MANY people may be blaming the current fall in the price of crude oil for the fall in the value of naira against the dollar, but as an economist, I would say that the demand for dollars is the major reason our local currency is falling.
The United States dollars is the major currency used in global trade, and the demand for the currency by importers is what determines the exchange rate.
In Nigeria, we import everything, from petroleum products, to used cars, building materials, electronic products, agricultural produce, among others. It is so unfortunate that we also import table water and tooth picks.
With all these, the demand for dollars by importers is usually high, and when the demand is high, price goes up.
Apart from importers who demand for dollars, Nigerian students who are studying abroad also demand for dollars to pay their tuition, as well as for their daily expenses abroad. It was once reported that Nigerian students pay over $1billion as tuition annually to foreign universities.
However, if we are to reduce our demand for the US greenback, then we need to produce more in the country so that we wouldn’t need to import again. Nigerians also need to have faith in our education system. If our children can’t gain admission into the government tertiary institutions, there are private universities that are as good as those in Europe and America. It is so shocking that Nigerian students have now flooded universities in Ghana, Togo and Benin, when they can easily study back at home.
In the area of trade, Nigeria is the country that imports the largest number of bags of rice in the world; we ‘ship’ our hard earned dollars to these Asian rice farmers when we can actually develop our agricultural sector.
In the areas of the importation of cars, we can make the automotive policy, which was made popular during the last administration work by producing more ‘Made in Nigeria’ cars, and then making the banks loan Nigerians money to acquire brand new cars, instead of the used cars we import from Europe.
We can do this for everything that we import, including petroleum products, which we can actually refine at home. When all these are in place, the demand for dollars will reduce, and then the fall of the naira will stabilise. I must, however, say that this is not a day’s job, as it requires long-term planning.
We should, therefore, start working towards becoming an export-oriented country, instead of an import-dependent one. However, the decision by the Central Bank of Nigeria (CBN) to license International Money Transfer Operators (IMTOs) will not help reduce the burden on the naira. Already, Travelex and other financial firms have been licensed to sell forex to Bureau De Change (BDCs), but as long as we keep importing everything into the country, our forex demand will continue to outweigh the supply by Travelex and other finance firms.
We, therefore, only need to produce more locally instead of importing those things we can produce in the country.
- Yetunde Soares,