By FELIX OLOYEDE
The nation’s dollars shortage crisis, which is one of the factors that has led to the depreciation of the naira and accelerated inflation, has further impoverished Nigerians across the class divide, with even rich Nigerians now seriously feeling the pinch.
The naira has shed 24 per cent of its value this year from N307/$ in December 2019 to N381/$ as of Friday, August 21, 2020 at the interbank foreign exchange market, and exchanging at N386/$ at the investors’ and exporters’ segment of the market. Analysts say the decline is traceable to the fall in oil price and further aggravated by the Coronavirus pandemic, which has literally crippled the bulk of the global economy.
The devaluation of the local currency is even worse at the parallel forex market, where its value has dropped from 360/$ in December 2019 to N477/$ as of Friday. It is the lowest value that the currency of Africa’s largest economy has recorded since 2016.
In the midst of these, the Central Bank of Nigeria (CBN) has affirmed its resolve to unify the multiple exchange rates in the country to curb arbitrage. However, the gaps between the rates at the official windows and the parallel market have continued to widen.
Consequently, the inflation rate in the country has accelerated for the 10th consecutive month to 12.82 per cent in July, the highest surge in 27 months; even as it has been predicted to rise further in the remaining months of the year due to factors like higher fuel price and the continuing spiral of insecurity in the northern part of Nigeria, which is the country’s food hub. This development has led to rising food and transportation costs to the detriment of the people.
Confirming the dampening living conditions in the country, the National Bureau of Statistics’ inequality report released in May, which covered the period between September 2018 and October 2019, showed that 40 per cent of Nigerians live below the poverty line of N137, 430 ($381.71) per year. This also correlates the report by the influential UK charity, Oxfam, which had named the country as the poverty capital of the world in November 2019 with almost 100 million Nigerians living in extreme penury.
Commenting on the situation, Mr. Johnson Chukwu, Managing Director, Cowry Asset Management, explained that Nigeria’s Misery Index, which measures the peoples’ standards of living, has clearly worsened this year, on the back of higher unemployment and inflation rates.
Nigeria’s misery index stood at 36.8 per cent in 2019, making it one of the most miserable countries in the world and it is projected to worsen by more than 70 per cent this year.
According to the NBS also, Nigeria’s jobless rate deteriorated from 23.1 per cent in second quarter of 2018 to 27 per cent by June 2020 just as the COVID-19 pandemic forced many local companies to lay off workers.
“If you add the unemployment rate 27.1 per cent and underemployment rate of 28.6 per cent, you are dealing with an overall unemployment and underemployment rate of 55.7 per cent. In effect, we have seen deterioration in the standard of living of Nigerians and we have seen an increase in Nigeria’s misery index. This however was expected because we know that the GDP has been growing at a rate lower than the population growth rate for some time now,” Chukwu noted.
The Nigerian economy grew 1.8 per cent in the first quarter of this year, compared to the 2.8 per cent growth it achieved at the end of 2019, while the population has been growing by almost 3 per cent annually.
On his part, Professor Richard Mayungbe, Country Representative for Certified Forensic Chartered Accountants, Canada and Professor of Finance, CopperStone University, Zambia, argued that the devaluation of the naira has engendered imported inflation as the cost of importing raw materials has gone up, thereby increasing the cost of production.
“When the price of an article goes up as a result of increase in exchange rate, the duty and tariffs on it also go up. At the end; the cost of production will go up, resulting in higher inflation,” he stated.
Prof. Mayungbe also mentioned that the devaluation of the country’s currency and the subsequent rise in inflation rate have reduced the purchasing power of Nigerians.
“The amount of money you are holding now has been eroded by inflation. What you could buy with N1, 000 in January cannot be purchased with the same amount now,” he explained.
He also opined that real wage has been devalued, while some state governments have yet to pay the N30,000 minimum wage, which was signed into law in April last year.
Mayungbe equally reasoned that a probable positive side of the devaluation of the naira is that it would improve the country’s balance of trade as Nigerian goods and services would be more competitive in the international market.
He added that it would also encourage import substitution as importers would begin to look inward and people who travel abroad for tourism would now want to do that locally.
Mr. Okechukwu Unegbu, former President, Chartered Institute of Bankers of Nigeria (CIBN) and Managing Director, Maxifund Investments and Securities, revealed that he has not been able to pay the eight staff members of his company since March due to the country’s struggling economy, which was compounded by the coronavirus pandemic.
“The managers of our economy are just engaging in politics instead of working on the economy. The monetary and fiscal managers of the economy are supposed to work together to have a balanced economy. What we have now is that instead of the Central Bank to be independent, it now looks more at politics than finance,” he asserted.
He also expressed concern over the country’s mounting debt, saying that the country has been borrowing to finance consumption which has not improved productivity.
“There is nothing bad in borrowing. What is bad is when you borrow for no purpose. But when you borrow for a purpose you must make sure the money is geared towards that purpose.
“Naira has been consistently devalued for a long time without the government actually saying we are devaluing the naira,” Unegbu said.
He also frowned at the use of the country’s scarce external reserves to defend the naira, while the economy is not growing.
“There is fiscal dislocation all over the country. There is insecurity and we have not taken all of these into contention. We are doing the wrong things financially,”
He noted that the naira’s unannounced and unplanned devaluation has affected all businesses in Nigeria, adding that it is worrisome that the National Bureau of Statistics does not have the data of businesses that have closed down in the country since January 2020.