As at 11:40 GMT, a dollar sold for 347 naira on the parallel market in Nigeria. The currency of Africa’s largest economy keeps losing value as the central bank remains adamant, rejecting calls for devaluation despite obvious reasons to do so.
All economic principles support the devaluation of the naira as things stand, but political principles differ. With Nigeria’s central bank not under the full control of the institution’s governor as recent history suggests, the only way to stop the naira’s value from eroding is to let President Muhammadu Buhari know that the average Nigerian he claimed to be protecting by not allowing devaluation is actually suffering.
The Central Bank of Nigeria (CBN) and Deposit Money Banks (DMBs) last week suspended allocation of forex for the purpose of school fees and medical bills overseas, as the the Bankers’ Committee said forex allocation for medical bills and school fees constituted 15 percent of foreign exchange demands in the country. They resolved that most of the foreign exchange demands would be granted to developing the real sector.
While they made their decision, the naira’s value continued to drop as those now excluded from forex services by the banks look for alternative means of access. With the Bureaux de Change (BDC) already excluded, getting foreign currency becomes harder.
The scarcity principle suggests that the price for a scarce good should rise until an equilibrium is reached between supply and demand. Here, dollar is the scarce good. Its value has, therefore, continued to rise as the Nigerian government introduces policies that make it scarcer. Although, it is true that when a product is scarce, it will likely be expensive and the consumer should only buy if he sees a greater benefit from having the product than the cost associated with obtaining it, in Nigeria’s situation, the consumer derives greater benefit from buying the product. Small businesses in the country run some products and services that are imported, forex restrictions affect their businesses.
A Nigerian political analyst who asked not to be named for personal reasons, sacked two workers due to the effect of forex restrictions on his company. According to him, the annual profit of his company was wiped out as the value of the naira dropped, especially with annual subscription commitments with foreign companies.
Ose Okpamen, who founded Hollerose Couture laments the forex restrictions and urged the government to devalue the naira if it would stop its free fall.
“I buy most of the materials I use from the U.S. because it is cheaper to do so. They are costlier if you buy locally.
“I would normally pay $70 – $90 for Swarovski crystals I use on bridal gowns. Although the price has not changed, but I pay more now, almost 100 percent more. And I can’t factor every kobo into the prices of my dresses so as not to scare customers away.”
Ose said although the present situation has brought about innovation in the types of materials she uses, but there is a limit to how far a designer can go with locally-made materials. “Besides, you may need to do a lot of talking convincing customers about the quality of some locally-made materials despite the fact that some of them are quite expensive,” the designer says.
Several small businesses in Nigeria groan under the weight of the current forex restrictions but no one seems to be listening to them.
While the president continues to present himself as the defender of the masses, small businesses are dying slowly. Like the political analyst who fired two workers, more local companies are going to sack workers as foreign exchange rate eats into their revenues. The ripple effects of this can best be imagined. One would then be forced to ask Nigeria’s president: “on whose side are you really on?” The average Nigerian who makes a honest living from his small business or the top central bank official who is somewhere smiling at his bank account as he continues his forex arbitrage?