It’s no secret that the country’s current dollar reserves are rapidly dwindling, and that the CBN has been trying to give the whole situation a certain sense of stability and security that isn’t really shared by the actors of the parallel market. Goods are being abandoned at harbours, businesses can’t function efficiently and the spread between the official and parallel markets keeps growing more and more pronounced. How did we get here and what does it mean for us? In order to understand we need to backtrack for a bit.
The situation is mainly due to the falling prices in crude oil. The sudden and continuous plunge, for oil exporting countries like Nigeria means a shortage of dollars. In our particular case, the elections also caused a tremendous demand on our already fragile reserves. Couple it with the fact that the CBN adopted a series of reforms on the forex market that spread panic across the market, making the parallel rates rise dramatically.
Many business sectors are currently being affected by the current currency crisis we’re facing. The first is, of course, the oil and gas sector. With the fall in crude oil prices, local suppliers find themselves forced to buy hard currency at black market rates in order to maintain their operations, thus leading to higher import costs which in turn end up being reflected on the customers with increased prices. Therefore, the unfavourable exchange rate can be said to have directly resulted in the rise of petrol and diesel prices in the country.
Others, such as healthcare and multinational companies in the manufacturing / consumer and industrial goods sector have also been experiencing difficulties with the dollar crunch. They’re virtually unable to get access to the raw materials needed for most manufacturing processes. While some of the multinationals, such as Unilever are able too source for some of their raw materials in Nigeria and even at times access dollars at the preferential official rate, some materials still need to be imported at higher rates, resulting in the increase in price for some of their goods. As far as the healthcare sector is concerned, we can expect some essential drugs to suddenly go missing from the shelves in the near future, or, if they’re available, to be much more expensive. Once again, this would be due to the pharmaceutical companies having to import essential raw materials at a higher rate.
We should also note that even for those who have access to the CBN rates are still experiencing difficulties. After all, the rate isn’t as preferential as it used to be, rising from an average of 160 to 199. And even then, the dollars aren’t readily available for purchase in most cases, due to the current scarcity plaguing the country. In some instances, once again, the only solution is often to turn towards the parallel market and buy hard currency at a higher rate, resulting in either losses or increases in prices for the goods or services concerned.
The solution to our current situation (if there’s any such thing as a clear-cut, direct solution) doesn’t seem to lie in the devaluation of the Naira, as many apparently believe to be the case. If we were to devalue the Naira, it would only make our imports more expensive, and our exports cheaper, which clearly wouldn’t help the country in any way at this point in time. Besides, the price of oil is one of the main issues at hand. Devaluation won’t solve that. We’ll probably have to deal with higher inflation without obtaining any of the benefits that usually come with a devaluation, because it simply doesn’t apply to our situation. Therefore, what can we actually do?
Thankfully, there’s a silver lining to be found in any cloud and in our particular case, the obvious path is pretty straightforward: those items that we usually import but that could be produced locally… should simply be produced locally in large enough quantities for us to develop self-sustainability in that sector. Why import rice, for instance, if we can cultivate it right here in Nigeria? This idea seems to be gaining popularity as the Anchor Borrowers’ Programme in Kebbi State seems to be yielding some promising results. The pilot project stands to yield about a million metric tons of rice by the end of the year. Considering that these are the results from a single state and that it’s estimated that Nigeria would need approximately seven million metric tons of rice a year, self-sufficiency in rice production doesn’t seem like such a far-off dream. If similar efforts could be replicated across various sectors, it shouldn’t be long before we’re entirely self-sufficient in most areas and can even consider exporting other goods than just crude oil.
Such an effort would accomplish two things: firstly it would relieve a great deal of the burden our economy is being placed under because we won’t have to import so much any more. Secondly if we’re able to diversify our export streams to include more goods than just crude oil, we’ll be able to withstand such situations much more confidently in the future. After all, if our economy was thriving and diverse in the first place, the fall in crude oil prices alone wouldn’t have placed us in such a situation. It will also highlight the need to expand into other areas and we’ll actually have the capacity to develop other revenue streams, such as Tourism, for example.
Of course, we’re already seeing accidental inklings of the possible benefits from the current situation. Local brands are suddenly being given more attention, as their prices aren’t affected in the slightest by the current currency crisis. Consumers seem to be increasingly turning towards these local brands, in consideration of economic hardships.
There are certainly a host of other measures that could be put in place in order to solve our increasingly alarming issues, but perhaps in some cases, going back to the fundamentals is what’s needed the most. Sometimes, a solid foundation is needed before considering embellishments. Nigeria has never truly had such a foundation. We’ve been relying on our status as an oil producing country to glide by without looking like a disaster waiting to happen. Perhaps the current crisis has provided a good opportunity to finally handle our economy the way we should have from the start. Better late than never.