It is not all gloomy for the country’s recent naira float as experts have projected a boost in third-quarter non-oil exports owing to the devaluation.
Nigeria’s Central Bank announced the floating of the naira on June 14 to close the gap between the official and unofficial rates, according to experts, this is an incentive for exports.
Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise, said that an improvement in non-oil export values is expected in Q3.
“The recent naira fall will improve non-oil exports because normally when the currency depreciates, the advantage it has is that it provides additional incentive for exports,” Yusuf said.
However, the experts noted that the improvement may be marginal owing to bottlenecks that have continued to hamper production and trade.
“Naturally one would expect that non-oil exports will increase massively in naira terms post devaluation, but we have some bottlenecks that could sort of negatively impact it or reduce the benefits that naturally should accrue to that sector,” said Tajudeen Ibrahim, director of research and strategy, ChapelHill Denham.
When the naira is weaker, exporters can earn more naira for each unit of export. This can make it more profitable for them to export, but challenges persist in being able to increase production volume, he noted.
One of the bottlenecks identified is the worsening insecurity which is a major hindrance to agricultural production and development in Nigeria. It has led to the displacement of farmers from their farmlands, loss of lives, and destruction of crops and livestock, and has had a significant impact on the country’s food security and economic growth.
“In the farming/agriculture space, there is insecurity. That insecurity in itself is a major risk in increasing the volume of output for farmers to export,” Ibrahim said.
Hence, a major downside risk is the inability of those in the non-oil sector to do their business seamlessly in the current challenging environment.
Nigeria’s non-oil exports grew a marginal 5.6 percent between Q1 and Q2 2023. In Q1, the sector recorded N652.29 billion which increased to N688.68 billion in Q2.
“Generally, once you have a weak currency, it’s an incentive/encouragement for more exports. So we should see some impact,” said Yusuf.
At the end of the second quarter, the naira had fallen 64 percent to as low as N763.00/$1 from N464.50 per dollar on the 1st of June at the Investors’ and Exporters’ (I&E) forex window.