The World Bank has blamed the re-emergence of parallel currency exchange market in Nigeria on resistance toward the increasing pressure on the naira and the limited supply of forex at the official window.
The Bank, in a report released on Wednesday in Washington DC, said the premium between the parallel exchange rate and the official rate widened from March 2020 until June 2023.
“Despite changing the official exchange rate to better reflect market conditions in 2021-Nigeria operated multiple currency practices-the parallel rate premium continued to increase to 80 per cent in November 2022 and then to about 60 percent in June 2023, as the Central Bank’s interventions to restrict foreign exchange demand and keep the exchange rate artificially low were met with declining FX supply from oil revenues,” said the report.
It added that the prioritisation of strategic sectors and the imposed price ceilings and trade restrictions pushed transactions to the parallel market, which started to account for a large share of the foreign exchange transactions in the country, including for remittances, tourism, and exports of non-oil products.
“After the unification and liberalisation of the exchange rates in June 2023, the NAFEX rate converged to the parallel one, closing the gap. However, resistance toward the increasing pressure on the Nigerian naira coupled with limited supply of FX at the official window has led to the re-emergence of the parallel market premium,” the report said.
The report, Africa’s Pulse, shows that Sub-Saharan Africa’s economic outlook remains bleak. It identified rising instability, weak growth in the region’s largest economies, and lingering uncertainty in the global economy as dragging down growth prospects.
Economic growth in Sub-Saharan Africa, it said, is forecast to decelerate to 2.5 per cent in 2023, from 3.6 per cent in 2022.
It added that Nigeria and Angola will grow at 2.9 per cent and 1.3 per cent respectively due to lower international prices and currency pressures affecting oil and non-oil activity.
It shows that “increased conflict and violence in the region weigh on economic activity, and this rising fragility may be exacerbated by climatic shocks.
“In Sudan, economic activity is expected to contract by 12 per cent because of the internal conflict which is halting production, destroying human capital, and crippling state capacity”.
The World Bank Chief Economist for Africa, Andrew Dabalen, said: “The region’s poorest and most vulnerable people continue to bear the economic brunt of this slowdown, as weak growth translates into slow poverty reduction and poor job growth.
“With up to 12 million young Africans entering the labor market across the region each year, it has never been more urgent for policymakers to transform their economies and deliver growth to people through better jobs.”
It said despite the gloomy outlook, it identified a few bright spots.
“Inflation is expected to decline from 9.3 per cent in 2022 to 7.3 per cent in 2023 and fiscal balances are improving in African countries that are pursuing prudent and coordinated macroeconomic policies.
“In 2023, the Eastern African community (EAC) is expected to grow by 4.9 per cent while the West African Economic and Monetary Union (WAEMU) is set to grow by 5.1 per cent,” the report said.
It, however, said debt distress remains widespread with 21 countries at high risk of external debt distress or in debt distress as of June 2023.
READ ALSO World Bank: why black currency exchange market is back in Nigeria
“Overall, current growth rates in the region are inadequate to create enough high-quality jobs to meet increases in the working-age population. Current growth patterns generate only three million formal jobs annually, thus leaving many young people underemployed and engaged in casual, piecemeal, and unstable work that does not make full use of their skills.
“Creating job opportunities for the youth will drive inclusive growth and turn the continent’s demographic wealth into an economic dividend,” World Bank said.
World Bank Economist and contributor to the report, Nicholas Woolley, said the urgency of the jobs challenge in Sub-Saharan Africa is underscored by its huge demographic transitions.
“This will require an ecosystem that facilitates private-sector development and firm growth, as well as skill development that matches business demand,” Woolley said.
The report identified policies to overcome hurdles and unleash job creation in Sub-Saharan Africa: “Cost-effective private sector reforms, focused on increasing competition, uniform policy enforcement across firm sizes, and regulatory alignment with regional trading partners. “Governments can also help identify and support early-stage growth of businesses through more inclusive procurement practices and promotion of local businesses abroad.
“Investment in education is necessary to boost semi-skilled occupations for the region. Interventions that improve learning in school are more effective than those increasing school attendance alone, while vocational education can be useful for addressing the underemployed and those who have missed out on education as children.
“Education of girls and access to jobs for women can reduce potential productivity loss from the misallocation of female labor. Cash transfers have proven effective in increasing girls’ school enrollment and attendance, as well as in curbing pregnancies among school-age girls.” he World Bank has blamed the re-emergence of parallel currency exchange market in Nigeria on resistance toward the increasing pressure on the naira and the limited supply of forex at the official window.
The Bank, in a report released on Wednesday in Washington DC, said the premium between the parallel exchange rate and the official rate widened from March 2020 until June 2023.
“Despite changing the official exchange rate to better
reflect market conditions in 2021-Nigeria operated multiple currency practices-the parallel rate premium continued to increase to 80 per cent in November 2022 and then to about 60 percent in June 2023, as the Central Bank’s interventions to restrict foreign exchange demand and keep the exchange rate artificially low were met with declining FX supply from oil revenues,” said the report.
It added that the prioritisation of strategic sectors and the imposed price ceilings and trade restrictions pushed transactions to the parallel market, which started to account for a large share of the foreign exchange transactions in the country, including for remittances, tourism, and exports of non-oil products.
“After the unification and liberalisation of the exchange rates in June 2023, the NAFEX rate converged to the parallel one, closing the gap. However, resistance toward the increasing pressure on the Nigerian naira coupled with limited supply of FX at the official window has led to the re-emergence of the parallel market premium,” the report said.
The report, Africa’s Pulse, shows that Sub-Saharan Africa’s economic outlook remains bleak. It identified rising instability, weak growth in the region’s largest economies, and lingering uncertainty in the global economy as dragging down growth prospects.
Economic growth in Sub-Saharan Africa, it said, is forecast to decelerate to 2.5 per cent in 2023, from 3.6 per cent in 2022.
It added that Nigeria and Angola will grow at 2.9 per cent and 1.3 per cent respectively due to lower international prices and currency pressures affecting oil and non-oil activity.
It shows that “increased conflict and violence in the region weigh on economic activity, and this rising fragility may be exacerbated by climatic shocks.
“In Sudan, economic activity is expected to contract by 12 per cent because of the internal conflict which is halting production, destroying human capital, and crippling state capacity”.
The World Bank Chief Economist for Africa, Andrew Dabalen, said: “The region’s poorest and most vulnerable people continue to bear the economic brunt of this slowdown, as weak growth translates into slow poverty reduction and poor job growth.
“With up to 12 million young Africans entering the labor market across the region each year, it has never been more urgent for policymakers to transform their economies and deliver growth to people through better jobs.”
It said despite the gloomy outlook, it identified a few bright spots.
“Inflation is expected to decline from 9.3 per cent in 2022 to 7.3 per cent in 2023 and fiscal balances are improving in African countries that are pursuing prudent and coordinated macroeconomic policies.
“In 2023, the Eastern African community (EAC) is expected to grow by 4.9 per cent while the West African Economic and Monetary Union (WAEMU) is set to grow by 5.1 per cent,” the report said.
It, however, said debt distress remains widespread with 21 countries at high risk of external debt distress or in debt distress as of June 2023.
“Overall, current growth rates in the region are inadequate to create enough high-quality jobs to meet increases in the working-age population. Current growth patterns generate only three million formal jobs annually, thus leaving many young people underemployed and engaged in casual, piecemeal, and unstable work that does not make full use of their skills.
“Creating job opportunities for the youth will drive inclusive growth and turn the continent’s demographic wealth into an economic dividend,” World Bank said.
World Bank Economist and contributor to the report, Nicholas Woolley, said the urgency of the jobs challenge in Sub-Saharan Africa is underscored by its huge demographic transitions.
“This will require an ecosystem that facilitates private-sector development and firm growth, as well as skill development that matches business demand,” Woolley said.
The report identified policies to overcome hurdles and unleash job creation in Sub-Saharan Africa: “Cost-effective private sector reforms, focused on increasing competition, uniform policy enforcement across firm sizes, and regulatory alignment with regional trading partners. “Governments can also help identify and support early-stage growth of businesses through more inclusive procurement practices and promotion of local businesses abroad.
“Investment in education is necessary to boost semi-skilled occupations for the region. Interventions that improve learning in school are more effective than those increasing school attendance alone, while vocational education can be useful for addressing the underemployed and those who have missed out on education as children.
“Education of girls and access to jobs for women can reduce potential productivity loss from the misallocation of female labor. Cash transfers have proven effective in increasing girls’ school enrollment and attendance, as well as in curbing pregnancies among school-age girls.”
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