Corruption, poverty and insecurity are exceptional features of Nigeria. It will be good to throw in a percentage of people who are ashamed of being Nigerian but a large number of people share the same feeling.
The country has become a haven of negative situations, especially the bad economy that has affected the citizens for many years. No year is better than the previous. It’s been a cycle of unbearable life for Nigerians.
The Nigerian Naira has experienced a significant decline against the US Dollar in recent times, with the currency losing its value since foreign exchange reforms were implemented. Since the current president, Bola Ahmed Tinubu, took over power, it’s been a downward spiral. The naira couldn’t stand a chance against the dollar, it depreciates like a prepaid SIM. Naira devaluation has become a phenomenon or usual thing in the country.
Causes of Naira Devaluation
Naira’s depreciation is influenced by factors such as Nigeria’s overdependence on oil exports, corruption and mismanagement, trade imbalance, and foreign exchange policies.
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Overdependence on oil exports
Since crude oil was discovered on Nigeria, every leader turned a blind eye on other things that can bring in revenue for the country. The country has been heavily dependent on oil exports, the decline in global oil prices has in turn affected the country’s revenue leading to a shortfall in foreign exchange.
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Corruption and mismanagement
Corruption has eaten deep into the fabrics of the nation. The constant embezzlement and fraud has caused the country a setback, hasty and selfish decisions have caused the economy to suffer. This has taken away investors’ confidence and hindered economic growth.
Political uncertainty and inconsistent economic policies deter foreign investment and trigger capital outflows, placing additional strain on the Naira. There are claims that the fight against corruption has been successful but the recent economic downturn shows that it got worse.
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Trade imbalance
Nigeria’s persistent trade imbalance worsens the situation. The country imports more goods and services than it exports, resulting in a high demand for foreign currencies, especially the dollar. This demand further strains the Naira’s value in the foreign exchange market. It should also be noted that Nigeria’s lack of economic diversification is a major contributing factor. Despite attempts to boost non-oil sectors like agriculture and manufacturing, the economy remains heavily dependent on oil revenue.
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Foreign exchange policies
Naira devaluation is attributed to several policy-related factors. CBN maintained an artificially high exchange rate, leading to a shortage of dollars and a thriving black market. The central bank’s decision to defend the naira by selling dollars and buying naira led to a depletion of foreign reserves.
Expansionary fiscal policies, such as increased government spending and debt, put pressure on the exchange rate. Also, the trade policies and import restrictions led to a decrease in foreign investment and a shortage of dollars.
These policy-related factors led to the devaluation of the naira, highlighting the need for economic reforms and diversification.
Read Also: Impact of Naira Depreciation on Nigerian Businesses
Call to Action
The Nigerian government must take urgent action to address the economic crisis. This includes:
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Diversifying the economy
Nigeria must reduce its dependence on oil exports and invest in other sectors such as agriculture, manufacturing, and services.
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Addressing corruption and mismanagement
The government must tackle corruption and mismanagement head-on, ensuring that resources are used efficiently and effectively.
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Investing in human capital development
Nigeria must invest in education, healthcare, and social welfare to develop its human capital and reduce poverty and inequality.
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Promoting innovation and entrepreneurship
The government must create an enabling environment for innovation and entrepreneurship, providing support for start-ups and small businesses.
Read Also: How to Boost Intra-Africa Trade
The currency’s decline began from the dollar’s growing scarcity and demand in Nigeria, compounded by persistent foreign exchange supply challenges and a significant demand backlog. The drop in the country’s production of oil, its main source of foreign exchange earnings, has pushed the country’s external reserves lower and put pressure on the naira. Nigeria’s foreign currency reserves stood at $32.29 billion as of April 15th, 2024, a decline from $34.45 billion recorded on March 18th, 2024.
Conclusion
Nigeria’s economic crisis demands urgent attention and action. The government, private sector, and citizens must work together to address the root causes of the crisis and implement sustainable solutions. We must prioritize economic diversification, address corruption and mismanagement, invest in human capital development, and promote innovation and entrepreneurship. The future of Nigeria’s economy depends on it.
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