In a recent report published by the World Bank, the Nigerian Naira has been identified as one of the worst-performing currencies in the African continent. This alarming revelation sheds light on the economic challenges faced by Nigeria, with the Naira experiencing a significant depreciation of nearly 40% against the United States dollar since its devaluation in June. This report, titled “Africa’s Pulse: An Analysis of Issues Shaping Africa’s Economic Future (October 2023 | Volume 28),” underscores the pressing economic concerns in Nigeria and several other African nations.
The Naira’s Dramatic Depreciation
The World Bank’s report highlights that, so far this year, the Nigerian Naira and the Angolan Kwanza have emerged as the worst-performing currencies in the region, both witnessing a year-to-date depreciation of nearly 40%. This sharp decline in the Naira’s value can be attributed to the central bank’s decision to remove trading restrictions on the official market.
In June 2023, the Central Bank of Nigeria (CBN) took the bold step of directing Deposit Money Banks to eliminate the rate cap on the Naira at the official Investors and Exporters’ window of the foreign exchange market. This directive effectively allowed the Naira to float freely against the US dollar and other global currencies, resulting in a significant decline in its value. From an exchange rate of N473.83/$, the Naira has now plummeted to approximately N800/$ officially.
Angolan Kwanza’s Parallel Plunge
The Angolan Kwanza’s dismal performance is also attributed to its central bank’s decision to cease defending the currency. The primary factors driving this decision were the persistently low oil prices and the mounting debt payments faced by Angola. These economic challenges combined to weaken the Kwanza’s position in the international currency market, contributing to its significant depreciation alongside the Naira.
Other African Currencies Facing Significant Losses
The World Bank’s report doesn’t limit its assessment to just the Naira and the Kwanza. It identifies several other African currencies that have experienced substantial losses in 2023. Among them are:
- South Sudan Pound (33% Depreciation): South Sudan’s currency has witnessed a sharp decline, primarily driven by economic instability and ongoing conflicts.
- Burundian Franc (27% Depreciation): Burundi has grappled with economic challenges, contributing to the depreciation of its currency.
- Democratic Republic of Congo Franc (18% Depreciation): Economic uncertainties and political instability have impacted the Congolese Franc’s value.
- Kenyan Shilling (16% Depreciation): Kenya’s currency has faced headwinds due to various economic factors.
- Zambian Kwacha (12% Depreciation): Zambia’s currency has been affected by a combination of factors, including political instability and economic challenges.
- Ghanaian Cedi (12% Depreciation): Ghana’s currency has faced depreciation amid economic uncertainties.
- Rwandan Franc (11% Depreciation): Rwanda’s currency depreciation is influenced by regional economic dynamics.
Impact on Inflation
The World Bank’s report also emphasizes that parallel exchange market rates are exacerbating inflationary issues in some African countries. These parallel markets often operate with exchange rates that deviate significantly from the official rates, leading to rising prices and economic instability.
In summary, the Nigerian Naira’s inclusion among the worst-performing African currencies in the World Bank’s report highlights the pressing need for economic reforms and stability in Nigeria. The dramatic depreciation of the Naira, along with the challenges faced by other African nations, underscores the importance of sound economic policies and prudent financial management to mitigate currency volatility and promote sustainable growth.