The Nigerian currency, the Naira has been losing value since the health and economic crisis. The IMF estimates a depreciation of more than 18% against the dollar. Whereas the Naira needed 0.5028 Naira for one FCFA on 02/01/2020, it now needs 0.6816 Naira on 12/02/2021, i.e. a depreciation of the Naira by more than about 35% against the FCFA. This instability of the Nigerian currency is also reinforced by the decline in oil resources and is reflected in particular in the prices of goods. The National Bureau of Statistics (NBS) estimated the inflation rate at 15.75% in December 2020.
Graph : Naira-FCFA exchange rate, since January 2021
Source: AJEB based on data from the Central Bank of Nigeria
While the IMF is advocating a devaluation of the NAIRA, we are assessing the potential effects on neighboring economies, particularly the Beninese economy.
Nigeria is one of Benin's main trading partners: in 2019, it was the 5th largest destination for Benin's exports. In a degraded scenario, the depreciation of the Naira against the FCFA will have a direct effect on the Beninese economy via trade. It will influence the import prices of goods from Nigeria and the prices in CFAF received by Beninese exporters. As a result, Benin's imports from Nigeria could increase. On the other hand, the loss of competitiveness of Beninese products vis-à-vis Nigeria will lead to a drop in exports of Beninese goods to Nigeria. Similarly, the decline in purchasing power in Nigeria due to rising inflation may reinforce this decline.
Moreover, although devaluation and depreciation of a currency refer to a loss in the value of a currency against a foreign currency, the two concepts differ from each other. When the loss in value of the currency results from the will of the central bank, we speak of devaluation (adapted for cases of fixed exchange rate regimes). Conversely, if the loss of value results from a free mechanism of the foreign exchange market (confrontation between the supply and demand of the currency), we speak of depreciation (a concept adapted to the case of a floating or flexible exchange rate regime).
CJEA