Analysis: Crash Of Naira, Its Effect On The Economy, Way Out

My Take And Analysis Over The Crash Of Naira And Its Effect On The Nigerian Economy.
By AG Mukhtar

Since the inception of the present government of Buhari/Osibanjo, the economy of Nigeria has been drastically going down due to a number of certain reasons and so many factors that have contributed to its present economic recession.
One of these factors was the mono economy of the Nigeria economic systems, that is Nigeria depend on Crude Oils its mainstay for its earning of foreign exchange. Dollar was used to be the Money used to measure the price of Oil in the international oil market. The price of Oil went down leading Nigeria into an Economic Recession. The ups and down of the crude oil push Nigeria to face the economic difficulties which discouraged it from earning money as it was before. Also the negative impact of the GDP in the whole1st, 2nd and 3rd Quarter of the previous year paves way for the bad economy.

Nigeria has for long depend on crude oil as its major form of importation which provide her with available dollars and when the price of the oil falls, the available dollars which  Nigeria acquire also decrease to the extent that no amount of dollars would be sold to Demanders, this is part of the reason why the federal government through the act of the CBN  reduce the inflow of Dollars Into the market and its price was also increased with a view to discouraged the demanders in order to push up the economy as they expected. Since then Dollar was exchange at an expensive price keeping the Naira at its lowest value.

As a result of the above aforesaid points, the production of the manufacturing industries that relies on foreign raw materials (chemical and other input raw materials that are used for production) was also stopped due to high cost of exchange rate of dollar with Naira. Some stop production while some were discouraged to be out of the businesses, some were producing but used to sell their finished products at a very expensive price and even the locally produce goods are very expensive due to competitive nature of the market. Import became expensive being the fact that it cost much for Naira conversion into Dollar that's why it become difficult to transact businesses internationally by the citizens and even the market expansion was discouraged. All these served as a mechanism that worsens the economic woes in the country.

Am strongly on the opinion that, economically, any country that wants to devalue its currency has a great certainty that its total export must outweigh (exceed) its total import. Any country that wishes to devalue its currency in terms of the value of the currencies of other nations of the world it so wish in order to export more rather than to import more because of the need to makes export cheaper thereby making the progress of Economic growth. But however the story was not the same in Nigeria when Naira was devalue.
On Tuesday 21st February, 2017 the CBN disclosed a new system for exchange rate policy of Dollar against Naira which was meant to increase the inflow of more dollars in to the market and it was part of the CBN strategy to revive the economy and to encourage business expansion that could lead to an economic prosperity. It has been seen as a welcome development policy by the individuals as some had started jubilation with the anticipation that ease has come their way rescue them from the effect of economic mess.

I have an implicit confidence that this new policy came up by the Government will be of an immense benefit to the Country Economically, and as part of the monetary economic stabilization policy. The policy could bring a positive change in the areas of Economic growth and businesses expansion because of the available dollars to be exchange by the manufacturing industries for their raw materials of production and other sectors that play a vital role toward stimulating and enhancing economic growth. People that are interested in domestic and international business will be accessible to dollar for their business.

The price of dollar is being crashing and market will now become  a very competitive market where people would likely to sell more dollars and get profit at a cheaper rate because of the competitive nature of the markets and the price of dollar will continue to fall thereby keeping Naira to be continuously appreciating. Continue to be going on this trend the economy will be enhance, production will continue to reach its full utilization capacity and our GDP will also goes up, and the recession will be check. The more production started to increase the more employment will be generated, income will be available in the hands of individuals and demand will increase to the extent that consumption is going to be increase and leaving people out of the
economic hardships.

My Take:
As the federal government designed this policy under the act of CBN is good for the Federal Government to carefully handle and maintain the policy active and continue to make proper strategic planning for keeping the system update if the policy was meant to save the country from the economic challenges.

As students of Economics, if I may wish I will like to admonish the government and draw its attention to hold my opinions as a way forward for ensuring the system of this new exchange rate policy continue to remain active because of the reasons it was designed.

1. CBN Should continue to provide competitive market of exchange rate through the provision of more available dollars in the market.

2. CBN should continue to sells more dollars at an official rate and at a cheaper rate since federal government now has more dollars at CBN because crude sells higher in the international oil market.

3. Since there are many buyers and sellers of USD, CBN should endeavor to make the markets be very competitive being the fact that none of the buyers and sellers can influence and determine the USD except the force of demand and supply and this is going to be achieve through available provision of Dollars.

4. CBN should endeavor under its directives to give priority of selling more dollars to manufacturing industries by 70 percent in order to encourage their production; hence the economic growth will go up.

5. Government should in other way round encourage Power Supply Company in its special need intervention for ensuring the constant power supply that will support production in order to get access of exporting more of our product to the other nations of the world.

Then the permanent solution to our problem is that reduction of over dependence on oil export, let the economy be diversified to other sector of the economy like Agriculture, Mining etc.  Continuous reliance upon crude oil exportation will continue to discourage Nigeria from economic diversification and will deter Nigeria from achieving economic prosperity and the economic stress we have been experiencing could be continue because it is through that sells of oil we get enough dollars due to raisin up of the oil in  their international oil market. Otherwise we will continue to be in the economic hardship when the price of decrease. Soon The Economy will be boosted because the foreign reserve increase and the price of Dollar crash but if proper hands will handle the situation.

I have learnt that like Nigeria is currently in stagflation and according to a survey by economist experts, we were previously running different types of exchange rate and yet no any mechanism put in place by Both CBN and Federal Government to check mate the mess except the recent policy by CBN and in collaboration with the Federal Government to deal with the situation. May Allah deliver us safe through this ineffectual economic down turn that's trying to shut down our country, If appropriate economic, political and diplomatic measure not taken with immediate effect by Federal Government we will continue to end up as a miserable country among the African State.

AG Mukhtar

Economics Department
Bayero University. Kano.