Nigeria's naira is trading 13 percent below its true value, despite recent reforms in the foreign exchange market. Bismarck Rewane, the chief executive of Financial Derivatives Company, made this assertion at the Lagos Business School breakfast forum.
According to Rewane's analysis, the naira should be worth N1,193.22 per dollar based on purchasing power parity calculations. Instead, it trades at N1,374.92 per dollar on the Nigerian Foreign Exchange Market.
He arrived at this conclusion by comparing local prices of everyday goods against international benchmarks. His team examined everything from food and beverages to electronics, transport costs, and household items.
The naira has weakened dramatically since currency liberalisation began. In 2021, it traded around N410 per dollar, but that figure jumped to over N1,900 by 2024.
Rewane acknowledged the severe depreciation but defended the reforms. He noted they've brought greater transparency and squeezed the gap between official and unofficial exchange rates.
Market efficiency has improved substantially under the new system. Distortions that plagued the currency market for years have been reduced significantly.
His projections suggest relative stability ahead. Rewane expects the naira to trade between N1,390 and N1,420 per dollar over the near term.
Several economic indicators support his optimistic outlook. External reserves climbed to $50.04 billion recently, up from $32.91 billion in 2023.
Remittance inflows tell a similar story. They've risen from $19.55 billion to $23 billion over the same period, bringing more foreign currency into the system.
Oil output has also improved markedly. Nigeria now produces 1.49 million barrels daily, compared with 1.24 million barrels in 2023.
Trade performance reflects this production boost. Nigeria's trade surplus expanded to $11.45 billion from $5.72 billion, backed by stronger terminal activity.
International oil prices remain favourable to Nigeria's external earnings. This provides additional support for currency stabilisation efforts.
Yet Rewane warned against complacency. Global uncertainties pose real risks to the exchange rate's trajectory.
Inflation differences between Nigeria and other economies matter too. Geopolitical tensions elsewhere could also sway investor behaviour and capital flows.
Still, he maintained his central argument about current valuations. The naira remains underpriced relative to fundamental economic conditions on the ground.
