Businesses are getting hit and are turning to the black market to get dollars at a premium of over 20 percent to fund critical imports.
The choice of the black market is pushing up the cost of business, with severe implications for inflation.
Nigeria’s annual inflation rate jumped to an 18-year high of 25.8 percent in August, according to official data.
The August inflation figure rose for an eighth straight month from July’s 24.08 percent, compounding a cost of living crisis worsened by President Bola Tinubu’s reforms.
The last time Nigerians experienced this level of inflation was in August 2005.
“The inflation data in our view reflects only in part the lifting of the subsidy. Much of the pre-existing pressure came from Nigeria’s monetary policy stance in the months that preceded this outcome, and the continued naira depreciation on the parallel market,” Razia Khan, Standard Chartered managing director and chief economist, Africa and Middle East, said.
The naira pared some losses to trade at 995 per US dollar on the streets on Monday after crashing to a new low of N1,050 last Friday. The official rate opened at N747 per US dollar. The gap, which disappeared in the first two days of the CBN’s reform in June, has reopened due to the scarcity of dollars in the official market.
Liquidity in the official market has collapsed to a daily average of $99.81 million, down from $295.58 million between May and June 2023 and $318.46 million between January and May 2023.
“The dollar illiquidity in the official market is why the rate in the black market is soaring and the gap between the official rate has reopened,” said Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise. “That is why the new CBN governor must prioritise clearing the backlog in order to save manufacturers and other businesses.”