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Nigeria Faces Greater Crisis with Oil Price, the Naira's Fall
Nigeria's apex bank, Central Bank of Nigeria, publishes foreign currency exchange rates daily and its recent figures have consistently shown over 100 percent disparity in what actually obtains. While the bank indicates a rate of between 196 to 198 naira to the United States dollar, Nigerian travelers and business men can only dream of these figures. The real life rate hovers between 300 and 400 naira to the dollar and is fixed at the whim of black market operators. The CBN is simply playing ostrich with its figures.
The demand for foreign currency far outstrips the supply and people are fully experiencing the impact, from markets, to offices, taxis, and street corners. In the minds of many, the US dollar has become a currency of first choice but the supply is just not there. If Nigerians could abandon the naira completely they would have done so a long time ago.
The truth is neither the government nor businesses have the funds to feed the insatiable demand that the nation fed in years of reckless importation. The country simply did not grow local manufacturing. Nigerians imported fake watches, handkerchief, toothpick, candy, toilet paper and all sorts of unnecessary commodities without regard for quality or real need. Commuters are assaulted in Lagos traffic by a hive of foot traders shoving all kinds of fake jewelry and myriad other items through your windows. The local markets in Onitsha, Aba, Lagos and around the country are filled with all manner of items from cheap imported clothing to shoe polish.
Once the item is imported, it is good for Nigerians such that the word “foreign” became a synonym of “good”. While this penchant was fed, the country became a dumping ground for all sorts. So also was the depletion of the nation's foreign currency earnings since the goods from China have to be paid for in foreign currency; the toothpick from Taiwan has to be paid for in foreign currency; the perfume from Dubai has to be paid for with foreign currency.
Now the party is over because the country can barely pay its bills on the income from oil, her major international commodity. Oil price dropped from over 100 US dollars to about $34 at the time of writing. Even the Organization of Petroleum Exporting countries seem at a loss as to what to do. The OPEC Monthly Oil Market Report for February notes that it's Reference Basket for oil was down “by more than 21% in January to its lowest monthly value since September, 2003.”
The organization attributes the trend to the slowing Chinese economy and oversupply conditions “compounded by an unusual drop of seasonal heating demand amid a continuation of previous month's mild weather in key consuming regions.”
This is a disaster for a nation such as Nigeria where politicians perpetrated a culture of graft and ostentation. With oil accounting for over 90 percent of the country's revenue, there will be little or nothing to steal or throw around. With dwindling capacity to import and very little local manufacturing, things are bound to get harder for everyone soon.
The evidence can already be seen at the seaports, especially Lagos, where most of Nigeria's consumer goods enter the country. Inside information from the ports indicate that the volume of imports has greatly diminished; the only goods in clearing are shipments from last year. Many importers are also beginning to feel the pang since they cannot afford the black market exchange rate of over 300 naira to the dollar. Some of those who usually obtain credit from foreign suppliers cannot pay at the new rate hence cannot replenish dwindling stock. The only businesses with capacity to import goods into Nigeria became those who earn income in foreign exchange but then the government's short term monetary policies sometimes create obstacles even for these businesses. For instance, close to the end of last year, a freeze was placed on foreign currency transactions by Nigerians using their bank issued cards. This caught many travelers unawares since some suddenly found to their embarrassment that transactions on their visa or MasterCard branded cards linked to Nigerian accounts would not be approved. At the same time it was difficult to obtain foreign exchange from foreign currency accounts held in local banks, accounts that Nigerians had hitherto used to hedge against the unstable naira by leaving their savings in foreign currency. Many could not withdraw these funds or could only obtain limited sums at a time. Such conditions would stop the inflow of foreign currency from private sources since the ability to move or transfer funds for overseas transactions is greatly limited.
IMF has recommended the devaluation of naira as one panacea to Nigeria's economic problems but President Buhari rejected the choice seen in many quarters as portending a final blow to the naira. Yes, devaluation can only help an economy that exports goods and services not one that imports them. What devaluation does is it makes it attractive for foreign business interests to trade with you knowing that their dollar or pound sterling or other international currencies can buy more of your goods. Not so with Nigeria which manufactures little and imports everything? Nigerian importers would have to shell out not the 400 naira to the dollar in black market today but close to a 1000 naira to the dollar if the currency is further devalued. The naira's purchasing power would be further eroded, if not completely killed.
As things are, only deft economic maneuvers could save the country. The good side, perhaps, is that local manufacturing may be boosted in the long run but even that depends on the will to weather the crunch for a long time.
A scenario one foresees is a reversal to the wasteful culture of the past if things improve. Nigeria has been through this before but never built the manufacturing foundation that would have saved the country the present hardship. Instead, the politicians, military and civilian alike, killed existing and budding industries of the past and fed the easier culture of importation.
Nigeria Media In Diaspora . Tweet : @RenafriqueNG