There was a collective sigh of relief from markets when the Nigerian Central Bank announced on Wednesday that it would, effective June 20, abandon the fixed rate for the naira against the U.S. dollar that it has defiantly held for 16 months and allow the currency to float freely.
The announcement comes amid difficult economic times—the economy contracted for the second quarter in a row, inflation crested 15 percent and security challenges remain in both the north and the Niger Delta regions —but it will not be a panacea. Robust economic recovery requires a series of difficult reforms around which there are increasingly positive signals.
“Devaluation is definitely policy movement in the right direction as the economy was beginning to hemorrhage,” said Henry Obi, chief operating officer at Helios Investment Partners, an Africa-focused private economic firm with significant Nigerian exposure. The foreign currency crunch that has defined 2016 for Nigeria came as a result of the oil price collapse starting in mid-2014, the empty coffers that greeted the Buhari administration elected in May 2015 and structural dependence on imports. Nigeria’s central bank decided to devalue the naira after months of pressure on the economy. A recent wave of violence in the […]