+Defiance, Suspension, and Exits
Naira’s Free Fall
Shifting focus to Nigeria, in an attempt to drive economic development, the Central Bank of Nigeria (CBN) adopted a free-floating policy for the Naira against international currencies on June 14, 2023.
This move, aimed at letting market forces determine the Naira’s value, has resulted in a substantial devaluation of the currency, with significant implications for the Nigerian economy.
The Naira’s devaluation, observed in both parallel and official market exchange rates, has raised concerns.
In the parallel market, the Naira plummeted from 754.03 Naira to 1,408.36 Naira against the dollar in just eight months, indicating an 86% increase.
The official market exchange rate witnessed a similar trend, escalating from N770.38 to N1417.64 per dollar within the same period, marking an 84% increase and a 647 Naira surge.
Cardoso’s POV
Governor Yemi Cardoso of the CBN on Tuesday, February 6, 2024, during his appearance before members of the House of Representatives, attributed Naira depreciation to the rising demand for foreign goods and a simultaneous decline in the supply of US dollars.
He explained that imports requiring dollars amounted to $16.65 billion in 1980 but noted that by 2014, the annual import expenditure had significantly surged to $67.05 billion. However, it gradually decreased to $54.71 billion as of last year. Food imports also escalated from $2.63 billion in 1980 to $14.84 billion in 2019.
He also held that in the 1980s and 1990s, the need for US Dollars for their living expenses was minimal. The governor pointed out that the number of Nigerian students studying abroad had increased dramatically.
He emphasised the need for Nigerians to support local content, shift their mindset towards imported goods, and advocate for increased export revenue to stabilise the economy and strengthen the Naira.
Contrary POVs
In contrast, market intelligence firm SBM Intelligence attributed the Naira’s decline to insufficient foreign reserves, compelling the CBN to permit significant currency depreciation, thereby contradicting its official policy.
Flitch Ratings pointed at the CBN’s high-interest payment-to-revenue ratio and struggles with foreign cash shortages areas detrimental to the country’s sovereign credit grade.
In its own piece, Reuters held that the central bank’s unsettled sums in forward trades contributed to the Naira’s official exchange rate aligning with the parallel market, worsening the foreign currency shortage.
Stears partly agreed with Cardoso and identified two primary causes for the Naira’s decline: ongoing issues with foreign exchange supply and a significant backlog of demand. Both official and illegal markets have pressured the currency, resulting in its downward spiral.
In all, there is a need for extensive economic interventions to correct supply-demand imbalances, foster local support, and stabilise the currency to promote long-term economic progress.
5G Network: Slow and Steady Growth
Despite an eightfold increase in 5G technology usage within the Nigerian telecom sector from May 2023 to November 2023, its adoption remains significantly lower compared to the entrenched 2G, 3G, and 4G networks.
The 5G network is significantly faster than every other network generation and is designed to support a hundred times increase in traffic capacity and efficiency.
The number of Nigerians using 5G subscriptions in Nigeria increased by eight times, but about 60% of Nigerians still use the 2G network despite the availability of 5G services. This is due in part to the high cost of 4G and 5G devices, which makes it difficult for many people to upgrade.
Operators have explicitly stated that they have no intentions to phase out 2G and 3G networks, recognizing that discontinuation would leave a substantial number of people without service.
The dominance of these older networks is evident, with 2G leading the market at 59.32% as of November 23, followed by 4G at 29.91%, and 3G at 9.81%. In stark contrast, 5G trails far behind at a mere 0.96%.
Examining the trend from May 23 to November 23 reveals a gradual increase in 5G subscriptions during the initial three months, starting at 0.12% in May and reaching 0.13% by July.