Politicians stocking up on dollars before Nigeria’s primary elections start over the weekend are helping to drive the local currency to new lows. 

The naira weakened to 600 against the greenback this week in the unauthorized parallel market, according to Abubakar Mohammed, a bureau de change operator that tracks the data in Lagos, the commercial capital. It’s the lowest the currency has traded this year in Africa’s most populous country, where the central bank maintains a tightly controlled official exchange rate but many residents make use of the black market.

The official naira rate was 415.95 as of 6.26 p.m local time on Wednesday. The parallel market thrives on shortages, which has helped drive the gap in the two rates to above 40%.  

Politicians competing for support from delegates in the party primaries are creating massive demand for dollars in cash, Mohammed said by phone. “Demand is not going to abate soon, which means more pressure for the naira, and also because dollar supply is very low,” he said. 

Nigeria’s two major political parties, the ruling All Progressives Congress and main opposition Peoples Democratic Party, plan to hold primary elections to decide legislative, governorship and presidential candidates from the weekend to early June. The country will elect a new national leader in February to replace Muhammadu Buhari, who ends his second four-year tenure in May. 

Spokespeople for the two parties didn’t immediately respond to calls requesting comment.   

Politicians in Nigeria have a history of buying votes at party primaries going as far back as the 1993 elections, said Idayat Hassan, director of the Abuja-based Centre for Democracy and Development. “I think we’re just seeing the beginning of rise of the dollar because as we move closer to the primaries and the parties are trying to put their houses in order, the value of the dollar will also trade up.”

Nigeria’s central bank could be forced to devalue the naira if it continues to weaken in the parallel market. It has done so three times since March 2020 in a bid to curb demand and close the gap between the official and unauthorized rate. 

The central bank should improve supply of the greenback rather than suppress demand, Aminu Gwadabe, president of the Association of Bureau de change Operators of Nigeria, said by phone. There is a “lack of confidence in the local currency,” Gwadabe said. 

Bloomberg