If I were a gambler I would be living under a tree writing this post at the moment. Although I like to think that I usually take safe bets; I would have thought betting my house that the Dollar would never get to 200 Naira was a very safe bet. I still did make a bet though, not with a house, but with my stash of foreign exchange.
As the Dollar passed 180 Naira – the highest I had known back in 2008 – I quickly spent all I had buying books, a phone, 2 Kindles, and other things that would gladden my heart. I was sure I would definitely smile at how I gamed the market when the exchange rate eventually corrects itself.
I was wrong, not just wrong, very wrong. The Dollar to the Naira has known only one direction: UP, till it eventually hit 242 Naira (although some claim it got to 250 Naira). We are not talking about the British Pounds here, the United States Dollar. A currency that sat around 150 Naira for years. If an item cost $100 you were safe to say it was worth 15,000 Naira.
I have taken one lesson out of this experience anyway: leave betting against any currency to George Soros.
Back to the issue at the heart of the matter. Why is the Naira crashing so badly? As it turns out a simple answer lies in a class I took in 1994: Demand and Supply.
It is hard to forget the favourite topic of one of my favourite subjects: Economics. Over the years I have had reasons to relate to the principle of demand and supply in my everyday life. A classic example is public transportation. I get to the bus stop, I meet a crowd, I reason the fare is going to be high as a result of high demand and true to my thinking, a bus comes, there is a struggle to get into the bus and the conductors announce a ridiculously high price. Some grumble, some get off the bus, most remain seated and pay the fare. If only these people would not rush we would not present ourselves as so vulnerable and the conductor having his day with pricing.
So let’s look at the Demand and Supply Curve in its simplest form as shown above. When demand is higher than supply; prices goes up, and when supply is higher than demand, prices drop. Simple. The implication of this little knowledge is that the demand for the US Dollar is high hence the high price.
Now we know the cause of the high price of the Dollar, so what is the cause of the cause: what is driving the high demand of the Dollar?
The answer to that lies in our economic activities or rather our lack of economic activity.
Nigeria is a consumptive nation, we don’t produce anything, we import everything: fuel, toothpick, furniture, machinery, food, drugs, and even culture. As a result we are always chasing after the Dollar, the currency of international trade, thereby creating demand and of course driving up the price.
Looking around all the states of the federation, only Lagos State can probably sustain its population. Why is it so? Lack of economic activities.
The north can produce grains, groundnut, leather, fabric, tie and dye. The west can produce cocoa and grains. The south can produce log, palm, and rubber. From all these we can avoid importation and probable earn foreign exchange. But what is happening, everyone is sitting back waiting for oil to be sold and the money shared.
Money sharing is an anti-economic activity. When you give people money they have not earned, it destroys their economic worth. Have you ever wondered how a man manages his wealth, die and passes it on to his children but in no time the wealth is all gone?
I did list some cash crops that can be produced in different regions of Nigeria. I will love to stress that it is of little good to sell or export these unprocessed cash crops and in turn import the finished products. By so doing we would still be chasing foreign exchange to pay for those imports.
Let us use the petroleum industry as an example: we sell crude oil and return more money to the international market so as to buy refined products. A truly pitiable state.
Cote d’Ivoire is the world’s largest producer of cocoa. But do they produce a significate amount of chocolate? NO. I can bet you Cadbury, Mars, Sneakers, and other chocolate companies get more value from then the Ivorian cocoa farmers.
Processing cash crops locally adds to a country’s GDP, creates local jobs, and reduces the level of poverty in a real way.
So what we need to do to impact the lives of our citizens is real economic activities. Real economic activities doesn’t just involve factories to process vegetable oil from groundnut, or to mould plastic toys but it also involve the art and design that goes into these activities. We could literally mint earnings from our creative industry.
The design of a unique pattern on a piece of fabric is a creative economic activity and these are products that can be exported to provide foreign exchange and also help to export our culture and values.
In conclusion, we all have a responsibility to defend the Naira by creating value around us and reduce our appetite for imported goods. Not just as consumers, but even local producers are urged to improve on the quality of their products. We are all gifted, but these gifts have to be cultivated and nurtured. As sack of grains in your garage after a year may mean weevil infestation, but if you till the soil and cultivate these grains, you may end up with 100 sacks. So we have a choice to carve the path we want our nation to take.
I love your article. The fact that the naira keeps depreciating against international currencies honestly worries me. I am a graduate of Economics and I also feel that having too much money in circulation also affects the exchange rate negatively. Politicians amass wealth and where does it go? Into the economy. Too few people are chasing too much money and this puts pressure on the money demand. Inflation has eaten raw into the Nigerian economy. Imagine having a currency of 1000 Naira ??? It’s disheartening. In the UK, the highest denomination the ATM gives is 20 pounds. We do not need a 1000 naira note or even a 500 naira note because this just devalues the currency the more. Sellers use it as an opportunity to overprice goods. In Lagos, earning a salary of 150,000 naira is not even enough any longer. This shows the extent to which the naira has lost its value.
The CBN needs to wake up.If they try to tell me they employ economists in that organization, then they must be joking because they clearly do not have their work cut out for them. May the Lord help Nigeria and Buhari because time is fast going and Nigerians need results. I need results. Thank you.
I smiled when I saw N250 to a dollar in your article. Little did you know that few months after writing this article the rate will eventually peak at nearly N400 to the dollar. To borrow your words, “We are not talking about the British Pounds here, the United States Dollar.” LOL
Thanks Fred, I became speechless as the Naira further deeped to 400 and we have come to accept 300 to 320. We all have to play our parts to defend our currency. Thanks for your comment, once again.
U saw it coming Engr…. U have said it all
“So what we need to do to impact the lives of our citizens is real economic activities. Real economic activities doesn’t just involve factories to process vegetable oil from groundnut, or to mould plastic toys but it also involve the art and design that goes into these activities. We could literally mint earnings from our creative industry.”
I pity the future of this country if things continue this way… So help us God