BY MADUABUCHI EFEGADI
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Weakens citizens’ purchasing ability
The declining value of the country’s currency, the Naira, amid an unprecedented foreign exchange (FX) crunch has imposed on Nigeria impossible transaction burdens to deal with, according to a new analysis by Breeqhive, an analytics firm.
“The unavoidable constraint it places on the ability of Nigerians to purchase goods and services they ordinarily had acclimatised to is alarming. Similarly, the availability of foreign exchange for cross-country business transactions, travel expenditure and international payments have been impossible burdens to deal with,” the report said.
It alluded, however, that the country’s politicians have had no shortage of supply of US dollars with which they incentivise party delegates for votes, whereas the general populace or private sector have had to join long wait-lists to access FX to make payments for imports of goods, payment of school fees to institutions abroad or stipends to their wards and families across the globe.
According to the analytics firm, the beginning of the Naira’s ailment dated back to 1973 when it was first introduced, but began its steep and consistent decline in 1986. To date, the currency exchanges for N712 to $1.00, from N2.02 in 1986, representing a decline of more than 35,200 percent.
“It has always been the recommendation of Western governments and the International Monetary Fund (IMF) for Nigerian Heads of State to revive the collapsing economy by devaluing Naira. President Ibrahim Babangida, for instance, around June 1986, outlined a plan intended to reduce the official value of the naira slowly until it coincided with the black-market rate. After almost 40 years, Nigerian presidents are still following the same counsel to access more loans, with the hope of deterring the financial crunch Nigeria finds herself in,” the analysis said.
By 1972 to 1982, the naira-dollar exchange was between 0.540 and 0.647, until 1986 when it jumped to 2.02. By the year 2000, the nation’s currency exchange ballooned to N85.98/$1. By 2010, it was N148 to N154. Its worst performance against the dollar was in 2015, when it jumped from N199 to N300, until the present N700+.
Inflation around the world, but Nigeria worse off
Nigeria, however, is not alone in the battle against inflation, the analytics firm noted, as it said, more stable and fully developed economies which have maintained historically low inflation rates over several decades, have been experiencing financial turbulence as well.
But comparatively, Nigeria is worse off, with a staggering 20.54 percent headline inflation year-to-date, according to data from the NBS.
For instance, the United States of America has seen its highest inflation rate ever since December 1981 at 8.6 percent. The US and Europe have seen an astronomical increase in prices of consumer goods, gas prices per gallon, and services. Global macro trends professionals and analysts had projected prices and all categories showing an acceleration in 2021 which has persisted into early 2022 and till the end of H1, the analytics firm said.
According to Holger Schmieding, the chief economist at Berenberg Bank, in Berlin, Germany, “bankers didn’t seem to fully anticipate just how high inflation numbers were going to get. And this is very much true for Europe, where the inflation that we are having is exclusively the result of higher prices for energy, food and a result of these logistic logjams exacerbated recently by the Chinese lockdowns.”
However, the effect on Nigeria’s 200 million plus populace has been worse than bearable for many. To date, most food items have increased by more than 100 percent, causing a strain on household income which has not been increased in most organisations.
In July, this year, the nation’s statistics body, National Bureau of Statistics (NBS) said the country’s headline inflation was 19.64 percent, the highest in history. It showed 2.27 percent higher than the same period in 2021, when it was 17.38 percent. Food inflation was 23.12 percent. That got worse in August when inflation rose to 20.54 percent sending panic across various financial market segments. And with food inflation said to be more than 50 percent responsible for what has become a nightmare for households, the focus on the forthcoming 2023 general elections has tended to douse the tragedy that Nigerians currently face.
Breeqhive said businesses in Nigeria have had to employ some creative measures to stay afloat amidst the rising cost of operations. The frequent fuel scarcities, rising diesel prices, and lower purchasing power of customers have posed a great threat to the survival of many small businesses. Similarly, big businesses such as banks and consulting firms such as the big fours have been lamenting the exodus of key talents among their staff. Many, especially tech talents have taken the popular route of relocating to more predictable economies which provide safe havens for skilled workers. The decision is merely transitory with almost no teething phase for professionals with sufficient years of experience, the analytics company said.
Though predicting further decline of the naira, pending a time when Nigeria can produce most, if not all it consumes and export enough in exchange for sufficient dollars to purchase the remainder of the country’s needs, Breeqhive suggested that Nigerians must find alternative ways to get foreign exchange themselves.
“Exporting product or service or digitising a product that can be exported internationally, to get FX may be a tenable option,” the analytics firm advised.
