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Strong Reasons Why Naira Will Keep Falling Against The Dollar


ikoiikenna
  • Jan 2018
  • biznews



  • The Naira has been in free fall against the dollar for some time now, falling even after the recent CBN intervention, the Naira had fallen as far as a dollar to N370 of the parallel market. The question most people are asking is why the dollar is falling at such a pace now, who is to blame? Is it the present government, the CBN or the Banks as the CBN wants us to believe?

    While the present government should assume responsibility and find a way to fix the economy, it should be noted that it is not a situation created by the present government, rather a situation they find themselves due to global market demand and Nigeria lack of investment in other sectors of the economy over time.

    Nigeria major export is known to be crude oil which makes almost 75% of the country income. Over the years the oil market has been booming and Nigeria oil has been great demand thus the country has lots of foreign reserves and can cater for the demand of foreign currency by Nigerians. It should be also noted that Nigeria is a major importing country. We import lots of good from luxury items such as wine, clothing’s, beverages, to food such as rice, tomato paste, canned drinks and so much more. Nigerians are also funds of sending their family abroad for various reasons from education, holidays, shopping etc.

    And through all these we spend foreign currency on catering for these needs or luxuries, depending on how one look at them. Now during the oil boom, the effect of these luxurious spending drifts was not felt because there were more dollars coming in from the sales of crude. The excess profits made from goods were enough to balance the outflow of foreign currency. The cost of producing a barrel of oil is below $30 and during the oil boom; a barrel was sold at more than $100. So you can imagine the excess profit being made. It would have been prudent to invest in other sector of the economy and make them grow with the excess profit being made then and to watch and find way to plugged the excess foreign exchange leaving the country for that would have set the country in the right direction and prepare us for tougher time rather to looking for emergency solution now.

    Fast forward to present, and Nigerians still have the culture of spending foreign currency, importing goods, and spending so much abroad and the shortage of foreign currency due to falling in oil prices and lack of buyers for Nigerian crude, there is not much foreign currency coming into the system as it is going out, thus the simple economic explanation of the situation, supply, and demand. The demand for foreign currency is high and the supply is low.

    The CBN tried pegging the Naira to the dollar at just below N200 but it keeps rising on the parallel market as the dollar is scarce. The governments and the Central Bank have implemented some measures to curtail the spending of foreign currency by placing a ban on the importation of some goods and restricting some bank transactions abroad. But the situation seems not to be subsiding.

    Now sensing the situation at hand, one expect a further rise of the dollar to the naira as it seems crude prices are not going to rise anytime soon, at least not to the extent we had seen it before as speculated by experts in the field as can be assumed by recent OPEC meetings.

    In view to this, the government needs to set up a highly technical and active economic team to try and salvage the economy as we have gone beyond the blame game and we need to be proactive and face the present situation we find ourselves. No doubt they will be sacrifices to be made and it has to start with the present administration as they try to build the economy away from oil.




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