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The truth is, while our Naira is weak and gets weaker with each passing day, the reasons are actually lost on many. Millions of Nigerians literally suffer financially and mentally when the dollar exchange rate goes up and consequently, will point to it as the immediate factor behind the Naira’s poor showing for years now but the matter runs deeper than that. The Naira is a currency that facilitates the weirdly composed economy that is Nigeria’s. The very nature that our economy assumed in the first twenty years of independence with all the attendant factors of politics and oil have served to put the Naira in a perpetually difficult situation. Inflation has been a constant feature of the Naira and the economy, and that is really down to one thing- oil. Well, oil and especially the fact that we do not produce anything other than oil. You see, the unseen hand that is supply and demand plays a role in currency too. The more people have a need to use your currency, the more the value. Nigeria sells its oil in exchange for dollars generally so much of that value is lost on the Naira. Moreover, the oil dependency has wedded our currency to the dollar because it is really the only thing this country is capable of exporting as it stands. What’s more? We pay a lot of dollars to import refined petroleum products. So what that means is that Nigeria spends Naira to purchase dollars; to purchase refined petroleum products.
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That said, the accelerated inflation of that past few years is really down to certain harebrained policies on the path of government that may have crippled Nigeria’s modest competitive advantage in West Africa for instance. We have established that we do not produce a lot, however, Nigeria does have a trade advantage with respect to the West African sub-region, and much of what is traded is food. The fact that people who trade with us have good reason to use the Naira does a good lot for the currency. But Buhari’s government shutting the border for nearly two years now, your guess is as good as mine as to what has become of the venture for most traders. Inflation is literally too many Naira notes chasing too few items. With the food crisis that has come out as a result of the recent increasing spate of insecurity in the country, prices have continued to rise, thus decimating our already weak currency a huge chunk at a time. SBM Intelligence reports that where it cost around 4000 Naira to cook a pot of jollof rice at the turn of the year, it now cost nearly double that. Mind you, personal income has not budged in that time. Food prices affect everyone and everything as most go to work to afford it among other things. What this means is that the currency is not only losing value but also people are sinking into poverty by the minute. As a result, the quality of life that the average Nigerian can aspire to is reduced significantly. In truth, a weak currency is really not the doom and gloom that it may seem, as it can be a self-correcting factor in economic growth. In spending to purchase imported goods, the country could evolve a stronger production base due to the currency discount. It is highly unlikely in Nigeria’s case, however, as the government has only ever paid lip service to diversifying the economy. So in actuality, a weak Naira is only a symptom of warped economy hinged almost solely on oil and not the problem by and of itself. Featured Image Source: Leadership News
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