FOREX Africa: Nigeria’s Black Market Money-Changers Make Brisk Business
As a frontier market, the countries of Africa represent both tremendous opportunities and tremendous risks. On the risk side of the ledger are all the usual complications of international trade and investment compounded by the problems inherent in a developing, emergent continental market consisting of 54 countries and 1.1 billion people – it’s a lot to keep track of.
Luckily, the ups and downs of the African currency markets aren’t one of them if you know where to look. To help with that, AFKInsider has compiled all the news you need to know now in order to slim down your currency risk.
Money-Changers Of Nigeria
As the Nigerian economy struggled to come to terms with a revenue crunch caused by a drop in oil prices on the international market, a few people on the streets of Lagos and other major cities in the West African nation were making quick cash selling dollars in the black market.
The so called money-changing business has become a big hit for many unemployed youth across the country as the naira drastically depreciates against a globally stronger US dollar and other major currencies last year.
The Africa’s largest economy has seen it currency depreciate nearly 95 percent since prices of the country’s main export commodity — oil — started a steep slide in the last quarter of 2014.
Nigeria is the largest producer and exporter of crude oil in Africa and depends largely on proceeds from this exports to fund it annual budget.
Lack of hard currency from oil export eat into Nigeria’s foreign exchange reserves, cutting them by 14 percent in 2015 to $29.6 billion, Bloomberg reported.
While the Central Bank of Nigeria (CBN) has declined to devalue its local currency and still pegs it at 197 naira per dollar on the official market, the unit was trading at an all-time low of 313 on the parallel market on Tuesday Feb. 9.
The disparity between the two is largely due to restrictions placed by the CBN on foreign exchange trading and its movement in and out of the country.
Money-changers in the black market have taken advantage of the dollar scarcity caused by the regulator’s rule that no commercial bank should take foreign currency deposits, a move aimed at curbing speculation in the local currency.
Attempts by the CBN to lift some restriction on commercial banks accepting foreign currencies deposits from customers and transfer of hard currencies abroad did not excited investors as expected.
Policymakers in the West African nation, led by President Muhammadu Buhari, have also rejected recommendations from foreign experts, including from the International Monetary Fund (IMF), to devalue the naira.
Buhari told the BBC last week that he was not convinced of the need to “murder” the naira.
As the Buhari-led government remain adamant on this unpopular monetary policy Nigerians are bulking under the scarcity of various imported products, ranging from sugar, bread to ironically petrol and kerosene.
“For some unknown reason, the management of these Economies remains in denial of the causative link between the ever-sliding rates of their domestic currencies against the dollar and the unceasing, unbridled, deliberate domestic creation of excessive cash surpluses by the respective monetary authorities,” Henry Boyo, a Nigerian economist, said in an opinion piece published by Vanguard.
Meanwhile, black market money-changers on the streets of Lagos have continued to make more money from their illegal business as the naira remains overvalued because of government interventions.