Nigerian Importers are desperate to pay for dollars at any price amid a forex scarcity that has made the black market the go-to destination for the greenback.
Information reaching Nairametrics suggests importers searching for dollars are able to match whatever price they are given hence fuelling some of the largest multi-single day depreciation of the naira.
The exchange rate opened the week at about N665/$1 but has depreciated to N715/$1 as of the time of writing this article. This represents a N50 depreciation in just one week one of the largest weekly drops we have seen.
The exchange rate was also N585/$1 at the start of the month meaning Nigeria’s currency has depreciated by a whopping 17.6% in just one month.
Everyday new rate
Forex traders who spoke to Nairametrics under the condition of anonymity for fear of being targeted by regulators point to a lack of a structured market and an anchor price for the steep depreciation being experienced in the market.
- They are also quick to point out that demand is so huge, that businesses who need dollars are ready to purchase it at any price.
- They also indicate that in some cases, dollars are not available at any price forcing some forex brokers to refund the naira deposited.
- Some of the companies even deposit days ahead just to ensure they have a leg up on any potential supply especially if it is wired.
Bureau De Change operators have cited a lack of FX and a surge in demand for the recent uncontrolled uptrend recorded in the market. Meanwhile, some bank users have complained that they have not been able to access the funds in their domiciliary accounts due to a lack of liquidity.
What they are saying
A source that brokers millions of dollars of forex sales provided unique insight into the demand and supply dynamics.
“The demand is coming mostly from some of the large companies in Nigeria especially those who need to pay for raw materials. Some buy as much as $10 million every day and they pay for it at whatever the prevailing price.”
Another forex broker explained that the desperation is also because of the risk of purchasing from sources that may be shrouded in money laundering.
“Some buyers also do not want to get entangled in money laundering scams, so they are ready to pay a premium for forex supplied from reliable sources. Some of the reliable sources include sellers from the US, Canada, and the UK and they are mostly businesses looking to meet some naira obligations locally. When inflows like this are available, it can come at any price.”
We also spoke to some major demand drivers of forex who also preferred to speak on the condition of anonymity. According to one of the executives of a top consumer goods company, they are desperate to secure forex to meet their obligations to creditors and suppliers of raw materials inputs required for their production.
“We sometimes purchase dollars from the official market but it is not enough to meet our demand. So, we have no choice but to augment with inflows from the black market some of which are at extraordinary prices. Unfortunately, we have no choice but to buy and if we do not we will likely close shop.”
Another buyer from a company that assembles logistic machinery, opined that the situation would have been easier for them if the official Investor and Exporter window where forex is sold officially had enough liquidity to meet their demand. They also claimed they have no choice but to buy at any price they see because tomorrow could be worse than today.
“The situation is killing our business and we have nowhere to run to for forex. We never envisaged the exchange rate at this price so it is wise to buy as much as you can because things could get worse. Imagine that at the start of this month it was less than N600/$1, now it is N715/$1. Where will it be by end of August, no one knows!” he asked rhetorically.
Upshots
The exchange rate is likely to close the week above N700/$1 as demand continues to surge amid supply shortages at the official market. The official I&E window closed at N426.1/$1 yesterday and also hit an intra-day high of N444/$1.