Why the Naira Keeps Falling and What It Means for You

The Nigerian naira’s constant devaluation is at the forefront of what the country is talking about economically. It seems like almost every week we see report of the currency’s drop in the official market and on the streets. For many Nigerians, this issue is not theoretical but very much a part of what they live daily. The naira’s depreciation plays into the price of food, transport costs, business operations, and how far people’s income goes. To really get to the bottom of this issue, it is important we look beyond simple answers and at the in depth economic, political, and structural issues which cause it.

At base, a currency goes down in value when what is had of it is less desired as against what is had of foreign currencies, especially the US dollar. In the case of Nigeria, we see great dependency on the dollar for international trade, yet at the same time the bulk of the foreign exchange which we get comes from oil exports. When oil prices are high and export is at a great rate, we see large scale entry of dollars into the country, which in turn causes the naira to stabilize. But when oil revenues fall off, foreign currency becomes hard to by, which the Naira is weakened. For years over which oil has been mainstay of the economy’s structure, Nigeria’s currency has thus been very much at the play of global markets, which are out of the country’s hands.

Beyond oil dependence, which is true, the naira is also falling because of trade imbalances. We see that which which we import far more than we export. We import things like fuel, electronics, vehicles, machinery, medicines, and even food from other countries. When companies or individuals import anything, they have to trade in naira for dollars, which puts pressure on the currency. Also, what we put out, which is non oil based agro products, manufactured goods, etc., is still very low in comparison to what we bring in. This constant outflow of dollars with low inflow weakens the naira over time.

In Nigeria, we see also large inflation numbers play out. As prices for goods and services go up very quickly, the naira’s value goes down. Investors, businesses, and the average person begins to lose faith in the currency as a stable store of value. Many then turn to dollars instead of naira, which in turn reduces the use of the local currency. Also, high inflation reports see many of our products go up in price compared to what is available in other countries, which in turn hurts our export play and we see the trade imbalance grow.

Government has also been a player in the naira’s performance through its policies and monetary decisions. Through the years, we have seen different administrations put in place what at times were many foreign exchange control measures, regulations, and a variety of exchange rate systems. Although at introduction these may have had what policy makers thought were good intentions like supporting local industry growth or saving on foreign reserves, at time they created market distortions. When official exchange rates differ greatly from that of the black market, it causes speculation, hoarding, and parallel trading. Also, this uncertainty we see in the market deters business planning and foreign investment, which in turn puts more pressure on the currency.

Another issue is the level of foreign investment in Nigeria. It is a fact that strong currencies usually attract large scale foreign investment, which is a result of investors’ faith in the stability of a given economy. In the case of Nigeria, we see that the picture is different; we have security issues, unstable policies, infrastructure problems, and bureaucracy, which in turn deter some investors. Also, when foreign investors take out what they have put in the country, or are just very slow in which they place new funds in, we see that the foreign dollar supply drops, thus leading the naira to depreciate. In recent past also, we note that many international investors have been pulling out of emerging markets, which also includes the case of Nigeria.

Public issue also plays a bigger role than we think. A currency is more than a piece of paper or a digital number; it is a question of faith. As people expect the naira to drop out of the blue, they rush to put their money in dollars, buy foreign products early, or raise prices before hand. This behavior, which is very natural, at the same time sets off a self fulfilling cycle in which fear of devaluation actually brings about that which is feared. We can restore the naira’s value with consistent economic strategies, transparency, and we as a nation have to see results in what we do.

So what do we see for the run of the average Nigerian? What we are seeing is that the impact of a falling naira is almost instant in the form of higher prices. Because of what Nigeria import们 import many basic products, a weaker currency plays into the price of those import, which is what you are seeing in the rise of food prices, fuel costs, and household items, which despite stable local production are going up. Families are feeling the pressure as their salaries aren’t keeping up with inflation, which in turn is causing them to change their spending habits and priorities.

For workers and professionals, the naira’s decline impacts real income. Although an individual may see a rise in their naira salary, that in turn does not mean that their actual income has gone up in what they are able to purchase. This can cause frustration and financial stress, which is a particular issue for those that support large families. Also, many people turn to other income sources, side jobs, or foreign currency earning online opportunities as a way to deal with the issue at hand.

Business owners present different issues. Companies which import raw materials and equipment see their costs go up greatly. Some have to raise prices, let go of employees, or cut back on what they do. Also, some have trouble with the fluctuating exchange rates, which in turn makes budgeting and long term planning hard. At the same time, business which export products or which we provide services to foreign clients may benefit from earning in dollars, as our revenue grows in value when converted to naira.

Students and young people, which includes those that are studying abroad or looking to do so, are also affected. We see that a weaker naira causes tuition fees, living expenses, and travel costs to go up. At home in Nigeria, the price of textbooks, technology, and academic resources goes up; also, we see that many of them are imported. This in turn makes access to education a greater issue for many families.

At a more general level, the devaluing naira is a result of deep seated issues in the Nigerian economy. It puts into light the need for diversification away from oil, growth of local industry, improvement in infrastructure, and stability in economic policies. If Nigeria is to increase production of goods, reduce import dependence, and attract in foreign investment which is stable in the long term, it may see the pressure on the naira ease.

However, also we see that currency issues do not resolve themselves quickly. Even in strong economies, we see the up and down of the market. What is important is to put in place a robust system which is able to weather the storm of the external shocks. This includes in to improving agriculture, supporting small and medium size businesses, in to investment in tech and innovation, and also to have economic policies that are predictable and which investors will support.

For which as an individual, you may find out that which is the reason the naira is falling into such value; this will in turn better inform your financial decisions. It also motivates people to look past the immediate issue at hand and instead think of long term stability. Also, many Nigerians are that which are in the process of adopting new skills, looking at digital options, backing local products, and at the same time increasing their financial awareness.

In the end, what we see in the story of the naira is much more than what is played out on that exchange board; it is the issue of livlihoods, of aspirations, and the future of the country. While the currency’s decline brings real issues to the fore, it also puts into focus the issue of economic transformation. With the right strategies, through collective effort and consistent leadership, we see in this the chance for Nigeria to turn around its economy and in due time stabilize its currency.

The fall of Naira is a tough pill to swallow, but at the same time it brings to light the resilience of the Nigerian people. We see Nigerians going about their business as usual, innovating and finding ways to do well in spite of it all. By looking at what is causing the devaluation of our currency, we take the first step in having productive discussions around solutions, growth, and a better economic future for all.