General, Social

NAIRA-DOLLAR WOES

The dollar shortage has hit Nigerian businesses hard in the past year, with the steady devaluation of the Naira and the CBN...

Elizabeth Otike Written by Elizabeth Otike · 1 min read >

INTRODUCTION

Today the Naira is sold at NGN610 to a dollar. This is a huge rise from what it was 3 years ago or even last year.

The dollar shortage has hit Nigerian businesses hard in the past year, with the steady devaluation of the Naira and the CBN cutting off the middlemen who they say are making it worse, but are they?

Most banks now hoard their FX and applying for a PTA is now a cumbersome process, let us not forget the fact that for naira cards, you can only spend the equivalent of 100 dollars in a month.

But all these measures taken by CBN, and the Nigerian banks haven’t really changed much, or has it? Below are some of the reasons they haven’t.

RESONS FOR THE DOLLAR SHORTAGE

  • POLITICAL INSTABILITY: The worsening political issues in the country has done a lot of damage to the economy.

For one tourism industry has been hit hard by it. Revenue from travellers, especially those from other countries has been lost, which means little foreign exchange from the industry.

Also, a lot of corporations have either taken their businesses to other economically stable neighbouring countries or have packed up totally. Currently they are either selling their holding in the country due to insecurity and other instabilities.

If we had more foreign companies or tourists in the country, then they will have to trade in our local currencies which means they will have to buy Naira with their Dollars. This would in turn increases the value of Naira.

  • EXPORTATION AND IMPORTATION: Nigeria exports mainly petroleum and little other goods like agriculture. 

But we import almost everything, leading to a high demand for foreign currency for trade.

If we can balance this out by exporting more, there would be an increase in demand for Naira as it will appreciate.

  • DEBT SERVICING: Currently the Nigerian budget is running on a deficit, meaning there would be need for additional loans to fund the budget. More loans would mean more debt servicing, thus, increasing the demand for foreign currency which in turn depreciates the Naira.
  • GLOBAL OIL PRICE: There has been a fall in the price of Oil globally, and since Nigeria depends largely on the revenue generated from oil exportation, our economy has taken a bad hit.

Since we know from history that the Naira-Dollar rates are high influenced by the fluctuating oil price, we expect that this has also affected the Naira exchange rate. Currently, less dollars are being realised from the sale of oil, meaning we are no longer able to satisfy the demand for dollars in the economy.

  • Diversified fiscal policy: Ike Chioke, managing director, Afrinvest West Africa Plc, believes the incorporation of a long-term diversified strategy in fiscal policy is required to cushion shocks in various segments of the economy.

He argued that the persistent pressure on the naira could have been minimised if a counter fiscal policy had been developed, as the CBN cannot continue to defend the naira with foreign reserves.

“To reduce this pressure, an inward-looking policy (tax incentives, infrastructure development and production subsidy) should be emphasised to reduce the dependence on imported goods,” he said.

#MMBA3 #Lillybeth’scorner

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