By: Esther Omoye
Over time, Nigerians have wondered whether or not the currency collapse was more than it seemed. This became more apparent as the national economic landscape changed since the free fall of the naira. With so many companies fleeing the country over the last year, worries keep rising as we mourn the economic powerhouse that Nigeria used to be.
The currency crisis in Nigeria is just like the biblical flood but without Noah’s ark.
The root of any collapse stems from a lack of faith in the usefulness or stability of the currency to serve as an effective store of value or medium of exchange. Yes, you read right. Naira is that babe with seven change notes but with little to no confidence. This can be brought about through improper valuations, monetary policy, chronic low growth, and Nigeria’s not-so-pleasant close cousin, inflation.
It is important to know that Naira isn’t an international reserve currency, too, and that’s because it is not a theoretical alternative for the rest of the world. Yes, you read right again. Naira is an inherently monogamous babe, but her undefined relationships with Dollars and Pounds give her anxiety and eventually build resentment, which every Nigerian is suffering for now. For example, if one Naira can be exchanged for one U.S. Dollar, the currencies are described as being at parity. If the exchange rate moves and one dollar can now be exchanged for ₦890, the naira has lost value relative to its U.S. counterpart and has, therefore, depreciated against it.
The Central Bank of Nigeria floated the national currency in June 2023. Its only reason was to boost the liquidity of the currency in the foreign exchange market. But it seems the only liquidity being boosted is the already eroded standard of living in Nigeria—the rich are crying, the middle class has been evaporated with the carbon emissions of this depreciation, the poor are getting poorer, and the Dollar is asking for more from Naira.
Naira barreled toward a 51.21% loss on Tuesday in what would be its worst performance ever. The naira index was on a tear between early December and mid-January, surging by more than 7% as a slew of negative economic data continued to fuel worries that the exchange rates might remain high.
A limper naira is bad news for Nigerian consumers, who can expect to pay more for imported goods and reduce their purchasing power. A weakening currency makes Nigeria a little bit poorer because they pay more for the goods they import and get less for the goods they export.
In recent times, if you think far enough as a Nigerian, you could cry so hard that there’d be nothing left in you, like how the wind shakes a tree in a whirlpool until every part of it is run through with wind. There isn’t even enough to cheer Nigerians into their no-gree-for-anybodi-energy anymore. It feels like the harmattan came running, drying all of the elasticity that Nigerians are known for, or this might just be the year where their backs are finally broken. We don bow for the results, Burna.
The indomie generation can no longer afford indomie. The millennials reminisce about when the naira used to be ₦130 against the dollar in 2004. A UK-used iPhone XR is ₦310k, ₦140k more than its price in 2021. Nigerian Twitter is cheering the Naira on to fight back as if this is another AFCON match against Cameroon, and economic analysts are backtracking from their favourable predictions of the Mayday policy.
As if this isn’t enough, our city boy is perfectly tucked away sipping French wine, stepping us up with his dance moves, and receiving congratulatory handshakes like Osimhen after a well-played match in his presidential staycation villa. It will always be our job to hold our leaders accountable, especially during a time when we might finally speedily grow into a national starvation routine. But Arise TV always comes to the rescue, doesn’t it? Early to bed, early to rise indeed.
There has never been a time that the TV station missed a chance to be part of a political discourse or felt discouraged from extensively discussing the country’s raging problems. With its most recent, the station had the host and producer of their Global Business Report, Aruoture Rotus Oddiri, extensively spoke about the devaluation over a banner headline that read like a political manifesto: PWC HIGHLIGHTS 2023 NAIRA DEVALUATION. The devil works hard, but partisan politics in Nigerian media houses is a 9-5er.
The analyst started by talking about the reactions to the increasing exchange rate and stressed that demand was the main reason for the hike. He continues by saying, “I have three examples,” in a voice that one could practically imagine the chart and statistics that should come next, but a screenshot of a random WhatsApp birthday wishlist follows.
The wishlist contains seven items, but he focuses on the first and second items: money and human hair. He ends with the statement, “You can attest that the demand for human hair by Nigerian women in particular … If you look at the market for glueless wigs, according to Allied Market Research, it is a $719.2m market.”
He continues with so much precision that I wouldn’t be surprised if he sits on the right-hand side of a presidential candidate come 2027 as a finance manager: “It is projected to reach about $1.3bn by 2023.”
He further adjusts his voice to its proper stance of textbook government apologism: “Here in Nigeria, despite the devaluation of the currency, demands for wigs are extremely high.” “The Ayos, the Seyitans, Hauwa Mukans, and everybody else that uses these wigs, they are imported and not made here.”
Key takeaways from Rotus’ analysis
1. The demand for money on birthday wish lists is one of the top applicable examples of why the exchange rate keeps trying to stifle the breath out of Nigerians.
2. The importation of lace wigs is also one of the top examples of why the exchange rate keeps whipping the heads of Nigerians back and forth.
The applicability of his analysis
One, since the Emefiele-cash-scarcity-tenure, Nigerians almost buy naira to have access to naira. While Rotus is correct that demand often affects exchange rates, it feels very lazy that he uses the request for money on a birthday wishlist as one of the top examples of why the exchange rate keeps skyrocketing like it has to tower Lagos house rents.
His analysis is devoid of depth and almost seems like a rush through the hustle and bustle of Lagos. There is no mention of the politics behind the new naira design and its effects on the accessibility of money. He had also seemingly forgotten the fact that Nigeria is a public-debt-friendly country, a renowned onigbese. Large debts encourage inflation, and if inflation is high, the debt will be serviced and ultimately paid off with cheaper real dollars in the future.
In the worst-case scenario, a government may print money to pay part of a large debt, but increasing the money supply inevitably causes inflation. So, when the CBN recently announced that it has ₦3.4 trillion in circulation and blamed hoarding for scarcity, the question to be asked isn’t who are the people behind this hoarding but, as a country, how do we handle our international dollar obligations and financial transactions? No, I’m not talking about the Grenada birthday bashes, the COP 28 or presidential staycations.
Second, Naira has never had a fixed rate; it has always been a freelancer, prancing around everywhere, looking for its next big byline: “Nigeria Naira Records an all-time low, with ₦1,490 to 1 USD.”
Typically, a country with a consistently high inflation rate, like Nigeria, exhibits a depreciating currency value as its purchasing power decreases relative to other currencies. For example, let’s say that lace wigs are the only product on the market and Nigeria imports more lace wigs from China than it exports. As a result, it needs to buy more relative dollars to naira sold. Nigeria’s demand for dollars outstrips China’s demand for naira, quite alright.
The market for lace wigs in Nigeria cannot be compared or placed in the top 10 imports. So why is the demand for lace wigs a feasible example for such a critical analysis of the naira devaluation? Nigeria isn’t even listed as the country with the most importation of lace wigs, and most of Rotus’ analysis is on the hair market generally across Africa and the world.
Nigeria’s top 10 imports
1. Mineral fuels, including oil: US$23.9 billion (39.6% of total imports)
2. Machinery, including computers: $6.9 billion (11.4%)
3. Electrical machinery, equipment: $3.5 billion (5.7%)
4. Vehicles: $3.3 billion (5.4%)
5. Plastics, plastic articles: $2.32 billion (3.8%)
6. Cereals: $2.27 billion (3.8%)
7. Optical, technical, and medical apparatus: $1.2 billion (2%)
8. Pharmaceuticals: $1.1 billion (1.7%)
9. Other chemical goods: $1.03 billion (1.7%)
10. Organic chemicals: $1.02 billion (1.7%)
Two examples Rotus could have used
1. Debt servicing: As I stated earlier, Nigeria is a debt-friendly country, and our debt servicing cost has increased by 55.71 per cent to ₦1. 24tn in three months. We are a truckload of gbese, and this is truly a deficit for our currency.
2. Forex demand for foreign tuition: Nigeria’s kwashiorkor educational system is part of the reasons Nigerians are travelling abroad to acquire qualitative education. It is also putting so much pressure on the Naira and could have been yet another top credible example.
In critically hard times like this, it is almost impossible to believe that the demand for our own currency and lace wigs on a WhatsApp birthday wish list could be seen as possible reasons for the devaluation. Well, this is Nigeria; the last time, it was seedless grapes, and now it is lace wigs. Perhaps it would be the iPhone next.
Esther Omoye is a graduate of the University of Benin. Her works have previously been published in Brittle Paper, Lolwe, Lickety Split, Vanguard, and others. She tweets @OmoalukheOmoye.