At a textile bazaar in northern Nigeria on the edge of the Sahara Desert, temperatures hover near 100 degrees and Abdullahi Abubakar is trying to calm two angry customers.
The 41-year-old trader explains to the women that prices on his Chinese fabrics have gone up to cover the spiraling costs of buying goods with black-market dollars. It’s a predicament wrought by President Muhammadu Buhari’s policy of pegging the naira and it’s strangling livelihoods in the leader’s power base 500 miles (805 kilometers) from Lagos.
“The strong dollar is really hurting,” Abubakar said in Kano, Nigeria’s second-biggest city. “Our profits have really gone down. If this continues, the whole economy will suffer.”
Since taking over Africa’s biggest economy and oil producer last May, Buhari has stood firm against a devaluation, even as crude prices tumbled. Instead, he’s encouraged central-bank curbs on currency trading and imports that he hoped would stem inflation in a country that, owing to its decrepit factories, ships in the vast bulk of finished goods from abroad.
The strategy has backfired, compounding the pain cause by the collapse in the price of oil, which accounts for most government revenue and 90 percent of export earnings. With the black market exchange rate falling and companies struggling to purchase imports, inflation accelerated to a three-year high of 11.4 percent in February. Economic growth dropped to 2.8 percent last year, the slowest since 1999. It will decelerate further to 2.3 percent in 2016, the International Monetary Fund said March 31 as it called for a “ speedy unwinding” of foreign-exchange controls.
While central bank Governor Godwin Emefiele has pegged the naira’s official rate at 197-199 against the dollar since March last year, it trades around 320 on the black market.
The controls have deterred foreign investment and disrupted businesses across Nigeria, including in northern regions where votes for Buhari carried him to victory in the 2015 elections.
“It’s terrible,” said Musa Kallah, a 60-year-old who sells rice, sugar and vegetable oil in Katsina city, the capital of Buhari’s home state, which borders Kano. In the last six months, he has put up the price of his 50-kilogram (110-pound) rice sacks to 11,000 naira — $55 at the official rate — from 7,500. “It’s because of the dollar. The customers who bought 100 sacks now only buy 50.”
As oil prices wallow near the lowest since 2003, state governments are battling to pay salaries and contractors. Most states, aside from the main commercial hub of Lagos, have barely functioning tax systems and rely on monthly handouts from the federal government. Kano and Katsina each derive less than 15 percent of their revenue internally, according to Lagos-based research group BudgIT.
With the government among the biggest employers in the north, home to roughly half of Nigeria’s 170 million people, its constrained finances have weakened consumer demand and left businesses struggling to pass higher costs on to customers.
“People in this area are heavily dependent on the government,” said Salisu Abubakar, the 61-year-old head of Sal Motors Ltd., which sells imported cars in Katsina. “If they stop, everyone stops.”
His dealership buys dollars on the black market, which is legal, and has had to increase the price of its Toyota Corollas to more than 2 million naira from about 1.6 million naira since 2015. Sales have since been “very slow,” he said.
Emefiele and Buhari say that, as well as slowing inflation, import curbs can boost Nigeria’s industrial base by forcing people to buy local products.
Murtala Balla Maisallah, who like Abubakar sells imported fabrics in Kano, says successive governments have only themselves to blame for people’s preference for foreign goods. They allowed a thriving manufacturing base to collapse in the 1990s as infrastructure fell into disrepair.
“It’s not right for the government to go this route,” he said.
Other critics of the restrictions, including the IMF and the U.S. government, say a devaluation would encourage foreign investment and bolster the government’s finances by increasing oil revenue in naira terms. They also argue that inflation wouldn’t pick up substantially since the currency’s fair value isn’t as low as the black market rate.
“Oil prices are almost at rock bottom, so any equilibrium you reach with the currency should mean it’s stable,” Muhammadu Sanusi II, Emefiele’s predecessor, said in an interview. Now the Emir of Kano and Nigeria’s second highest-ranking Muslim figure, he was ousted from the central bank by former President Goodluck Jonathan in 2014 after alleging corruption at the state oil company. “If the government took away the currency risk, it would allow investors to come in with their dollars knowing they probably wouldn’t be wiped out by further devaluation. The rate would be weaker than 200 against the dollar, but certainly nowhere near 300.”
For now, Buhari’s supporters in the north still back him.
“Here, he’s more popular than ever,” said Abubakar, explaining that the 73 year-old ex-general has improved security in Kano and that attacks by Boko Haram, the militant group that’s waged a seven-year insurgency, have waned.
Abubakar’s fears about safety have been replaced by worries about the future of his business.
“If you put your prices up to match your costs, the customers just run away,” he says, watching the two women walk out his stall after refusing to buy. “They begged me to sell at the old price. How could I?”