Since 1986, the Nigerian naira’s relationship with the US dollar and other foreign currencies has been erratic, unpredictable, violent and full of heartbreak and tears.
And indeed, the perpetual fall of Nigeria’s legal tender, naira against foreign currencies is exacerbated and the current impossibility of the federal government to lift it up from the mold of triviality to the international standard is called ‘inflation’.
Techeconomy.ng, in this article, is considering the effect of inflation with the dwindling value of Naira on Nigeria’s economy.
The term inflation is the rate at which the value of a currency is falling and consequently, the general level of prices for goods and services is rising and if industrial production is the key to raising a nation’s living standards, then Nigeria has been struggling for years.
Indeed, the country is facing two major forces which are inflation and its dwindling value of Naira. Although the elements are one because they are inseparable.
The reason being that most of the consumable goods in Nigeria are imported from either African or foreign countries.
The importers of these products even though their supposed number one motive of importation is profit making, they are also helping their fellow Nigerians from starvation.
And since it is what they buy is what they sell, the sellers of these goods don’t have a choice of selling their product lesser than they are purchased.
It is quite confusing that in 2015, the CBN refused to further devalue the Naira, saying it would not have had direct impact on the country’s exports as a mono-economy.
The central bank added that the naira devaluation would lead to hyper-inflation because when the import is higher, for the country that largely depends on importation, it would lead to an increase in price of goods.
The value of naira was totally wrecked against the US dollar after it was devalued two times in 2020 and because of investors had been unable to get the foreign currency at the CBN’s official rate of 390, the apex bank removed the rate from its website, leaving the business people mercilessly.
Nigeria, the country with the largest number of poor people in Africa, accounting for about a quarter of Africa’s poor, has been trying to encourage local production of rice and other agricultural goods, using a mix of policies including foreign exchange restrictions on food imports, tax on rice imports, and support to local producers.
President Muhammadu Buhari in trying to diversify the country’s economy from crude oil, in August 2019, ordered the partial closure of the country’s land borders, and since October 2019, it had halted all trade via land borders.
Although the idea would have worked out if the country’s food production is already on the pick and the prices of the locally made products are cheaper and better than imported ones.
At low income levels, agriculture has long been key in reducing poverty. A recent World Bank study indicates “Africa’s rising food import bill poses a burden on the external balances and signifies an important missed opportunity for accelerating poverty reduction through food import substitution.”
Wheat and rice hold especially significant potential for income growth and poverty reduction. The high volume of cheap rice imports moving through Benin from outside the region threatens this potential in Nigeria, and this will become an issue far beyond Nigeria as countries across Africa ease restrictions on the movement of goods, services, and people.
Emefiele, in his remarks at the All Civil Society Economic Workshop with the theme: Understanding the Economic Implications of the New CBN Policies and the Role of Civil Society in Policy Advocacy and Economic Development, organized by the Coalition of Civil Society Groups in Abuja said: “The simple idea behind devaluation is that it will make your import more expensive while your export is cheaper.
“Our major export commodity which accounts for more than 80% of our income is crude oil and here is crude oil that the price is determined, we don’t have a control over it.
“So, if we devalue, it has no impact directly on our major export, and what is supposed to be the non oil export, we are not producing effectively.
“It means that for the industry which is also import dependent, they have to pay higher prices for those goods which will translate to higher inflation.”
The current debate around whether or not Nigeria should devalue the naira has been comprehensively attended to and the question of whether Nigeria’s naira will rise again or not remains fresh in the mind of investors, policymakers and common man on the street.