Last updated on August 5th, 2023 at 09:25 pm
The depreciation of the Nigerian currency lately calls for worry, from N199/$1 at the time President Muhammadu Buhari and his APC-led government took over to N576/$1 at the time of publication, it would not be economically palatable for Godwin Emefiele, a successful GMD at Zenith Bank and a former finance lecturer, to leave behind a bitter legacy at Nigeria’s apex bank.
With the rate of the Naira continuing to lose its value against the USD, Euro, and pound sterling, we may see Naira record its worst performance in the forex market before the end of 2021.
In one of our FX forecasts, we’re more likely to see N600/$1 before December and it’s on that path.
If you want to know how ridiculous the value of the naira is, don’t compare it with USD, Euro, or Pound, come down to Africa; pair it with the Ghanaian cedi, South African currency (Rand), The Gambian currency (Dalasi), and the rest of them on the African continent.
What Went Wrong Between 2014 And 2021?
What went wrong between 2014 when Mr. Godwin Emefiele took over as governor of the Central Bank of Nigeria (CBN) and 2021 remains a mystery.
Emefiele was the perfect man for the job at the time former President Goodluck Jonathan “hijacked” him from Zenith Bank where he was the Chief Executive Officer and Group Managing Director.
He was a man that successfully paddle the Zenith Bank’s canoe and contributed enormously to the success of now one of the strongest banks in Africa.
From N166/$1 when he took over from Sarah Alade (who was in an acting capacity at the time) and heading towards N600 is a bad legacy anyone can leave behind.
Who Will Bear The Burden of Naira Depreciation?
Interestingly, the political class that invented the calamitous economic policies may not necessarily feel the impact hugely like the masses would.
We want to point out that the Buhari-led government can’t solely be blamed for the poor performance of the naira in fx market, but his administration made it worst. His man at the apex bank, Emefiele, has failed to defend the naira.
No one expected that it could be this worst during the administration that promised heaven and earth during the electioneering campaign between 2014 till the day it boosted out the 16-year-old administration of the PDP-led government.
At a time, the All Progressive Congress (APC) boldly said N166 to $1 was unacceptable when Jonathan was in power.
If you think you do not carry out any financial transaction in foreign currencies and conclude that it’s none of your business, you’re definitely not aware how economic policies may affect you, your family, and your earnings.
Below is a list of implications of naira depreciation on the well-being of the Nigerians masses:
- More Black Marketers of Forex
- Worst Balance Of Trade
- More poor people
- More desperate people
- Social vices
- Lost of values
- Brain drain
- Lost of trust in the system
In 2015, the exchange rate was below N200/$1 and now it’s N575/$1 at the parallel market (black market rate).
In 2015, inflation was below 10%, it’s over 20 per cent at the time of publication (21.03% in July 2021).
Nigeria’s situation is hyperinflation: what you bought at the market today isn’t what you get tomorrow, a crate of eggs has jumped from N600 to N1,700 in less than a year.
Inflation has also contributed more to unemployment. Companies are finding it more difficult to cope thereby cutting staff strength, financial institutions aren’t spared, some of them sacked their workers in order to adjust to the harsh economic reality.
Unemployment is now over 30% from 9%. The administration’s apologists may be quick to raise the issue COVID-19, but the poor performance of the economy didn’t happen in 2020.
The fact is: more people are falling into poverty, meaning the Social Intervention Programme (SIP) of the government isn’t making any real impact.
The government has to find a way to stem exchange rate depreciation as one of the ways to reduce the effect of inflation.
When there is inflation, high cost of food, more people are likely to take crimes. It is one of the effects of economic hardship which everyone can see in the North, West, South, and East.
Crime isn’t a justifiable reason, but we’ve seen more crimes under the APC-led government than the previous government.
More Black Marketers of Forex
Between 1997 to 1998, we saw recurrent fuel scarcity across the country. The regime gave birth to more black marketers of petroleum products. How is this relevant to the current forex crisis in Nigeria?
On July 27, 2021, Emefiele said CBN would stop the sales of forex to Bureau de Change (BDC) operators, saying they are aiding money laundering.
And the apex bank stopped the sales of $20,000 to the existing 5,500 BDC operators not minding the implications it would cause the forex market.
While the decision of the CBN was hailed by some economic analysts, the naira has seen its worst performance in the forex market. More black marketers of the forex are now out there more than it was before the new FX policy.
The rate has gone up because more ‘desperate’ people are in the market to buy FX for their needs.
Scarce fx in the market had led to ‘inflation” in the fx market, making the naira take a prominent position in the list of worst currencies in Africa.
More people are going to exploit the loopholes, black marketers will make more money.
Shutting down Abokifx, a parallel market tracking website, will not solve the problem, it will only make the platform even more popular.
Worst Balance Of Trade
Security is a major factor to a lot of other indices in an economy and for an administration that wants to lift 100, 000,000 Nigerians out of poverty in the next decade is a mirage if Nigeria’s balance of trade is calamitous.
More companies are closing shops due to insecurity and poor power supply, more importations than exportation.
For instance, in 2016, Nigeria experienced 8,817,558 imports as against 8,577,431 exports, that’s an imbalance.
The capital imported into Nigeria has not been encouraging:
- 2014 it was $21B
- 2019: $24B
- 2020: $10B
More Poor People
In July 19, 2021, Buhari reiterated his commitment to lift 100 million Nigerians out of poverty, though his term comes to an end by May 29, 2023, coupled with the problem of continuity of policy in Nigeria, he sings it like a national anthem any time he has the opportunity to address Nigerians.
The former military ruler has the capacity to lift 100 million out of poverty, but his economic policies are forcing more people into poverty.
The reality on the streets and data from the World Bank, and the National Bureau of Statistics show that more Nigerians are sliding into poverty, and the government is producing more hungry and angry citizens.
For instance, a report says 77.9 million or 39 per cent of the Nigerian population slides into poverty, citing 2019 data from the World Bank.
A year after, specifically in 2020, more people found themselves in extreme poverty as the number jumped to 84.8 million or 41% of the population, Premium Times, says in a well-documented report.
The CBN over the years strengthened the BDC operation to be one of the major stakeholders in the forex market, to wake up and introduce a policy to wipe them off the night will not only cause a shock in the market but will cause a crisis, which has bedevilled the fx market since July 27.
The performance of the Nigerian forex market or specifically Naira against USD over a decade interval shows that Naira may unlikely regain its value against other major currencies.
For instance, $1 was 71 kobo in 1970, and by 1980, it depreciated to 54kobo; in 1990 with $1, you would get N8.70k; in 2000 $1 would give you N106; $1=N156 in 2010, and by 2020, it worsened to N465.
And in less than a year it’s N570 and it’s likely to depreciate further if the head of CBN fails to tell the authority the truth.
Reliance on importation regardless of the amount you pump into the fx market may have little or no effect if the government continues to joke with security across the country.
Insecurity is impacting Nigeria’s Foreign Direct Investment (FDI), and flouting of the fx policies regarding Personal Travel Allowance by the political class must stop.