The Nigerian naira has plummeted, alarming experts who suggest to us measures that may be used to address the situation.



The Nigerian naira has reached an all-time low, with the exchange rate hitting ₦1,005 to $1 in the parallel market, according to FORBES AFRICA&#8217;s latest findings.



This depreciation represents a drop from around ₦900 per dollar at the beginning of September.



Observers say the lack of intervention from the Central Bank of Nigeria (CBN) this month has allowed the naira&#8217;s value to plummet in the parallel market.



The recent decision by President Bola Tinubu to unify exchange rates in Nigeria led to the CBN&#8217;s move towards a free-floating system, allowing deposit money banks (DMBs) and foreign exchange market dealers to freely buy and sell forex at market-determined rates. This shift marked a transition from the previous multiple forex regime to a more flexible approach, implemented on June 14.



Dr Olayemi Cardoso, who was recently nominated and confirmed as the 12th Governor of the CBN, emphasized the importance of economic growth during his confirmation by the Nigerian Senate.



&#8220;Our feeling is that in identifying the important issues with economic growth, we believe very strongly that size matters,&#8221; said Cardoso. He highlighted the administration&#8217;s goal of achieving $1 trillion-GDP within eight years and underscored the need for stability in various economic indices.



But Iheakanwah Felix Arinzeh, a financial expert and doctor of business administration, expresses his concerns to FORBES AFRICA: &#8220;The current rate of over ₦1,000 to a dollar at the FX parallel market is a sign of the lack of confidence in the Nigerian economy.&#8221;



Arinzeh points out that the parallel market rate is typically higher due to the premium people are willing to pay for dollars to safeguard their savings and make international investments. &#8220;The fact that this rate has reached over ₦1,000 suggests that many Nigerians are losing faith in the naira, seeking ways to hedge their financial security.&#8221;



The consequences of this decline are multifaceted. It makes importing goods and services more expensive, eroding the value of savings and, according to Arinzeh, is likely to lead to higher inflation and operational challenges for businesses, especially those already struggling.



Arinzeh emphasizes that Nigerians&#8217; reliance on the parallel market for foreign exchange stems from disruptions in the official supply of foreign exchange through the CBN.



&#8220;Factors contributing to the naira&#8217;s decline include global currency shortages exacerbated by events like the Ukraine war, Nigeria&#8217;s high debt levels, and overreliance on oil exports.&#8221;



To combat these challenges, Arinzeh proposes a series of measures, such as &#8220;addressing the underlying causes of the FX shortage, including declining oil exports, rising imports, and capital flight&#8221;.



He also suggests &#8220;public education about the dangers of round-tripping and parallel market activities” and adds: “Offering incentives, such as tax breaks, to encourage businesses to use official FX channels. A crackdown on corruption within the FX market. Transparent communication of the government&#8217;s plans to stabilize the naira and address FX shortages.&#8221;



Kelvin Emmanuel, an economist, highlights the situation of the naira to FORBES AFRICA, stating, &#8220;The drop of the naira above 1,000, and the quotes seen on exchange traded platforms for currency futures at ₦1,200, explain the pressure on the spot markets to provide the liquidity the market requires for various critical financial transactions, including Form A, M, Q, matured (commercial) Letters of Credit, capital remittances, and dividend remittances.&#8221;



Emphasizing the impact of a growing parallel-market premium, one trend Emmanuel points out is the pressure on the spot markets, &#8220;exacerbated by the fact that the attempted liberalization of the foreign exchange (FX) markets has not removed the ban placed on 41 items; 0.40 cents of every $1 moves from the I&amp;E window to the parallel market&#8221;.



Emmanuel proposes several short-term solutions to address the crisis, including the government raising an intra-Central Bank loan, converting foreign direct investment pledges into certificates of capital import, or seeking assistance from the International Monetary Fund (IMF).



He stresses the urgency of resolving the outstanding forwards, stating: &#8220;Considering how sensitive Nigeria’s supply chain is, and the shocks that a falling naira portends to key imports in food and energy, it’s important that the outstanding forwards are sorted out immediately.&#8221;

Nigeria  High Resolution Economy Concept

Naira Hits Historic Low At ₦1,005 To $1 In Parallel Market, Raising Concerns Amid Economic Challenges

Nigeria&#8217;s economic growth has faced a significant slowdown, with its Gross Domestic Product (GDP) growing at just 2.51% year-on-year in the second quarter of the year.



This rate is notably lower than the 3.54% recorded during the same period in 2022.



As the country grapples with challenging economic conditions, concerns are rising about the possibility of entering a recession.



The recently published GDP report by the National Bureau of Statistics (NBS) highlights the various contributing factors to this decline in economic growth.



In the second quarter of the year, the services sector emerged as the primary driver of growth, experiencing a 4.42% expansion and contributing a substantial 58.42% to the overall GDP.



Additionally, the agriculture sector displayed improved performance, with a growth rate of 1.50%, compared to 1.20% in the same quarter of 2022.



Conversely, the industry sector faced a significant setback, with a growth rate of -1.94% in the reported period, compared to -2.30% in the previous year.



In terms of their contribution to the GDP, both the agriculture and industry sectors played smaller roles in the period compared to the same period in 2022.



The aggregate GDP reached N52.1 trillion ($66.5 billion) in nominal terms, marking a notable increase from the N45 trillion ($57.6 billion) recorded in the second quarter of 2022.



This signifies a year-on-year nominal growth rate of 15.77%.



Economist Kelvin Emmanuel offers insight into the economic slowdown, stating to FORBES AFRICA: &#8220;The slowdown in the GDP growth rate to 2.51% reflects the capital squeeze resulting from various factors. Not only are foreign investments affected by a weak balance of payment position, but the government&#8217;s inability to clear outstanding FX forwards has also had an impact. Moreover, the high inflation and high-interest rate environment has reduced corporate incentives to borrow from the banking system. As capital per unit of labor decreases and employment growth stagnates, the GDP growth rate is inevitably impacted.&#8221;



Emmanuel further raises concerns, saying, &#8220;Nigeria has now reported a GDP growth rate lower than its population growth rate of 3% for two consecutive quarters. If this trend persists into Q3, the nation&#8217;s economy could officially enter a recession, signifying the need for immediate corrective measures.&#8221;

Graph Falling Down in Front Of Nigeria Flag. Crisis Concept

Nigeria’s Slowing Growth And Recession Concerns

“There is something called the Queensbury Rule. You do not continue to beat up somebody who is on their knees. You do not. It is the rule. Civilized people abide by that Rule in business, sports, and politics. Rating Agencies should treat us the same way. During a global crisis!”



This was the response on Twitter of South Africa’s Finance Minister, Tito Mboweni on Sunday, November 21, after three dominant international credit rating agencies announced that the “outlook is negative” for the country.



American credit agencies, Fitch Ratings, announced on November 20 that South Africa&#8217;s Long-Term Foreign-Currency Issuer Default Rating (IDR) had downgraded to &#8216;BB-&#8216; from &#8216;BB&#8217;. Joining Fitch, Moody&#8217;s Investors Service (Moody’s) also announced on Friday that the country’s ratings had been downgraded from Ba1 to Ba2. This is in addition to S&amp;P Global Ratings status on the country in April 2020 when they downgraded the country’s credit ratings to BB- from BB.



What could this mean for South Africa in a year of the pandemic?



Professor Philippe Burger, Pro-Vice-Chancellor of Poverty, Inequality, and Economic Development at the University of the Free State in South Africa, says that the downgrade means that medium- to long-run interests will now be higher as opposed to what it would have been in the absence of a downgrade.



“That will affect everyone who needs to borrow, be it households or the government. It also means that to attract foreign investment into the country, we will have to offer more attractive returns on investment,” Burger adds.



The African Peer Review Mechanism (APRM), a specialized entity of the African Union (AU), noted that because this has happened twice now since the start of the pandemic, the “expectation that fiscal deficit will widen and government debt will rise.” Like many other countries, the Covid-19 pandemic has had a severe impact on South Africa’s economy. However, Fitch said that investment spending had already weakened in recent years in the country, falling last year to the lowest level in real terms since 2012. This reflects on challenges to the business environment such as the poor reliability of power supply, labor market inflexibility, and subdued domestic demand prospects. Although Moody’s said that the country had maintained a negative outlook in place since the beginning of November 2019, the South African National Treasury stated the Covid-19 pandemic hit South Africa at a difficult time. “Recent downgrades saw South Africa reaching its lowest credit rating levels from the ‘big three’ rating agencies since 1994. Economic growth has continued to decline irrespective of the attempts to reduce structural constraints,” the statement read on Saturday. Fitch further said that though President Cyril Ramaphosa announced an Economic Reconstruction and Recovery Plan in October, which focuses on boosting infrastructure investment, increasing energy supply, job creation, and re-industrialization, the country’s “track record” leaves nothing to be desired. “The track record of implementation of earlier reform initiatives has been relatively weak and, even if implemented, the effect of the reforms would be limited and take time to accumulate,” Fitch’s statement read. Unemployment in South Africa continues to be one of the country’s biggest challenges as it sits at 30.8%, according to Statistics South Africa (Stats SA).



“While South Africa is not alone in having been severely affected by the crisis, its capacity to mitigate the shock over the medium term is lower than that of many sovereigns given significant fiscal, economic and social constraints and rising borrowing costs,” Moody’s stated in their release. South Africa’s Minister of Finance, Tito Mboweni, stated that the downgrade “is a painful one” and the implications of this will now affect the country’s borrowing costs. The National Treasury added that as outlined by the president’s recovery plan, the government’s plan to prioritize economic recovery and fiscal consolidation remains the same. “The downgrade will not only have immediate implications for our borrowing costs, but it will also 6 constrain our fiscal framework,” Mboweni said in a statement. “There is, therefore, an urgent need for government and its social partners to work together to ensure that we keep the sanctity of the fiscal framework and implement much-needed structural economic reforms to avoid further harm to our sovereign rating.” Professor Burger believes that from an expert’s perspective, the government would need to take the following steps to alleviate the problem: “Re-establish fiscal sustainability and take steps to arrest the upward trend in the public debt-to-GDP ratio and ensure it does not breach 100%. This will require enforcing the medium-term budget policy statement (MTBPS) plans on the salary freeze on civil service salaries for this year and the next three years; Take necessary steps such a reducing red tape and policy uncertainty; Take steps needed to release spectrum and restructure and liberalize the energy sector. The latter includes getting the green energy sectors going. Many of these plans are in the pipeline but need acceleration.”



Treasury stated however that the rating agencies have indicated that the country’s rating strengths include “a credible central bank, a flexible exchange rate, an actively traded currency, and deep capital markets, which should help counterbalance low economic growth and fiscal pressures.”

Economy Concept

What South Africa’s Recent Credit Rating Downgrade Actually Means

It is perfectly possible to be in Mauritius and not see a spot of sea.
As a business traveler, if you are staying in any one of the upscale business hotels in the central business district of Ebene, where most men in sharp suits ponder the fate of the island as a gateway to Africa, the white sandy beaches and rhythmic Sega dances in the charming fishing villages are but a distant laidback dream.
This is an economy working overtime, with a new ambitious government and a population weaning off idyllic vistas of just the surf, sand and sea, and wanting much, much more – quicker.
“This country got rich too soon,” says Sattar Hajee Abdoula, CEO and Head of Taxation and Advisory Services at Grant Thornton in Mauritius. “So everyone is aspiring to be rich.”
We are driving back in Abdoula’s white Mercedes convertible after a sumptuous three-course dinner in the plush, green, valley-facing home of one of Mauritius’ most-successful senior bankers.
“The mind-set has totally changed in the country,” says Abdoula matter-of-factly, pulling into the driveway of the classy Hennessy Park Hotel in Ebene Cybercity where a room can cost up to $220 a night.
It’s Friday night, and the hotel’s parking lot is packed to the rafters. The swanky customers and swarthy bouncers are all headed to the swish Backstage Lounge Bar in the hotel’s ground floor that has at its entrance an arty installation of a collage of inverted guitars, and once you walk in, meandering hallways that lead to live music and the bar, where hordes of young men in leather jackets and women in lacy tank tops writhe in unison on the dance floor.
Somewhere in the distance, away from the island’s commercial heart, the high tide and the moon, resembling a nail in the sky, succumb to nature’s chorus, as the fierce waves lash on to the shores of this green island in the Indian Ocean.
The land once home to the dodo is a biodiversity hotspot. You hear inspiring stories of people moving to organic farming and the growing prevalence of permaculture; even tales of the pink pigeon that has been heroically saved from extinction. Everywhere you look, swaying sugarcane plantations, and the sweet smell of money.
There is a profusion of green on land and blue in the ocean: and both economies are being revamped by the country’s scientist-president, Ameenah Gurib-Fakim.
The natural resources of Mauritius were a big draw card for CIDP, which runs a sophisticated facility here for high-performance research and clinical trials, sourcing active ingredients for pharmaceutical and cosmetic companies around the world.
“Mauritius is the hotspot for diversity, with a multi-ethnic population we can access for trials,” says Claire Blazy-Jauzac, Group Managing Director of CIDP.
The island is a rich repository of fauna and flora known for several indigenous species – and not just the extinct dodo. Its farming practises are rated among the best in Africa.
“Africa is lanes and streets and cities behind Mauritius when it comes to agricultural practices,” says MD Ramesh, President and Regional Head South and East Africa for Olam, Africa’s leading agri-business.
“Mauritius has a great talent for agriculture and is far better than most of Africa.”
Durban-based Ramesh says he is seriously considering moving to Mauritius when he retires and is actively seeking a Mauritius passport.
Visitors to Mauritius’ gleaming new airport terminals will see the first signs of a country prospering from tourism dollars. For those seeking retirement, the climate – both political and weather – is conducive, says Ramesh.
To most, the tax haven is a haven for more reasons than one, including the comfortable lifestyle it offers, access to amenities and most importantly, the fresh seafood. The juicy prawn curry and rice in any of the eateries in the village of Moka, called the heart of the island, is worth arriving in the country for.
You also can’t miss the bounties of the land. Robert Gordon-Gentil converted a sugarcane field into a thriving restaurant business 15 years ago. Chez Tante Athalie at Pamplemousses in Grand Baie serves authentic Creole cuisine on weekdays for lunch. In its front yard are hulking trees Gordon-Gentil planted with his own hands when they first started; he sources all his ingredients for the restaurant from this garden. Here, he also displays his collection of vintage cars. The foreigners and diners love the assortment of cars and cuisine. Occasionally, Gordon-Gentil also drives his old cars to town, making sure they don’t stutter to a stop on the way.
Surprisingly for a small island-nation of 1.3 million people, peak-time traffic on the arterial roads, especially in Port Louis, is a nightmare. It’s best to set aside enough time to traverse between different parts of the island that the locals categorize simply as East, West, South and North. Also watch out for stray dogs that are rampant and a serious problem in Mauritius.
Getting around is expensive.
“Mauritius presents a real business case for Uber,” says 26-year-old freelance photographer Keshawve Jeewon, who runs his company GrandMoments, offering photography and videography services by the picturesque mountains of Flacq district.
He drives his dad’s old Ford pick-up truck when scouring the island for work, but owns an Audi A4 sedan for his social sojourns.
“An Uber-like service should be started as soon as possible. Someone will get rich very soon,” says Jeewon, almost as if he had been toying with the idea himself.
In the distance, as we drive past verdant Verdun, he symbolically points to Mauritius’ second-highest mountain named Pieter Both, characterized by a rocky formation at the top resembling a human head, in thought.
It’s in contemplative mode looking for new horizons of opportunity, like young Jeewon, and the country itself.

DCIM100MEDIADJI_0095.JPG

The Sweet Smell Of Money, Sans The Sea

In a rundown street in the center of Mombasa, Kenya, a short walk from the port, I sat down in a Chinese restaurant for a meeting with an infamous man of whom I had heard many talk about. Waiting for him to arrive, watching the door, I saw him enter the restaurant, his eyes flitting across the empty room. He beckoned to a table more secluded and out of the view of most patrons.
As I sat down, extending my hand to greet him, he looked me up and down with suspicion. “Who are you?” he asked, seeming very wary of me despite the fact that we had been in email contact for about a month before my arrival in Kenya. I pulled my papers and business cards from my bag, by way of introduction, only for them to be taken from me. He made off, papers in hand, to conduct an inspection and make copies.
“It’s a very sensitive business this, Miss Otto,” he elucidated upon his return, staring at me intently, still clearly unsure of my intentions.
Piracy, the topic that I was there to research, is a complex affair, and now also an industry that costs the global economy between $7 billion and $12 billion a year.
Andrew Mwangura, the man I met that day, is a famed piracy negotiator at the heart of this industry, which has spawned an underground economy generating hundreds of millions of dollars in illicit profit every year.
Mwangura has been dealing with piracy for nearly two decades, spending most of his time running the East African Seafarers’ Association. The rest of the time he negotiates ransom deals between pirates and shipping companies for vessels and kidnapped crew.
Mwangura has found a degree of notoriety in this line of work. Indeed, modern-day piracy, particularly the Somali version, has captured the attention of the world through reports that could be straight out of a big-budget movie about growing organized crime plaguing African waters. These are tales of desperate, young, armed men in fishing boats; capturing vessels, kidnapping crews and holding them for months claiming multi-million dollar ransoms.
The 21st century face of piracy is a world away from the adventurous romance of Blackbeard 300 years ago. It is a slick and nasty trade.
Since the turn of the century, piracy has been on the increase and shifting from Southeast Asia to Africa’s north-eastern coast. Maritime piracy is now a well organized and sophisticated industry where young Somali men, armed with automatic weapons and rocket-propelled grenades, carry out attacks on specific targets and collect roughly $240 million in ransom money each year.
According to the latest figures released by the International Maritime Bureau, on January 19, Somali pirates held 151 hostages to ransom; worth roughly up to $90 million. A study released by Oceans Beyond Piracy in 2010 illustrates that the cost of ransom payments only makes up a small portion of the total cost that the global economy incurs.
While these costs are being carried worldwide, countries in the Horn of Africa region are suffering even more, especially Kenya. The Kenya Shippers Council estimates piracy costs the Kenyan economy $400 million every year.
Piracy surcharges, which are now applied as an additional tax to shipping tariffs, have increased the costs of both imports and exports in Kenya. These surcharges are now commonplace, as a result of the rising cost of insurance, owing to the risks they take in pirate-infested waters. Inchcape Shipping Services says piracy surcharges have added around $100 million to the cost of container imports, and roughly $260 million to the costs of dry bulk and liquid cargoes.
Tourism, a cornerstone of the Kenyan economy, has also been suffering. Cruise ship calls, for example, which brought in around $300,000 a year, have declined from 35 in 2008 to none because of the pirate threat.
Despite so much money being at stake, the fight against piracy has been ineffectual. Why? There are a number of reasons: the lack of the political will to galvanize money and people into action. One of the biggest problems has been that piracy, having arisen from the failure of the state in Somalia, has been fought on one front alone—the ocean. In reality, piracy must be tackled in a two-pronged approach—also in the land from which it emanates.
Somalia suffers from acute instability. It is under these conditions that piracy carries relatively low risk and high reward. It is this element that counter-piracy ventures seem to ignore.
“Piracy must stop naturally,” Mwangura would say. “You can’t fight poverty with guns.”
How can Africa fight piracy? Some gung-ho types have argued that international law can be interpreted to allow forces to ‘blow’ pirates out of the water—perhaps using private armies onboard. Other more peaceful methods include: following the flows of pirate funds; attempting to bring stability to Somalia; improving the quality of life in Somalia for those who otherwise may be seduced by piracy; prosecuting pirates and strengthening the laws against them.
As Captain Jack Sparrow, the fictional buccaneer in Hollywood’s Pirates of the Caribbean, said: “The only rules that really matter are these: what a man can do and what a man can’t do.”
According to the latest figures released by the International Maritime Bureau (updated on February 29, 2012), Somali pirates are currently holding a total of 12 vessels and 177 hostages to ransom; worth roughly $120 million, assuming that top ransom settlements are attained.
Up until now, the Somali piracy debacle has been overwhelmingly characterized by what the pirates can do and what international forces cannot.
<h3>Pirates Punish With The Pain Of Captivity</h3>
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Twelve gunmen wielding AK-47s stormed a South African yacht en route to Richards Bay, on the coast of KwaZulu-Natal, on October 26, 2010. They took hostage Bruno Pelizzari and his girlfriend, Debbie Calitz. The pirates turned the vessel around and set sail for Baraawe in Somalia.
In the 16 months since then, armed groups have bought and sold the couple like a commodity. First Pelizzari and Calitz were sold to Al-Shabaab, a radical Islamist group associated with al-Qaeda. The group then sold the couple to Somali traders.
In the quest for freedom, a complication has arisen—the South African government does not pay ransom demands. Defense Minister Lindiwe Sisulu dispatched the Navy frigate, SS Mendi, to patrol the Mozambican Channel in a bid to curb piracy.
The Gift of the Givers Foundation, the largest African disaster relief organization on the continent, has been in Somalia to negotiate their release. It has managed to bargain down the ransom price from $10 million to under $1 million. The ransom was increased to $1.5 million when negotiators met with the captors on February 27, who alleged that a third party had matched the amount.
Dr Imtiaz Sooliman, founder of the Gift of the Givers Foundation, hopes the hostages will be home in Durban before the end of April.
“We know where they are. The time is now… We are telling them take it, leave it, or keep them forever,” he says.
Vera Hecht, Bruno Pelizzari’s sister, raised money for the ransom through an online and SMS campaign. She said car guards and petrol attendants reached for their cellphones to SMS when they saw a campaign poster on her car. Small businesses have also come up with thousands of rands, along with South African-based Somali communities.
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Tag: African economy

FORBES AFRICA SOCIAL MEDIA

Naira Hits Historic Low At ₦1,005 To $1 In Parallel Market, Raising Concerns Amid Economic Challenges

Nigeria’s Slowing Growth And Recession Concerns

What South Africa’s Recent Credit Rating Downgrade Actually Means

The Sweet Smell Of Money, Sans The Sea

Pirates of the Indian Ocean