The not-so-new COVID-19 pandemic has certainly\ntaken a serious toll on just about any national economy on the globe. The GDP\ngrowth projections all over the world are well within negative rates, and it\u2019ll\ntake quite some time for the trend to reverse. <\/p>\n\n\n\n
In Nigeria, this trend is certainly visible.\nGiven how closely the country\u2019s economy is tied to foreign exports of oil,\ncoffee beans, and whatnot, it\u2019s not surprising that the national currency, as\nwell as the economy as a whole, are undergoing a serious economic crisis and\nare expected to remain in the same position for a long time.<\/p>\n\n\n\n
According to Goldman Sachs Group\u2019s, the world\u2019s\nleading global investment banking company, the Nigerian naira is expected to\ndepreciate from the current rate of around N407\/$1 all the way to N500-550\/$1\nin the next 12 to 18 months. <\/p>\n\n\n\n
This report is crucial in a number of ways, among\nwhich one of the most important implications is that this news will\nsignificantly affect how Forex bears and bulls – i.e.buyers and sellers of\ncurrencies – interact with not only naira but other currencies as well.<\/p>\n\n\n\n
That\u2019s because Nigerian traders mainly prefer trading based on Forex news reports<\/a> and\ncoverages rather than technical analysis. In fact, this is one of the most\npopular strategies used by Forex traders worldwide.<\/p>\n\n\n\n Therefore, saying the national currency will\ndepreciate quite a bit is definitely going to strengthen the bears while\ndealing a huge blow to the bulls; especially if it comes to a respectable\nsource, such as Goldman Sachs. <\/p>\n\n\n\n As noted above, the outbreak of Coronavirus has\ntaken the world economy to its knees. After the Spanish Flu in 1918, this is\nthe first major humanitarian crisis that has affected the entire globe, killing\nover 700,000 people and affecting over 20 million worldwide. <\/p>\n\n\n\n In order to stop the rapid spread of the virus,\nworld governments started introducing various lockdown measures. For instance,\nin almost all countries globally, non-essential production sites and workplaces\ncompletely stopped their operations, leaving lots of people without the only\nsource of income. This obviously led to the slowing down of economic growth in\nalmost all countries across the globe, which is -4.9% on average.<\/p>\n\n\n\n When it comes to Nigeria, the country has also\nencountered dire economic conditions. According to the same projections from\nthe International Monetary Fund (IMF), the GDP growth rate is projected to be\neven lower than the global one – -5.4% in 2020. And among lots of underlying\ncauses, there\u2019s the curbing of international trade and travel.<\/p>\n\n\n\n The Nigerian economy greatly depends on the\nforeign exports of its oil, cocoa, coffee, and other natural resources.\nGranted, it\u2019s not the most sustainable structure of the economy and only the\ndeveloping countries are dependent solely on commodities exports, it\u2019s still\nthe primary source of income for the country. Therefore, declining prices mean\nthat the international reserves are decreasing as well. <\/p>\n\n\n\n To demonstrate this, let\u2019s take a look at what\nhappened to the oil prices before, during, and after the pandemic became our\nreality. So, before all of this craze about COVID-19 and its deadly effects,\none barrel of oil was selling at around 62 US dollars. During the mid-pandemic,\nin April, the price went down at a whopping rate to reach -37 USD. As for right\nnow, one barrel of oil sells at 42 USD. <\/p>\n\n\n\n As you can see, the price of oil has undergone\nquite a frenzy change. And it goes without saying that for a country whose\neconomy directly depends on oil prices, this development would certainly bring\nits economy to the knees. <\/p>\n\n\n\n And according to Goldman Sachs, that\u2019s to be\nexpected during the next 12 to 18 months. In an exclusive report<\/a> published on Bloomberg, the\nleading investment banking firm predicts that in order to reach the desired\nmonetary balance, the next 12 to 18 months will see Nigeria\u2019s naira to reach\n\u201can exchange rate of 500-550 per dollar,\u201d instead of today\u2019s N407\/$1.<\/p>\n\n\n\n But what is that monetary balance that Goldman\nSachs is mentioning here? According to the Nairaametrics<\/a> report<\/a> published on 9 August, the various\nexchange sites have quite different exchange rates for the national currency.<\/p>\n\n\n\n For example, the official exchange rate put\nforward by the Central Bank of Nigeria sells naira at N380\/$1 right now.\nHowever, at the NAFEX exchange market, that number is at around N390\/$1. At\nSMIS, the exchange rate is N380\/$1 and at the BDC segment, it\u2019s at N447\/$1. As\nfor the parallel market exchange, one US dollar can buy N475.<\/p>\n\n\n\n As you can see, there\u2019s quite a significant\ndiscrepancy between the numbers of different exchange sites. And the Central\nBank of Nigeria is trying to adjust its official exchange rate, so that all the\nother numbers are somewhat in sync with it, ultimately depreciating naira even\nfurther.<\/p>\n\n\n\n Another factor to keep in mind is dwindling\ndemand on foreign exchange within the Nigerian Forex market. According to the\nNairaametrics report published last month, the Nigerian foreign exchange market\nposted just $937 million capital flow in July, whereas in June, that number was\nat $875 million. <\/p>\n\n\n\n For one thing, analysts believe that a huge chunk\nof demand for Forex, around 1.5 to 5 billion US dollars, is pent-up in a form\nof investments and other foreign funds that are expected to flow out of the\ncountry very soon. <\/p>\n\n\n\n But more importantly, the decrease in demand and\nthe CBN\u2019s striving to further depreciate naira is a direct result of the\neconomic slowdown caused by the COVID-19 pandemic measures. There\u2019s also the\nlack of capital supply across the above-mentioned exchange sites, be it BDC,\nSMIS, etc. As the world is reluctant to engage in international economic\nactivities once again, developing countries are having a hard time attracting\nforeign investors and crucial financial capital for their economies. <\/p>\n\n\n\n What this means is that the foreign currency\nreserves are very low and dwindling even, while the Nigerian Forex market is\nexperiencing a lack in both supply and demand. That\u2019s why the Central Bank of\nNigeria is trying to artificially depreciate the national currency and keep it\nin balance with other exchange sites. <\/p>\n\n\n\n But there is a possibility that the CBN won\u2019t\nneed to implement such hawkish monetary strategies. It all depends on when the\nworld realizes that we crave for resuscitated international trade and foreign\ninvestments. If that happens soon, then European and Asian production sites\nwill open up as well, driving the demand for Nigerian exports up once more. But\nif not, then heavy devaluation measures are to be expected in the next 12 to 18\nmonths.<\/p>\n","protected":false},"excerpt":{"rendered":" The not-so-new COVID-19 pandemic has certainly taken a serious toll on just about any national<\/p>\n","protected":false},"author":1,"featured_media":29603,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[27],"tags":[],"class_list":["post-29602","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news"],"featured_image_urls":{"full":["https:\/\/www.imotrumpeta.com\/wp-content\/uploads\/2020\/08\/Naira.jpg",1280,720,false],"thumbnail":["https:\/\/www.imotrumpeta.com\/wp-content\/uploads\/2020\/08\/Naira-150x150.jpg",150,150,true],"medium":["https:\/\/www.imotrumpeta.com\/wp-content\/uploads\/2020\/08\/Naira-300x169.jpg",300,169,true],"medium_large":["https:\/\/www.imotrumpeta.com\/wp-content\/uploads\/2020\/08\/Naira-768x432.jpg",640,360,true],"large":["https:\/\/www.imotrumpeta.com\/wp-content\/uploads\/2020\/08\/Naira-1024x576.jpg",640,360,true],"1536x1536":["https:\/\/www.imotrumpeta.com\/wp-content\/uploads\/2020\/08\/Naira.jpg",1280,720,false],"2048x2048":["https:\/\/www.imotrumpeta.com\/wp-content\/uploads\/2020\/08\/Naira.jpg",1280,720,false],"elegant-magazine-featured":["https:\/\/www.imotrumpeta.com\/wp-content\/uploads\/2020\/08\/Naira.jpg",1024,576,false],"elegant-magazine-medium":["https:\/\/www.imotrumpeta.com\/wp-content\/uploads\/2020\/08\/Naira.jpg",676,380,false],"elegant-magazine-medium-small":["https:\/\/www.imotrumpeta.com\/wp-content\/uploads\/2020\/08\/Naira.jpg",300,169,false],"elegant-magazine-thumbnail-small":["https:\/\/www.imotrumpeta.com\/wp-content\/uploads\/2020\/08\/Naira.jpg",50,28,false]},"author_info":{"info":["Imo Trumpeta"]},"category_info":"News<\/a>","tag_info":"News","comment_count":"0","_links":{"self":[{"href":"https:\/\/www.imotrumpeta.com\/index.php?rest_route=\/wp\/v2\/posts\/29602","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.imotrumpeta.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.imotrumpeta.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.imotrumpeta.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.imotrumpeta.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=29602"}],"version-history":[{"count":1,"href":"https:\/\/www.imotrumpeta.com\/index.php?rest_route=\/wp\/v2\/posts\/29602\/revisions"}],"predecessor-version":[{"id":29604,"href":"https:\/\/www.imotrumpeta.com\/index.php?rest_route=\/wp\/v2\/posts\/29602\/revisions\/29604"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.imotrumpeta.com\/index.php?rest_route=\/wp\/v2\/media\/29603"}],"wp:attachment":[{"href":"https:\/\/www.imotrumpeta.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=29602"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.imotrumpeta.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=29602"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.imotrumpeta.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=29602"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}The Nigerian economy in a heavy\ncrisis<\/h2>\n\n\n\n
Challenges in Nigeria\u2019s Forex\nmarket<\/h2>\n\n\n\n