Analysts say the United States dollar is fundamental and long-standing firepower of the American economy, given its liquidity and attendant strength in the global market. That assertion may be substantiated by the recent weakness of the euro, which for the first time, in over two decades, traded at discount to the United States dollar – a clear reflection of the prolonged weakness of the Eurozone economy.
With most international trade done in United States dollars, the greenback enjoys a strong demand. Contrarily, home in Nigeria, like the oil resource curse, the naira has perhaps been one of the sources of the country’s weakness, because the supply is overwhelming – everybody wants the dollar, and “nobody” wants the naira. Everyone wants dollars, pounds, euros, and anything but the naira, and whatever is directly associated with it.
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It’s sad that the naira has been one of the worst-performing currencies in the world over the past two years, losing almost half of its value, when bench-marked with the United States dollar. Some pundits would argue this using the official rate of approximately N430/USD, but our reality is that the parallel market rate has dominated the prices of virtually everything and this is apparent in the rising headline inflation. Even those who buy foreign currencies from the official market still price their goods based on the parallel market rates. Yes, the parallel market, where the naira currently trades at N705/USD, may represent 10 per cent or perhaps less of the total supply of foreign currencies. But it is the market where most Nigerians buy and sell foreign currencies and indeed manufacturers and importers use the exchange rate in the parallel market to price their goods, because many would say it is the market that reflects the forces of demand and supply of foreign currency in Nigeria, and arguably so!
In less than two years, the Naira has depreciated over 45 per cent of its value, relative to the greenback. This is hurting Nigerian companies with foreign currency loans but which paradoxically generate their revenues in naira. Yes, they are expected to access foreign currency at the official window at a lower rate but where is the liquidity? While the official market has now been christened “for rich and affluent” individuals and corporates, foreign currency is still being rationed even within this official or main market, given the high demand compared to the very limited supply. Interestingly, in the parallel market, where the poor access to foreign currencies, there is always supply, if you are ready to pay the market price.
Interestingly, everyone continues to call out the Central Bank of Nigeria to rescue the naira from the free fall. Yes, I agree it is one of the fundamental responsibilities of the apex bank to ensure a stable price for the naira and I do also agree that the CBN could have done more and better. However, the CBN obviously does not have a magic wand to stop the depreciation of the naira. It neither has the power to print dollars nor stop the rising demand for the greenback. Yes, it can influence inflows of foreign currency through its policies, which is what many believe it could have done more or better. While the CBN speaks so much of the success of its N5/USD incentive for remittance and the RT200, which gives N35/USD and/or N65/USD to non-oil exporters following the repatriation of foreign currency proceeds. Nonetheless, the naira continues to slide, especially in the parallel market, where many individuals and corporates have resorted to fulfilling their demand, given the “scarcity” of foreign currency at the official window.
So, if the CBN cannot solve the problem alone, can Nigerians come to its rescue? After all, Nigerians are the beneficiaries and victims of the hoarse. I would also say that we are also in some ways guilty of the “murder” of the naira. Nigerians would rather train their kids to eat Pizza, with some even forcing it on them as a way of ensuring their so-called “civilisation”. In fact, anything made in Nigeria is considered inferior, including the famous Nigerian cables that are renowned to beat international standards. Behold, everyone now abhors Nigerian food, drinks, clothing, etc. We are so thirsty that Nigerians import portable water from countries that have fewer water bodies.
Paradoxically, we all shout and cry about the inflationary impact of naira depreciation, as we see our purchasing power being eroded by the persistent rise in the prices of necessities and luxuries. We hate to see prices of food, beverage – and indeed anything go up – but we forget that price is a function of demand and supply. Nobody wants naira depreciation but our demand for foreign currency is endless. We complain our unemployment rate is high, but we consume foreign-made products over Nigerian-made substitutes. We say our yam is not good, and Ghana’s coconut is better than ours, but we expect our children to have jobs. For every imported item we use, we create jobs abroad, and kill some at home, while putting the naira under pressure.
Whilst some pundits say the persistent depreciation of the naira over the past two years and especially in the recent three months, may be partly connected to upcoming elections, the reality is that the most basic fundamentals of the naira are in our consumption habits. Yes, as many presume, I also think politicians are hoarding USD for elections but beyond the unrepentant behaviour of politicians, FX demand for foreign education is rising fast, with many Nigerians scrambling to get educated abroad. While some may be using the education route to relocate abroad, others are genuinely seeking foreign education because of the decay in the country’s education system.
So, as much as we cannot stop the inevitable demand for foreign currency, we can at least tame our appetite for foreign-made products that have local substitutes. We need to start being satisfied with what we have and promote what we do. If you and I don’t buy Nigerian-made goods, then who will?
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