For the fifth day yesterday, the naira has been on a sustained freefall, weakening by 8 per cent over the period. The local currency, which traded on the parallel market for N658/$1 six days ago, traded yesterday for N710/$1. Analysts fear the trend may persist to N1,000/$1 before the end of the year as there is a palpable rush for dollars as the naira loses strength daily.
With eroding naira value, there may be unveiling implications as the trend has a direct impact on the cost of living.
Economist, Dr. Tope Fasua fears the economy is not far off from a $1,000/$1 exchange rate. According to him, “This time it is potentially for real and all we need is a trigger or a rash, not-well-thought-through action, and boom! We may see the naira devalue to N1,000 per $1 or less. We may also see inflation spiral to over three-digit numbers.
“We may not feel much impact apart from a moderate addition to inflation if, for instance, interest rate levels climb to the 20s or 30 percentage points. Our biggest challenge may be spiraling inflation as a result of price adjustments, price gouging, loss of confidence in government, devaluation, and reaction to a new global economic, financial and/or currency crisis. It could easily be bedlam on Nigeria streets as people’s wealth get totally eroded.
“We need great economic thinking by patriots now more than we ever did. We have winged as many bullets as we may likely be able to. We may potentially be staring at a Wiemar Germany scenario, with crimes spiking on our streets as we need a wheelbarrow load of money to buy bread. We may need our traditional African social capital to kick in at short notice and hold up for us. I think we are in the epoch in which the world would totally hand-off Nigeria and look to see what we can do with ourselves, especially now that every country is nursing their own wounds.”
A senior lecturer of Economics at the Pan Atlantic University, Dr. Olalekan Aworinde, said the naira is depreciating because the demand for it is not high, since production within the country is limited.
He said, “The depreciation of the currency is something that is not new. Over time, we have seen the naira depreciate constantly. Hardly do we witness the appreciation of the naira.
“This is not farfetched; the naira keeps depreciating because the demand for the naira is not as high as expected. This is coupled with the fact that there is also a lot of food inflation in the country. We do not produce anything that will make people demand for the naira. If Nigeria was producing something, then the implication would be that a lot of people might need to demand for the naira, but we do not produce anything of value.
“We only produce raw materials and semi-finished goods that are of lesser value. The naira is not in demand and this is why it keeps depreciating. The implication of this is that we’ll be consuming imported goods, and the majority of these goods might be imported inflation and, as such, it would bring an increase in the services of goods and services over time.
“The naira will continue to depreciate unless the government does something in terms of the manufacturing sector of this country, and the provision of infrastructure among which is stable power supply. Without a stable power supply, the cost of production will be over the roof.”
Another economist, and chairman of the Foundation for Economic Research and Training, Prof Akpan Ekpo, said the nation has to shift to the production of non-oil goods and services if it wants to strengthen its currency.
He stated, “Nigeria has to produce non-oil goods and services and export them so that we can earn foreign exchange. Right now, the value of the naira is artificial. So even if we devalue the naira again, there is nothing to gain.
“This is a major reduction,” said the chief executive officer of the Centre for the Promotion of Private Enterprise, Dr. Muda Yusuf.
“The major causes of this situation are challenges of foreign exchange, energy, inflation and China imports,” he said.
“The foreign exchange situation has worsened, and most manufacturers are heavily dependent on imported raw materials,” he added.
He explained that the energy crisis had been going on for over five years and the influx of cheap products from China had not made life easy for local manufacturers.
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