Financial and economic analysts are emphasizing the need for the Nigerian government to ramp up crude oil production in order to enhance liquidity in the foreign exchange market and stabilize the naira, the country’s currency.
In conversations with Sunday Media Talk Africa, the analysts highlighted increased oil output as a fundamental solution to address the persistent forex scarcity in the country. The value of the local currency has depreciated by 154.2% at the official forex window from June 2023 to January 2024.
Johnson Chukwu, the Group Managing Director of Cowry Asset Management Company, emphasized the essentiality of urgently increasing crude oil production to alleviate pressure on the naira. He suggested that this approach would bring in dollars, mitigate borrowing constraints, and ultimately stabilize the naira.
The naira’s exchange rate stood at 1056.88/$ at the Nigerian Foreign Exchange Market on a recent Friday, reflecting a significant decline compared to previous rates. This decline is primarily attributed to the drop in the country’s crude oil output, which fell to 900,000 barrels per day in August the previous year due to oil theft in the Niger Delta, the primary production area.
On the flip side, Nigeria’s oil production rose to 1.4 million barrels per day in December, as reported by the Organization of the Petroleum Exporting Countries (OPEC).
Prof. Olawale Ajai, Head of Strategy at the Lagos Business School, noted that while there is no “magic bullet” to solve the forex challenges, increasing oil production would significantly contribute to stabilizing the local currency. He underlined the need for improved political management, alongside measures to enhance confidence and transparency.
Additionally, Prof. Ajai suggested leveraging the country’s diaspora funds to alleviate the pressure on the local currency, emphasizing the importance of incentivizing official channels for diaspora remittances. He also stressed the significance of governmental transparency in bolstering investor confidence.
Dr. Boniface Chizea, the CEO of BIC Consultancy Services Limited, supported the notion that improved oil production could strengthen the country’s economy and contribute to naira stabilization.
At the Nigerian Economic Summit Group’s 2024 macroeconomic outlook, the Central Bank of Nigeria (CBN) Governor, Olayemi Cardoso, acknowledged the undervaluation of the naira. He indicated that the apex bank is exploring coordinated measures with the fiscal authority to achieve genuine price discovery and address existing challenges.
The consensus among analysts is clear – the Nigerian government’s prioritization of improved crude oil production is pivotal in stabilizing the naira and addressing the country’s forex scarcity. This approach, coupled with political management, transparency, and leveraging diaspora funds, can potentially mitigate the economic challenges faced by the nation.
