One year after the Central Bank of Nigeria (CBN) floated the Naira to achieve a unified exchange rate, the Nigerian Exchange (NGX) has witnessed a dramatic decline in its market capitalization, dropping by $27.8 billion. This notable downturn shows the challenges and economic impacts associated with attempts to stabilize national currencies through exchange rate unification.
Initially, the move to float the Naira generated optimism among foreign investors, leading to a temporary boost in the NGX's value. On June 9, 2023, the NGX closed with a market capitalization of N30.45 trillion, approximately $65.5 billion at the old exchange rate.
However, this enthusiasm was short-lived as the Naira depreciated sharply from N465/$ to N756/$, causing the market cap to plummet.
David Olujinmi, a financial analyst, noted, "The initial excitement among foreign investors quickly dissipated as the market failed to achieve true unity. By July 2023, foreign participation had dropped seriously."
Despite some recovery in foreign participation, which reached 34.97% in June 2024, the overall market performance remained dismal. The All-Share Index appreciated by 33.81% to close at 100,057.49 points, but this was overshadowed by the Naira's depreciation of 39.20%, resulting in the $27.8 billion loss in market capitalization.
"The disparity between the parallel and official market rates was over 60% before the unification move," explained Olujinmi. "This, coupled with a scarcity of forex, exacerbated the situation."
The NGX is not alone in facing these challenges. The Egyptian Exchange (EGX) also experienced a significant decline in market capitalization, losing $26.6 billion following Egypt's decision to float its exchange rate.
Kommentare