s total trade stood at N26.801 trillion. Exports were valued at N12.693 trillion, while imports amounted to N14.108 trillion,” NBS said.

The bureau reported that on an annual basis, Nigeria’s total trade was N71.880 trillion, of which imports amounted to N35.917 trillion, and exports were recorded at N35.962 trillion.

Significantly, Nigeria’s crude oil production marginally dropped in January 2024 compared to what it was in December 2023.

The Organisation of Petroleum Exporting Countries, in it’s monthly oil report for February 2024, said Nigeria’s crude production dropped from 1.422 million barrels per day in December to 1.419mbpd in January, decreasing by 3,000bpd.

However, the report said that the nation’s oil production rose from 1.33mbpd to 1.42mbpd, based on data obtained through direct communication.

Nigeria’s current oil output is below the nation’s 2024 budget target of 1.78mbpd.

Nigeria’s 2024 budget depends heavily on proceeds from crude sales. (Daily Independent)

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