Nigeria’s Naira recorded its weakest performance against the United States dollar in two decades, closing the outgone 2019 on an average of N362.60, the worst run since the country returned to democratic rule in 1999.

A PREMIUM TIMES analysis of Bloomberg financial data showed that in the twenty-year period, naira dipped against the greenback by about 265 per cent. The figure represented a marginal dip against 2018 when naira averaged N362.59 to the dollar.

The Nigerian currency averaged at N99.40 in 1999, according to details obtained from the terminal.

Prior to the period, especially during the administration of the late Sani Abacha, the naira largely fluctuated between N60 and N70 against the dollar in the parallel market, although the government pegged its “official rate” at N22.

Upon return to democracy in 1999, the Nigerian currency dipped further to about N90. By the turn of the millennium, naira averaged N99.40, amidst depleting foreign reserves, low oil prices, huge debt and a shrinking economy.

A rash of economic policies and appreciable increase in the price of oil in the international market brought about relative stability, allowing the Central Bank of Nigeria to harmonise the various exchange rates obtainable at the time. That period witnessed insignificant differences in the official rates and “black market” rates.

Nigeria would later secure a much-desired debt relief in 2005, allowing policymakers to grow the nation’s foreign reserves, create and significantly grow the Excess Crude Account (ECA) and effectively regulate the exchange market.

Relatively Stable Rates

Beginning in the first half of the 2000s up till 2007, Bloomberg data showed that the naira averaged relatively stable and less volatile rates.

Details showed that the naira averaged N110 in 2000; N119 in 2001; N126 in 2002; and N139 in 2003.

In 2004, the currency averaged N132; N130 in 2005; N127 in 2006; and N117 in 2007.

By 2007, the world witnessed the global financial crisis. The crisis was caused by the subprime mortgage crisis witnessed primarily in the United States, triggered by the unregulated use of derivatives, culminating into the Great Recession.

Analysts said that excessive risk-taking by banks helped to magnify the financial impact across the globe, with massive bailouts of financial institutions and other palliative monetary and fiscal policies deployed to prevent a possible collapse of the world financial system.

Expectedly, different currencies in the world financial markets, including the naira, were hit in varying degrees at the height of the crisis. But with a relatively buoyant foreign reserves, and substantial Excess Crude Account balance, Nigerian policymakers, including its apex bank, were able to manage the crisis quite well.

In 2008, despite the turbulence in the global financial system, naira averaged N139, dipping against the greenback by about 18 percent from the previous year.

In the three years that followed, the Nigerian currency dipped further, averaging N149, N159, and N162 in the years 2009, 2010 and 2011, respectively.

Years of ‘Extravagance’

There was an oil boom in the period between 2011 and 2014. But as the price of oil skyrocketed, averaging $93.17 per barrel, Nigerian officials at different levels went into a spending spree, depleting the reserves inherited from previous governments.

In her book “Fighting Corruption Is Dangerous: The Story Behind the Headlines”, a former Minister of Finance, Ngozi Okonjo-Iweala, linked the failure of Mr Jonathan’s administration to save for the rainy day, despite oil boom, to the insistence of state governors that funds in the Excess Crude Account must be shared at the time. The former minister said she had a running battle with state governors, who insisted that there was no need to save despite the boom experienced at the time.

Mrs Okonjo-Iweala served as minister, first, during the administration of former President Olusegun Obasanjo, and later under Mr Jonathan.

The spending decision of the period would come back to haunt the Nigerian economy as oil prices began to nosedive in the autumn of 2014, with its attendant crises in a mono-economy like Nigeria.

Bloomberg data showed that in 2012, 2013 and 2014, the Nigerian currency averaged N156, N160 and N183, respectively. Although there was relative stability within this period, the foreign reserves and ECA accounts were being depleted, with little or no fiscal buffer available to the apex bank to ensure stability of the naira and, by implication, the larger economy.

Against the backdrop of these developments, the then Central Bank governor, Sanusi Lamido, decried the continued depletion of Nigeria’s foreign reserves and excess crude revenue account, ECA, by the Nigerian government.

Mr Sanusi warned at the time that by December 2013, the country’s gross external reserves stood at about $42.85 billion, representing a 2.23 per cent when compared with about $43.83 billion recorded at the end of December 2012. He also attributed the shrinking reserves level to a slowdown in portfolio and foreign direct investment flows in the fourth quarter of 2013.

By implication, Mr Sanusi said there was increased funding of the foreign exchange market by the CBN to stabilize the currency, in the midst of depleting ECA balance. “This absence of fiscal buffers increased our reliance on portfolio flows thus, constituting the principal risk to exchange rate stability, especially with uncertainties around capital flows and oil price,” the CBN boss said.

He was removed from office under controversial circumstances in February 2014.

Buhari Years

The Muhammadu Buhari administration came into power when there were palpable signs of economic crisis. But analysts have said that a combination of indecision and poor policy direction compounded the situation, and the nation eventually slipped into an economic recession.

Data showed that in 2015 when oil prices had nosedived, the naira averaged N199, dipping against the greenback by 8.64 percent from the previous year.

For about 16 months, the central bank maintained a N197 peg, ignoring calls by some experts that the naira should be devalued. Amidst the uncertainty, the government declined to devalue the naira, saying it would rather diversify the economy to address Nigeria’s reliance on oil revenue.

Speaking at a Presidential Panel Roundtable on Investment and Growth Opportunities at a ceremony in Egypt in February 2016, Mr Buhari stressed that Nigeria being a mono-economy dependent on oil, and with a teeming unemployed youth population, would rather focus on agriculture and solid minerals development as way out of slump in the global oil market.

Mr Buhari also argued that Nigeria could not compete with developed countries which produce to compete among themselves and can afford to devalue their local currencies.

“Developed countries are competing among themselves and when they devalue they compete better and manufacture and export more. But we are not competing and exporting but importing everything including toothpicks. So, why should we devalue our currency?” he said.

By June 2016, as the nation faced imminent crisis amidst dollar shortage, the Nigerian apex bank removed its currency peg and, pronto, the naira was allowed to float. As a reaction to the policy, the currency slumped 30 per cent against the dollar the following week.

In one of its intervention, the Central bank sold $530 million for 280 naira per dollar at a special auction and later sold a further $86.5 million directly on the interbank market at 281 to 285.

At the end of 2016, data from the Bloomberg Terminal showed that the Naira dipped and averaged N315, slipping against the greenback by 58.22 per cent from the previous year. At the same period, oil prices averaged $43.58 and even recorded a year low of $26.21, signaling troubles.

Recession

In August 2016, Nigeria effectively slipped into recession as growth figures showed that the economy contracted 2.06 per cent between April and June of that year. The country recorded two consecutive quarters of declining growth, the usual definition of recession.

The recession was triggered by weaker global oil prices, the unrest in the Niger Delta region, trade deficit, amidst depleting reserves. Among other measures taken to tackle the crisis and stabilise the economy, there was a coordinated approach by the fiscal and monetary authorities. For instance, the CBN introduced the Investors and Exporters FX window in April 2017.

In the second quarter of 2017, Nigeria went out of recession after oil prices and external reserves improved and relative peace was restored in the Delta region.

The CBN has continued with its interventions into the market, by making significant injections into the retail segment of the market supporting agricultural machinery and industrial raw materials as well as SMEs. In the first half of 2019, the apex bank also injected $8.29 billion to stabilise the foreign exchange market.

Similarly, the CBN increased its issuances of OMO bills from N4.2 trillion in 2016 to N7.7trillion in 2017 and N17.0 trillion in 2018. With all of these steps, supported by recovery in global oil price, the naira has since witnessed relative stability.

Data from the Bloomberg Terminal showed that between mid-2017 till date, the currency moved within a narrow region of between N359 and N370 against the greenback.

A breakdown showed that in 2017, the naira averaged N359 and slipped to N362.59 in 2018. It dipped marginally with a net change of 0.01 to N362.60 in 2019.

At an average of N362.60 in the outgone year, however, the naira went through its weakest run since 1999.