Nigeria’s currency, the naira, has reached its lowest point, making it the worst performer globally in the past month. The exchange rate has dropped to its weakest level since March 20, at 1,466 to the dollar, due to a significant decrease in available US dollars, which fell to just $84 million last Thursday.
Razia Khan from Standard Chartered predicts that $1.3 billion in naira futures will mature soon, potentially leading to even higher demand for dollars. This financial instability follows President Bola Tinubu’s decision to loosen foreign-exchange controls in June last year.
Since then, the naira has fallen by approximately 68%. According to Khan, the market witnessed a rapid increase and subsequent decline in the naira’s value due to offshore investors cashing in, indicating that market forces play a significant role in shaping the exchange rate.
The Central Bank of Nigeria is now facing pressure to raise interest rates once again at its next meeting on May 21. Previous rate increases totaling 600 basis points earlier this year helped the naira recover from a low of 1,627 naira to 1,072 by mid-April.
Market Reactions and Added Complications
Abubakar Muhammed from Forward Marketing Bureau de Change Ltd. reported a 0.9% decline in the naira’s value on the unofficial market, driven by increased demand from local individuals.
Danelee Masia from Deutsche Bank highlighted that sluggish investor interest and diminishing reserves make the naira susceptible to future declines, especially during the high-demand periods in the third and fourth quarters for the holiday season.
Ayodele Salami from Emerging Markets Investment Management Ltd. pointed out that as one of Africa’s largest oil producers with limited refining capabilities, Nigeria is losing significant amounts of dollars for energy imports. This exacerbates the currency’s weakness, a situation also seen in other African countries like Zambia and Ghana, both struggling with debt restructuring challenges that hinder their ability to attract new investments.
Binance and Nigeria’s Foreign Investment Challenge
The situation with Binance has added another obstacle to Nigeria’s economic stability. Richard Teng, CEO of Binance, has accused Nigerian officials of soliciting bribes, casting a shadow over Nigeria’s investment climate. SBM Intelligence reports that these allegations and the subsequent detainment of Binance executives could severely discourage foreign investments.
On February 26, Tigran Gambaryan and Nadeem Anjarwalla from Binance, who initially received assurances of their safety by Nigerian authorities, experienced a sudden change in their treatment.
After an initial neutral meeting involving top Nigerian financial and security agencies, they were later held under stricter conditions and asked to delist the naira from Binance, as well as provide detailed user data.
Teng explained that Binance was pressured to delist the naira as a tradable asset and share extensive user data with Nigerian authorities. The situation escalated when Binance executives were taken to a high-security location and their personal freedoms were severely restricted. Teng emphasized that these actions were taken without clear legal justification and were communicated through aggressive and non-diplomatic channels.
The CEO stated that the ongoing detainment of Binance personnel, particularly Tigran Gambaryan, is an abuse of authority by the Nigerian government and goes against international standards of justice and business operations.
Teng pleaded for a rational and fair resolution to the situation, urging the Nigerian government to consider the broader economic implications of their actions. He reiterated Binance’s commitment to constructive dialogue and compliance with local regulations, hoping for a swift resolution that would allow the detained employees to return home safely and for Binance to continue positively contributing to Nigeria’s economy.
The ongoing detainment has caused international concern and could potentially label Nigeria as unfriendly to foreign enterprises. Despite Binance’s compliance and cooperation efforts, including the closure of certain operations as a gesture of goodwill, the Nigerian government has remained firm in its stance.
