The naira had been experiencing a free fall for some months now and there seem to be no stopping it. Some have even predicted that it may fall so low to the extent that 1 pound starling will have same value as 1000 naira. It is hoped this prediction will not come to pass.
The naira received slight boost few days ago though. It looked like it was back on its path to recovery. However, recent news filtering through had it that the naira is pummeling again against the major global currencies, like the pound sterling in recent days. As at today, the pound sterling is bought at the rate of N550, while it is sold at the rate of N560 in the black market.
The official rate is however lower than this; CBN rate for pound sterling is N385. You will agree that this is a real huge gap. The federal government had made several efforts to see a naira rebound, but all the efforts seem not to be paying off.
At a point in time, the federal government banned importation of certain items with the hope that this will reduce the demand for foreign currencies like pound sterling. However, it is unfortunate that such ban didn’t help matters. In fact, the naira fell much against the pound starlings during this period than ever before.
Also Read: Dollar to Naira Exchange Rate Today
Another effort made by the federal government to stem the tide of fall in naira value was the forceful pegging of the exchange rate with refusal to devalue. This method too never worked as it never could stop the fall of the naira further against major global currencies.
The idea of TSA brought up by the federal government too did not produce much solution as expected.
It is clear to all that there must be something more inherently wrong with the naira, hence its refusal to wake up from its slumber. It means there must be something the federal government is missing, hence its inability to steer the nation’s currency back to the path of the good old days.
In this write-up, we will look at some of the factors that must have been responsible for the fall being experienced by the naira and why the federal government seems helpless in the situation. We will also consider certain solutions to the problem
Any import-dependent economy is sure to suffer the same fate the naira is suffering today. Nigerians import virtually anything imaginable to the extent of importing toothpick; that is how bad it is.
There are made in Nigeria cars around, but Nigerians prefer to import cars. The increasing rate of importation is having debilitating effect on the naira. The crave for imported goods means Nigerians have to demand more for foreign currencies, like the pound starlings.
This rise in demand for scarce foreign currency brings about a situation in which much amount of naira is searching for the scares pounds commodity. The law of demand kicks in and leads to a situation whereby more money is needed to buy the pounds, leading to the fall in value of the naira.
The law of demand kicks in and leads to a situation whereby more money is needed to buy the pounds, leading to the fall in value of the naira.
Unfavorable government policies
Government policies too have not been helpful in the least and they have been contributing negatively to the issue on ground. If the naira is to rise to the desired rate, then the government has got to sit tight and be more serious about bringing the desired change Nigerians hope for.
The government might not have made any announcement of devaluing the naira, but it is clear to all that can see that the naira is already unofficially devalued. Even the CBN is not selling at the initial lower rate anymore; they now sell at N383 against the pound sterling.
The government should be at the fore-front of promoting made in Nigeria product, but they are at the forefront of importation. The national assembly imported vehicles the other day amounting to approximately 29,000 pounds.
Imagine if the money had been invested into Nigeria economy how the economy would have been boosted. There is Innoson Motors making cars in Nigeria, but the National Assembly, one of the arms of the government, decided to spend scarce foreign exchange on vehicle importation.
Demand for foreign exchange
Many Nigerians believe more in foreign exchange than the local currency. The foreign currencies do have more value and more security, since there is good chance it will increase in value, thereby making them richer.
As the demand for foreign currency increases, the value of the naira depreciates. It is imperative that Nigerians begins to change their orientation in order to boost the naira, just like the government too needs to change its orientation if things must get better.
There are schools in Nigeria where foreign currency is used in paying school fees. There are houses too where landlords prefer to be paid in foreign currency. In addition, there are some contractors and other service providers that prefer to be paid in foreign currency.
These and many more are the factors militating against the naira and causing its perpetual fall in value.
Fall in value of crude oil
Crude oil sold for far above $100 a barrel as at 2014. It however started its reduction in value since the moment Iran decided to enter into the crude oil exportation. This led to the increase in production and the law of demand and supply also kicked in, leading to fall in value of crude oil.
At a point, the value of crude oil fell to as low as $38 per barrel. This situation led to scarcity of foreign exchange in Nigeria. Do not forget that Nigeria is more or less a mono-economic nation; this means Nigeria’s main source of GDP is crude oil.
Fall in value of the crude oil equally led to the fall in the GDP, hence a reduced value of the naira, since more naira now chases less foreign exchange.
Public fund looting
May politicians and government workers are public fund looters. They see Nigeria’s resources as a National Cake that must be shared. Lots of money had been stolen by government officials and politicians at all levels of government, be it federal, state or local government.
This is affecting the naira exceedingly. To make matters worse, the money stolen most of the time is in foreign currency.
After stealing such monies, they are not kept in circulation in Nigeria. Rather, they are sent to banks abroad. As a result, other countries benefit from the stolen money, while Nigeria, the owner of the money, continues to suffer.
What is the way out?
The naira may not be able to help itself at this stage and it depends so much on Nigerians to help it out. Things look very bleak at the moment and there seems to be no solution in sight.
However, Nigerians can turn things around by being more responsible to Nigeria. Public fund looters should start having a rethink and stop their unbecoming ways of life.
The government too should be sincere about monies recovered from public fund looters and they should make sure such monies are made available so that they can be re introduced into the Nigerian economy on time.
With such foreign exchange available in the economy, the naira is sure to receive the most desired boost and regain its place of pride among the comity of nations.
Nigerians should stop the unreasonable search for foreign goods too and this will further help the naira to strengthen. Instead of buying goods from foreign lands, like the UK, the US or China, Nigerians should start patronizing made in Nigeria products.
Increase in number of those buying Nigerian made goods will surely boost the naira, since there will be more demand for the naira than ever before.
The governments should start changing their unhelpful policies. Policies that place limitation on home-made products should be reviewed and the market should be comfortable for all.
Manufacturing companies in Nigerians should source their raw materials from the large pool of raw materials in Nigeria instead of importing such from abroad. This will surely lessen the burden on foreign currencies and will help the naira to recover quickly enough.
Since no one can say exactly when crude oil will increase in value again, it is high time Nigerians started thinking of other means of improving on the country’s GDP. It is high time Nigerians go into full scale farming.
Nigeria has more than 170 million people, which means we are big enough to grow our own foods. We should be able to produce enough food to even export and this is one of the ways to boost the naira.
The government too should provide assistance to Nigerians who are interested in going into agriculture. This will help boost home grown production and it will lessen the pressure on the naira.
Nigerians will not look for foreign exchange again to import foods and we can even generate foreign currency to help add to the country’s GDP.
So much had been said about the problem and the possible solution. The question now remains if Nigerian government and Nigerian people are really ready to change. The unfortunate thing is that the naira will continue to suffer if we fail to change our attitudes towards Nigeria.