Article: The harmful effects of the devaluation of the naira in Nigeria
In Nigeria, the devaluation of the naira and the economic reforms implemented by President Bola Tinubu still raise concerns, as they are struggling to bear fruit after five months. Recent exchange rate adjustments have led to the depreciation of the national currency, which has resulted in a series of adverse economic consequences.
One of the main concerns is the country’s complex foreign exchange system, made up of multiple regimes, which has not been resolved despite the devaluation of the naira in June. Indeed, the national currency continues to fall on the parallel foreign exchange market, even reaching the mark of a thousand naira to the dollar. This situation makes access to foreign currencies difficult and hampers ongoing economic reforms.
According to Ayorinde Akinloye, an investment advisor in Lagos, Nigeria’s main source of revenue, namely the sale of crude oil, is being compromised by oil theft in the Niger Delta, limiting the accumulation of foreign exchange. This situation weakens the capacity of the Central Bank to support the naira and contributes to the devaluation of the currency.
The repercussions of the devaluation of the naira are already being felt on production costs, leading to an increase in inflation. Small and medium-sized businesses are particularly hard hit as it becomes increasingly expensive to import materials and find dollars for international transactions. As a result, some companies have had to reduce their production, which has consequences on employment and on the prices of finished products which tend to increase.
The devaluation of the naira also has a negative impact on Nigeria’s poorest population. Nearly half of the country’s 220 million people already live in extreme poverty, and this situation risks getting worse with rising inflation and declining purchasing power.
In an attempt to stabilize the situation and regain some economic stability, the Central Bank of Nigeria has decided to lift import restrictions on certain essential products such as rice, chicken and cement. This measure aims to facilitate access to foreign currencies on the official market, but it does not resolve the fundamental problems linked to the devaluation of the naira and the weakness of the exchange system.
In conclusion, the devaluation of the naira in Nigeria and the ongoing economic reforms are having adverse effects on the country’s economy. Currency depreciation, increasing production costs, increased inflation and the deterioration of the living conditions of the poorest population are all consequences of this situation.. It is essential for the government to put in place effective measures to support the economy and restore investor confidence.