CRUMBLING CURRENCY:

Can Nigerian Brands Navigate The Crushing Impact?

The situation today is a replica of what happened during the global oil glut of the 90s. Petroleum exporting nations presently faced with brutal realities of global crash in the price of crude oil. Rising unemployment, depleted foreign reserves, weak currencies, struggling real sectors – the rippling effects of the crash are depressing enough to keep leaders of nations awake at nights.

For Nigeria, a country where oil proceed accounts for an estimated 90% of her exchange earnings, the impact of the economic crisis has been crushing and seemingly interminable. Amidst so many challenges, the free fall of the country’s legal tender, the naira is one with the most devastating effect.

From 70 kobo to $1 in the 70s, the Nigerian currency has plummeted in value, translating to a whooping 525 naira. Some weeks ago, the central bank of Nigeria announced another step that saw the naira appreciating against the dollar slightly. Yet, these measures were largely insufficient to stall the crashing value of the naira permanently.

With the USA now meeting about 80% of its local oil demands from the sale of oil, and Iran nuclear deal underway, the future of Nigeria’s economy hangs basically on the thread.

UNDERLINING ISSUES

Similar to any other commodity, the forces of demand and supply affect the rate of a country’s currency exchange. For instance, a reduction in the supply of dollar will lead to an increase in the exchange rate of the local currency. Equally, an increase in the demand for dollar will lead to increase in the exchange rate; and this implies the depreciation of the local currency.

According to a financial expert, ‘’ Nigeria is an import dependent economy. Companies import raw materials and intermediate goods for their production while traders and consumers import several finished goods for final consumption.

Due to the competitiveness and high cost of doing business, a lot of what could have been produced locally is also imported. In addition, many Nigerians consume foreign services like travels, tourism, health and education. All these leads to high demand for dollar to make payments for this goods and services,’’ he explained. On the other hand, Nigeria obtains the bulk of its dollar supply from the exports of single commodity: crude oil. Consequently, increase in dollar is only enjoyed when the global oil prices and/or domestic production of crude oil rise (s). The underlining fact therefore is that Nigeria’s heavy import dependence is majorly responsible for the high forex outflow and the perennial weakness suffered by the naira.

Indeed, the astonishing fall in the value of the naira has posed adverse implications for Nigerian businesses. Almost all the machines used for production, expatriate labour as well as some raw materials are sourced externally by manufacturers in most sectors. This explains why most manufacturing brands in recent times, have cut production by more than 50% by those of them that can still manage to remain in business as the sector grapples with current economic realities. Most industries have cut production, while some are shutting down and others are operating skeletal services. Manufacturers are going through a very difficult period characterized by high interest rate, unfavourable operating business environment and fall in the value of naira complicated by the restriction of some key items from the interbank forex market.

Diversification Solution
Prominent Nigerians have canvassed that members of the private sector should support government’s efforts in diversifying the economy. This period should be used as a time of opportunity for us to sit down and talk to ourselves about how to seriously diversify the economy and encourage more exports; because that is the best way we should be going instead of going to central bank of Nigeria always to buy forex. By 2020, the population of this country will likely be about 210 million or more and we are going to continue to import everything.