Additionally, he expects the Naira to strengthen to approximately N1,550/$ by January 2025. These forecasts were shared during the November edition of the Lagos Business School’s Breakfast Session, themed ‘Democracy on Trial! Trump – Going Back to the Future.’ Rewane emphasized that there is no economic rationale for the Naira to be trading below 30 percent of its fair value within the next year.
He stated, “The Economist Intelligence Unit predicts crude oil prices for next year will be $74 per barrel, suggesting that petrol prices could reach N1,200 per litre. The price of petrol will largely depend on global oil prices.”
He further noted that distribution logistics would also play a significant role in determining prices, and that higher petrol prices could help mitigate smuggling, while the official supply of PMS to other African nations would enhance foreign exchange availability.
Rewane remarked that the Dangote Refinery should not be viewed as a quick fix for Nigeria's fuel scarcity, foreign exchange issues, and high prices, as many Nigerians had hoped. He explained, “While the Dangote Refinery is seen as a potential transformative force in Nigeria’s oil industry, it is not the ‘silver bullet’ that many expected.”
He clarified that the refinery's pricing is subject to global crude prices and operational expenses. Consequently, he stated, “The Dangote Refinery will ensure supply and availability, but not necessarily lower prices, as it operates on a cost-plus margin basis.” He concluded by asserting that “smuggling will remain a challenge as long as Nigeria’s petrol prices are lower than those in neighboring countries.”
He noted that since the petrol price surged from N600 per litre to N1,030 per litre, there has been a significant 25 percent decrease in the number of vehicles on the road. Rewane reached this conclusion based on a vehicular count conducted along Adeola Odeku, a key thoroughfare connecting the eastern and western parts of Victoria Island in Lagos State.
The economist further stated that the Naira is undervalued by 35.18 percent. He indicated that the fair value of the Naira against the Dollar, based on its Purchasing Power Parity, is N1,090.24, in stark contrast to the current NAFEM rate of N1,682 per Dollar and the spot parallel rate of N1,742 per Dollar.
Rewane expressed optimism that the Naira could strengthen by January 2025, emphasizing that a critical issue requiring immediate attention is the mechanism for determining the exchange rate. He argued that there is no economic rationale for the Naira to be trading at less than 30 percent of its fair value within a year. He firmly believes that the Naira will regain some of its value by January 2025.
He identified the exchange rate as a primary driver of inflation in Nigeria, asserting that a partial recovery of the Naira would not only help mitigate inflation but also alleviate the saturation of money supply in the market.
The Monetary Policy Committee (MPC) is expected to maintain its current stance to allow the effects of existing policies to take hold; however, the inflation data for October, set to be released on November 15, may either reinforce or change this outlook.
Additionally, he highlighted that fluctuations in crude oil production could significantly impact Nigeria’s trade balance and, by extension, its exchange rate. He noted that periods of a positive trade balance tend to align with a stable exchange rate, while high crude oil production typically corresponds with exchange rate stability.
Conversely, elevated oil production and prices generally result in a trade surplus and a stronger currency, whereas low production or prices lead to a trade deficit and currency depreciation.
He stated that the most favorable outcome for Nigeria would involve the Central Bank of Nigeria maintaining elevated interest rates until 2025, leading to a surge in capital flows, regular rDAS, and an increase in oil production to 1.55 million barrels per day.
He further noted that corporate entities are struggling under the weight of foreign exchange losses, which have resulted in a reported cumulative loss of N2 trillion among ten major companies, adversely affecting their earnings.
He pointed out that many firms rely on foreign exchange support from their parent companies, as the unified exchange rate has distorted their financial statements and led to unforeseen expenses.
He also mentioned that the fixed assets of these companies, acquired at historical prices, have fully depreciated, contributing to operational inefficiencies and increasing the need for expensive maintenance and replacements at current market prices.
Additionally, he indicated that companies with foreign-currency debt are encountering higher costs associated with servicing their loans.