Sunday Magazine

Currency fluctuation: Business owners, consumers lament unpredictablility

For an import-dependent country like Nigeria, a rise or fall in the value of the dollar to the naira is crucial to the economic survival of Nigerians. In recent times, the free fall of the naira and its rise have been a source of worry for business owners and consumers. LADESOPE LADELOKUN writes on the effects of the unstable value of the Nigerian currency and why an urgent action is needed to save the naira

 

Frustration was plastered on Daniel Okere’s face. Like a time bomb waiting to cause havoc, a mention of the exchange rate triggered an explosion of anger at his Computer Village shop. Asking him questions about the effects of the falling value of the naira to the dollar, he said, is like stabbing an open wound he carries.
But the phone dealer would not fail to shower plaudits on Yahoo boys(internet fraudsters) for keeping him in business.

 

“The people patronising us are not teachers, civil servants or salary earners generally. How much do they earn monthly? How much is the minimum wage?

When last was their salary increased? Thank God for Yahoo boys(internet fraudsters). They are the ones keeping us in business. If not for them,we would have closed shop. I can’t buy an item for N100,000 and sell it for same. You see, the people I pity are salary earners. They will complain because things will continue to be more expensive and they hardly (if they ever at all) increase their salary. The people in government steal money and convert to dollars to spend abroad but Yahoo boys spend their dollars here. They leave Yahoo boys. They should leave them alone. How have these selfish people in government helped our business? They don’t care about us,” the phone dealer lamented.

Beyond transactions involving the United States, the effects of fluctuations in the dollar sweep through global trade. In Nigeria, an import-dependent country, the downward movement of the naira, experts observe, has precipitated loss of jobs, untold hardship and crumbling businesses.

According to the International Monetary Fund,(IMF), the US dollar is the most popular currency. Findings by Sunday Telegraph revealed that as of the fourth quarter of 2019, it made up over 60 per cent of all known Central Bank foreign exchange reserves.

Owing to what is deemed the dominance in the invoice pricing in dollars, changes in the value of the dollar is said to have a larger impact on the trade flows between two non-U.S. nations involved in bilateral trade than changes in their own currencies.

For an import-dependent country like Nigeria, experts argue that a strong dollar pushes import prices up, causing inflation. A one per cent appreciation of the dollar against all other currencies, experts say, is associated with a 0.6 to 0.8 per cent decline in total trade among countries in the rest of the world.

In Nigeria, importers of goods lament the falling rate of the naira. While some have suspended importation of goods, others have simply closed shop following the unbearable burden the exchange rate places on their businesses.

Speaking with Sunday Telegraph on how the exchange rate is gradually killing his business, Chijioke Uzor, said as of August when he bought goods from China,he spent N4 million but he would need a double of that to buy “anything meaningful’ now.

“You know, this is how these things work. I don’t have the financial muscle to buy goods to fill a container. But I have a brother who imports but six other people, including myself buy goods to join his from China to fill one container.Sometime around August, I brought in goods from China and I converted about N4 million to dollar. If I’m to buy again now, I can’t get less than N8 million if I’m to buy anything meaningful. That’s the problem we are facing. And if a customer comes with a price fixed in their mind to buy an item, and you tell them the price is now double, they tend to believe you just want to cheat them. But when they go round to ask other colleagues, they get convinced. So, there’s no way the rising value of the dollar to the naira will not affect our businesses. Many people just stay back because things have become too expensive. Look, I ought to have travelled but I’m staying back because I’m trying to be careful, so I won’t incur losses. Dollar is too high now. I can’t go to China again this year. I’ll wait till February or March next year before visiting China.”

For Timothy Agu, it’s another tale of sadness. “All these things are bought in dollar. To buy them ,you have to convert to naira. I doubt we produce anything in Nigeria. Look at the phone that young man is holding. It was N140,000 just two months ago. Today, it is N180,000. So, as naira falls, it affects us. We’re not happy. Customers are complaining. No one is happy. We just come here every day to see what we can make.”

More tales of lamentation

Speaking with Sunday Telegraph, a Supermarket owner with a branch in the Mowe area of Ogun State, told of how he lost N1.5 million in just days to the unstable nature of the Nigerian currency, noting that the mad rush for Chinese goods by Nigerian businessmen has raised the value of country’s currency. He condemned the unwholesome practice of politicians, who allegedly hoard dollars, saying they place a huge burden on businessmen, who import goods into Nigeria as the consumers eventually bear the brunt. Choosing to be anonymous,he explained: “What I sold for N30,000 two weeks ago is now N50,000. Customers turn back when they can’t afford what we sell and we keep spending money. This country is sold already. We borrowed to the extent that China said it won’t borrow us again. When you go to China,you don’t buy with dollar, you change to their currency.

Since the demand for Chinese goods is very high, it triggers an increase in the value of Renminbi(RMB). Sometimes, it’s even stronger than the dollar. But currently,the dollar is higher because of the politicians and the redesign of the dollar. In that case, the demand for dollar is higher. Some politicians that have hoarded money are now chasing the dollar with their hidden money, making the dollar rise in value. I bought RMB at the rate of N855. After four days, the value dropped to N734. I lost N1.5m. Who is going to pay for it? If things were working well, you can’t just wake up and the value just skyrockets. We shifted to RMB because of the pressure on the dollar. Now, the pressure on RMB is just too heavy. ”

Eze Ezekiel, an importer of phone accessories, told Sunday Telegraph why he’s applying the brakes until the Buhari-led government leaves: “If I tell you things are easy, I’m lying because the cost of importing goods now is very high. I’m a kind of person that brings 10 bags from China. I can’t even think of bringing up to five bags if I change naira to dollar. Even to sell is a very big problem. It has negatively affected my business. For now, I’ve stopped importing until things get better. I don’t see things getting better till this government leaves. Things are difficult for us. Many are not buying even when they need. They just want to take care of their family,” he explained.

The naira redesign debate

Recently, the Governor of the Central Bank of Nigeria(CBN), Godwin Emefiele, stirred mixed reactions when he revealed there were plans to redesign N200, N500 and N1000 bank notes respectively.The CBN governor said that the new currency would begin circulation from December 15, 2022. According to him, both new and existing currencies would only remain legal tender and circulate together until January 31, 2023, after which the current currencies would no longer be legal tender.

His words: “All banks are, therefore, expected to keep open, their currency processing centres from Monday to Saturday, so as to accommodate all cash that will be returned by their customers. For the purpose of this transition from existing to new notes, charges for cash deposits are hereby suspended with immediate effect.

“Therefore, DMBs are to note that no bank customer shall bear any charges for cash returned/paid into their accounts”, he said

“In recent times, currency management has faced several daunting challenges that have continued to escalate in scale and sophistication with attendant and unintended consequences for the integrity of both the CBN and the country at large.

“These challenges primarily include, significant hoarding of banknotes by members of the public, with statistics showing that over 85 per cent of currency in circulation are outside the vaults of our commercial banks. To be more specific, as at the end of September 2022, available data at the CBN indicate that N2.73 trillion out of the N3.23 trillion currency in circulation was outside the vault of commercial banks across the country and supposedly held by members of the public.

“Evidently, currency in circulation has more than doubled since 2015 rising from N1.46 trillion in December 2015 to N3.23 trillion as September 2022. I must say that this is a worrisome trend that cannot continue to be allowed.”

However, New Telegraph had reported how financial adviser/wealth management expert, Mr. Gabriel Idakolo, described the move as economically damaging, saying it would increase inflationary pressures on the economy. “The reasons given for redesigning the naira notes regarding efforts to trace ransom payments or curbing counterfeiting may be germane but its attendant cost could further increase inflationary pressures on the economy. “This decision will not positively lift the economy. Presently, the pronouncement has further devalued the Naira with its exchange rate going for N780/$ in the black market.

“The sudden change could be politically correct but economically damaging due to the short period of implementation which could cause upheavals in the financial system,” he argued.

Speaking on Channels Television’s Sunrise, an economist, Tope Fasua, harped on the need to curtail practices fuelling currency speculation, stating that it was time the CBN banned individuals from operating domiciliary accounts.

According to him, the practice of converting the naira to the dollar at the parallel market and saving in domiciliary accounts fuel currency speculation as demands for dollars rise.

“Personal dorm accounts are mostly unnecessary; only companies that are doing international trade transactions or financial market companies should be able to hold dorm accounts because they have a reason to.

“A domiciliary account is not intended to save money but allows the owner to fund it with foreign currencies such as dollars, pounds or euros to perform foreign transactions.

“However, with the naira’s constant struggle in the foreign exchange market, it is not uncommon for Nigerians to convert the naira to dollars at the parallel market and save in their dorm accounts, fuelling currency speculation as demands for dollars soar.”

What to do

An Investment expert, Frank Onoh, said it was time agriculture was supported to boost the local economy through capacity-buillding, urging the Federal Government to ensure its backward integration policy works.

“We need a large number of our farmers to practise mechanised farming to contribute substantially to the Gross Domestic Product. This will go a long way in ensuring that there is food security ,it will have a huge impact on inflation and by extension the exchange rate.”

An economist, Kunle Awofeso, argued that higher interest rates could attract some inflow of money. The Nigerian currency, he said, can rise in value if banks explore this option. Awofeso added that Nigeria would reduce the demand for the dollar.

“We really need to do more than what we are doing in terms of the goods we export. Right now,we spend a lot of dollars on reimportation of petroleum products.We can’t really record a significant success in this regard if we don’t increase our exports. We need to move from an import-dependent country to a country that really exports.”

Danger still lurks

For Dr Emmanuel Ogunniyi, an economist and lecturer at the University of Lagos, the value of the local currency will continue to be unpredictable in a country where the secondary sector (manufacturing sector) is as good as dead.
According to him, if Nigeria were a country where the secondary sector works, the value of the naira would not just rise and fall in an unpredictable manner as there are pointers that must have been seen ahead before a fall.

“The first thing to look at is: why the sudden rebound of the naira in the last 24 hours? It tells us that some people are warehousing some things.And when they warehouse, it could be naira, it could be dollar. It simply means that at any point in time, if they really want to bring a little shock, there’s a way they do it .

“Like I told some people, don’t rejoice that naira gained momentarily in the last 24 hours. It doesn’t mean that naira will not hit N1,000 before the end of the year.

Let me tell you, it’s a momentary gain and that is what the operators want to hear.

Can someone tell us, what has been the reason for this naira gain? What economic tool or method has been applied to make the naira gain up to N200 in just days?If an economy is following due process,you can predict but when some people are manipulating the economy, you can’t predict .

“It is not impossible that the current currency redesigning will force people to bring out money.The CBN knows the number of currency in circulation.And they know the amount they have withdrawn from circulation. So, at any point in time, the CBN should be able to explain some of these things. Some of these things happen as a result of warehousing.Now, you will see that money is coming out in billions as a result of the naira redesign.

“If there’s what we call anticipated gain, people may want to use their money to make more money.And in the past, you will realise that when it’s Christmas time, many people bring money into the country and dollar will be everywhere and you expect dollar to fall. So, honestly, yesterday,I ran through some theories and it didn’t conform because it’s a sharp occurrence. If the naira just gained N10,it may be understandable, but look at the sharp gain! The secondary sector (manufacturing sector)is as good as dead.If we were in a country where the secondary sector works, it doesn’t fall that way.

“There are pointers you would have seen ahead before the fall. As of this time last week, people were expecting the value of dollar to naira to hit N1,000. In a country where the value of the local currency is unpredictable, supplier of goods are always very careful. For instance, look at what happened in the last 48 hours. Those who bought dollar at over N800 are now lamenting. The operators are just like the people manipulating the economy. If this can happen within 24 hours, why can’t we have exchange rate to be at N500 within two weeks?If such happens,we will now know what the monetary authorities have infused to get to that level

 

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