The naira has been consistently devalued since its inception in 1973. The U.S dollar has been the NGN’s major foreign exchange currency pair. The USD/NGN exchange rate in January 2020 stood at 380.
The World Bank classifies Nigeria as a lower-middle-income emerging market yet to recover from the effect of inflation. In 2019, Nigeria’s annual inflation was at 11.4% while Gross Domestic Product(GDP) growth stood at 2.2%.
In one of the recent Business Expectation Survey by the CBN, the bank expressed optimism on the recovery of the Nigerian currency against the Dollar and other major currencies from February 2021.
The firms that took part in the survey forecast a high-interest rate in the first six months of the year. They also revealed that the Naira will start to appreciate against the dollar subsequently.
With the fall of the naira to a four-year low against the US Dollar in December 2020, the Central Bank of Nigeria moved to weaken the national currency, which was the third time last year.
To increase the circulation of the dollar in the country, the CBN issued a directive mandating banks to pay international money transfers in dollars, instead of naira.
The high demand for dollars coupled with a minimal inward flow of foreign currency led to the CBN’s decision. The naira had fallen to 500 per dollar in the parallel market.
One of the advantages of a strong national currency is importers are granted more purchasing power while the implication of a weak currency is the high rise in the cost of imported goods.
The devaluing of the naira in decades is not resulting from unforeseen circumstances. It is well known that Nigeria has one major source of export, which is petroleum. Petroleum takes about 90% of the country’s foreign exchange income. Every time there is a global fall in oil prices, the country experiences a downturn.
The 2020 global fall in oil prices was a major hit in the economy. There was a huge drop in the demand for petroleum, especially during the lockdown period. In 2020 alone, the price of petroleum in the country was adjusted not less than thrice.
It is disheartening that a country as blessed as Nigeria, well endowed with natural resources, and a rich land for agriculture has only one major export product.
Nigeria’s dependence on import products, including goods that can be locally produced has increased the demand for dollars and the devaluing of the naira. Import products continue to increase in price. On the other hand, other counties find it cheaper to purchase goods from Nigeria due to the low currency rate.
It is well known that higher importation and lower exportation is unhealthy for any economy, even Nigeria. The country’s exchange rate has also affected the inflation figure. The weakening of the national currency is followed by a rise in the inflation rate.
The uncertainties characterized by the petroleum sector especially with the COVID-19 crisis have shown the high risk associated with making petroleum the major source of revenue for the country.
Although the proceeds gotten from the export of petroleum has generated a lot of revenue for Nigeria, it has also killed the potential of another sector. Concentration is given to the industry to the detriment of other sectors that can also contribute to revenue generation.
There is an urgent need for developing and diversifying other industries, especially agriculture. The Federal Government’s intention for the country to attain food sufficiency should be followed by the production of agricultural produce on a wider scale for exportation.
Nigeria needs to produce more exportable products and reduce the percentage of importation. There is a need for the country to restore and revive some sectors to help boost economic growth.
The once-thriving textile industry that helped generate revenue for the country during its early years is almost non-existent. A larger part of the industry has closed down while others have moved to other countries with stable power supply and better business advantages.
Also, manufacturing and production have largely been replaced with importation. The federal government needs to create policies that disallow the importation of goods that can be produced locally. Manufacturers should also be assisted with revenue to help with large-scale production.
A balance of importation and exportation will go a long way in reviving the naira. Despite the global economic fall in 2020, the USD gained strength against other currencies. Investors leveraged on the dollar during the hit of the pandemic. There was also a time in Nigerian history that a dollar was equivalent to naira.
Every currency has the potential to appreciate if the requisite policies are embraced. We don’t just expect things to work without putting things in place for it to work. The year 2021 can be the start of a new era as we embrace various sectors with the potential to yield huge returns for the country or we continue to sink in the economic downturn.