The continuous depreciation of the naira to the dollar has generated lots of talking points from financial analysts, economists, and individuals from all walks of life. The rapid decline has led to forecasts that the naira could fall to N1000 to the dollar if urgent measures are not taken. Although the Central Bank of Nigeria (CBN) is working to halt the baleful consequences such a freefall may engender, the measures have not been as effective as intended.
Among measures to applied by the CBN include; stopping the sale of FX to Bureau De Change operators in 2021, selling only to commercial banks in a bid to stop the fall of the naira. However, earlier in the year, the CBN also announced it will stop the sale to commercial banks at the end of 2022.
Earlier, the apex bank banned Aboki FX, an online platform which publishes the unofficial rate of the naira to other currencies. Despite these measures, scarcity persists. The impact and scarcity of FX threads across different sectors of the Nigerian economy.
Rising Air Fares
The security situation in the country has increased the traffic in air travel. The incessant killings coupled with the kidnap of and attack on passengers on a train en route to Kaduna, has made Air travel the last hope for Nigerians. Before now, economy ticket of airlines in the country ranges between N23,000-N50,000 depending on distance and period of travel (weekends or festive season) within the country. However, due to the unavailability of FX, and by extension the rising cost of Jet A1(aviation fuel), among other issues bothering the cost of operation, airline operators increased the minimum air ticket to N50,000 in February 2022. According to reports, as scarcity persists among other issues highlighted earlier, the price of economy seats has increased to a minimum of N75,000, and N130,000 for business class. Also, delays and cancellations of flights have increased. The implication of this is that Nigerians will have to spend more on traveling within the country to ensure their safety and conduct business transactions. Two airlines have announced the suspension of operations in the country.
Domestic and International Trade prices increase
Trade is the life wire of any economy or country. The scarcity of FX has increased the prices of goods domestically and also made trade difficult internationally for traders. For traders buying internationally, payment has to be made in the seller’s preferred currency, this means the scarcity of FX has made traders look to the black market to get FX for their business at high rates. This has led to a situation in the country where the price of the same product changes week-in-and-out. The scarcity has also led to inflation, Nigeria’s inflation rate according to the National Bureau of Statistics (NBS) stands at 18.86% in June 2022. The introduction of a spending limit on naira cards has made many traders opt out of buying goods. The spending limit has decreased from $100 to $20 per month.
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Tuition fee difficulties
The ailing educational system in the country has made Nigeria seek alternatives to schooling abroad. According to reports, Nigeria has the highest number of students schooling abroad in Africa. In the same vein, according to the CBN, Nigerians spent $221m on foreign education between December 2021 and February 2022. As more Nigerians move to study outside the country, there is an increased demand for FX for the payment of school fees (those without scholarships) amongst other expenses. The difficulty and timeframe of getting Form A (an application form designed by the CBN to pay for service transactions) have made Nigerians seek alternatives in the black market, thereby paying more to get their transactions sorted.
Although Nigeria exports oil and earns dollars because the country imports refined petroleum products, these gains are not only cancelled out, dollars earned are sooner expended on such imports. Nigeria now spends more on the importation of fuel, and subsidy payment has reached an all-time high of N4 trillion, with reports saying could rise further.
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The ultimate effect of this is an increase in pump prices of these products across the country and fuel scarcity.
Manufacturers in Nigeria depend heavily on the importation of raw materials to manufacture goods. The high cost and low quality of locally made materials have made it an impossible alternative. With the scarcity of FX, many manufacturers have no choice but to explore the black market to purchase their goods, leading to an increase in the price of finished products. Also, manufacturers are beginning to leave the country leading to downsizing and a high rate of unemployment.
The CBN earlier introduced a program “Naira4Dollar” to help the naira. Nairametrics reported earlier that several months after its introduction, the program has failed to achieve its aim, making the CBN extend the duration of the program indefinitely. Despite the introduction of the program, the price difference between the official rate and the black market has continued to widen. The Russia-Ukraine Ukraine war has also contributed to this. Nigeria imports wheat, and it’s on the list of Nigeria’s biggest export for 2021. The war has led to a hike in the prices of noodles, bread, and others.