Nigerians protest over skyrocketing inflation as local currency hits record low value

Nigerians are facing the West African nation’s worst economic crisis in years, caused by soaring inflation as a result of monetary policies that pushed the currency to record lows against the dollar. The situation sparked anger and protests across the country.

Inflation rose to 29.9% in January, the highest since 1996, mainly driven by food and non-alcoholic drinks, according to the latest government figures released on Thursday. Nigeria’s currency, the naira, further plunged to 1,524 naira to the dollar on Friday, reflecting a 230% drop in value over the past year.

“My family is now living hand to mouth, trusting God,” said Idris Ahmed, a trader at a clothing store in Nigeria’s capital Abuja. His sales dropped from an average of $46 a day to $16 a day.

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Plunging currencies make an already bad situation worse, further eroding incomes and savings. This puts pressure on millions of Nigerians already struggling due to government reforms such as the abolition of gas subsidies, which tripled gas prices.

A snapshot of the Nigerian economy

With a population of over 210 million people, Nigeria is not only Africa’s most populous country, but also the continent’s largest economy. Gross domestic product is primarily driven by services such as information technology and banking, followed by manufacturing and processing, and agriculture.

The challenge is that the economy is far from adequate for Nigeria’s fast-growing population and relies heavily on imports to meet its daily needs, from cars to knives. This makes them more susceptible to external shocks, such as parallel foreign exchange markets that determine the prices of goods and services.

Nigeria’s economy is heavily dependent on crude oil, which is the country’s largest foreign exchange earner. When oil prices plummeted in 2014, authorities tried to use scarce foreign exchange reserves to stabilize the naira across multiple exchange rates. The government also closed land borders to encourage local production and restricted importers’ access to dollars for certain items.

However, this measure encouraged the rapid growth of the dollar parallel market and further destabilized the naira. Crude oil sales, which boost foreign exchange earnings, have also declined due to chronic theft and pipeline vandalism.

Financial reforms have not been sufficiently implemented

Immediately after taking power in May last year, President Bola Tinubu took bold steps to revive the struggling economy and attract investors. He announced the end of decades of high gas subsidies, which the government said were no longer sustainable. Meanwhile, multiple domestic exchange rates were unified to allow market forces to determine the local naira to dollar rate, effectively devaluing the currency.

Analysts say there were no adequate measures in place to limit the shocks that would inevitably result from reforms such as providing subsidized transport or immediate wage increases.

So the over 200% increase in gas prices caused by the end of gas subsidies will have a knock-on effect on everything else, especially since local residents rely heavily on gas generators to light their homes and run their businesses. began to affect

Why is the value of the Naira plummeting?

Under the previous leadership of the Central Bank of Nigeria, policymakers tightly controlled the exchange rate of the naira against the dollar, thereby forcing individuals and businesses in need of dollars to turn to the black market, where the naira traded at much lower rates. I was forced to do that.

There are also restrictions on the flow of dollars due to reduced foreign investment in Nigeria and declines in Nigerian oil sales, creating a huge demand for foreign exchange in the official market, estimated at $7 billion. .

Officials said a unified exchange rate would mean easier access to the dollar, thereby encouraging foreign investors and stabilizing the naira. However, that has not yet materialized due to poor inflow. On the contrary, the naira continues to depreciate against the dollar and is depreciating further.

What are the authorities doing?

CBN Governor Olayemi Cardoso said the bank had cleared foreign currency balances of $2.5 billion out of the $7 billion outstanding. However, Cardoso said $2.4 billion of the outstanding balance turned out to be a false claim that it could not be liquidated, and the remaining approximately $2.2 billion would be liquidated “soon.” .

Meanwhile, Tinubu directed the release of food items such as grains from government stockpiles, among other mitigation measures, to cushion the impact of the hardship. The government also said it plans to set up a commodity commission to help regulate price gouging of goods and services.

Nigeria’s leaders on Thursday met with state governors to discuss the economic crisis, which they blamed in part on massive food hoarding in some warehouses.

“We must ensure that speculators, hoarders and rent-seekers are not allowed to sabotage our efforts to universally feed all Nigerians,” Tinubu said.

By Friday morning, local media reported that stores were closed due to panic buying and charging unfair prices.

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How are Nigerians getting through difficult times?

The situation is worst in conflict zones in northern Nigeria, where rural communities are forced to flee violence and are unable to grow food to eat. Smaller protests have erupted in the past few weeks, but security forces have quickly stopped them and in some cases made arrests.

In the economic hub of Lagos and other major cities, there are fewer cars and more people walking on the roads as commuters are forced to walk to work. The prices of everything from food to household goods are rising every day.

“It’s difficult to even eat now,” said Ahmed, who is in Abuja. “But what can we do?”