The FX Crisis: Roots of a Tricky Situation

If the value of your exports exceed the value of your imports, you have more money coming in that you have going out, you have some serious income that exceeds expenditure with excesses enough to sustain a healthy forex reserve that will defend and put value into your local currency, you probably would have a strong and stable-ish currency. This is not exact science but, this is the basic idea behind exchange rates. When the reverse happens, and the situation seems more or less like an exaggeration, then you are probably Nigerian and living under naira-induced tension.


To put things very simply: no one is really sure about the real value of the naira. The “official-official-official” rate is N197:$1. The “official-condition-we-understand-that-country-is-hard-sir” rate (so if you are a super manufacturer with a huge manufacturing portfolio whose operations are so massive that if they stopped, the national economy would take a corresponding hit) is around N298-303:$1. The “official-official” rate (rate after the currency was partially floated the first time) is N305:$1, the interbank rate (how much banks might sell the naira within themselves) is between N420-460:$1. Finally, the black market rate, which, is probably the truest of them all stands at N499:$1.
Well, how do you fix a monster mess that is the gap between the official currency exchange rate and its black-market counterpart? A situation that not only threatens everything from nationwide hunger-anger induced civil unrest stemming from inflation figures that only seem to have their eyes set on the sky and are so determined to get there, regardless of whatever means through which they may be controlled, to a government’s competency as afar as running an economy or curbing corruption goes and finally, a huge mess that spells the loss of a lot of face (which I think is what the government is most concerned about). The simple answer every financial or economic commentator would give you would be “float the currency” but we tried that once-ish. Things were good for about a week – literally, then we set our sights to hell and expeditiously, we matched forth. The higher (at that time) exchange rates should have discouraged dependency on importation and made Nigerians develop local sources to meet the related demands which in turn should have helped ease the pressure on the limited forex available but, we pretty much just braced up, understood that we would have to pay more and we went back to business as usual.

The consumer price index (rate of inflation) showed the changes we were unwilling to make as the value changed from around 9.6% in January of 2016 to 18.55% in December of the same year –

Another currency float (partial or full) or a basic devaluation (as advised by the IMF) would probably be of gain to the manufacturing sector. The gaps in the exchange rates may very well disappear overnight if the official value of the naira is adjusted to around N480-500:$1.


Common Nigerians might have to endure hikes in the prices of consumer goods across the board – a seeming reason why the Central Bank is insistent on resisting the pressures of another currency float. Another more dire and even more probable situation that comes to mind when considered is: as at June 2016, the dollar traded at around N280:$1 on the black-market and it took only six months of being that to move from N280 to around N500, which, it now is. If the value of the naira is left to market forces again at the proposed rate, would you like to, off the top of your head, guess – hypothetically -where the rates would stand six months from then?

However, it is crucial that one understands that: the exchange rate being high is one thing, forex itself being available is a totally different issue. Recall between 2012 and 2014, we bitterly complained about the naira to dollar exchange rate which increased from around N140 to N160 as being excessive and a sign of the ruling government’s incompetence regarding economic issues but whenever we needed forex, it was available (in this time, it is worthy to note that Nigeria actually pulled trade surpluses [we made profits from trading] for theree years until the crash at the end of 2014). When there is an availability of forex, the lower the rates, the better it is for the importing sectors of the economy but when there isn’t, the rates are secondary to a bigger problem – general forex availability. It is entirely plausible that the country could have more than enough forex to distribute even if the exchange rate is standing around N10000:$1 and conversely, the rates could be N1:$1,000,000 and there could still be dollar scarcity. If you follow the right sources, you might have heard about a “forex liquidity issue” – this conundrum is one of the main reasons why the economic situation in Nigeria today is the way it is. The main problem isn’t the exchange rate; it is that our main export – oil, suffered a huge price crash and as at now, we are not making enough of this “dollar” to spend.

So how do you address this liquidity issue, as we now understand, to be the real problem? On one hand, you could try to diversify and increase the volume of exports your country works with and expand the revenue stream that comes with it while working to reduce non-essential imports. On the other hand, well there’s nothing on the other hand.
Buhari’s government and the monetary policies it has proposed to date have been more focused on killing the import channels while developing local value and supply chains. Supporting this supposition, we have campaigns like “buy Nigerian to grow the naira” and the CBN’s policy on allotting an exclusive 60% of available forex to manufacturing industries as their products are more closely linked to the welfare of the common man. However, this seems to not only “not work” or probably is just taking its sweet time; it seems to have entirely backfired as Nigerian import quota is standing at the highest level it has seen since 2013, as shown by year on year imports statistics compared with October 2015 – September 2016 1.


If you stretch this data a bit more in the direction of the past, and compare it against another data set, preferably one that reflects the changes in global oil prices especially under the consideration that since 1973, trading crude oil has been the main stay of our economy. The rate of our imports more or less has a distinguishable pattern that arguably correlates with the fluctuations in oil prices. Hence, when the price of crude was high, we imported more. When it dropped, our rates of imports also fell with it.


The issue of import dependency might have started in 1974 when the price of crude made its first big jump from $2.7/b to $11/b, almost 400%. The price of crude would peak at $35.52/B in 1980 and suffer its first big crash 6 years later when it fell to $13.53/B but as far as Nigeria was concerned, the damage was already done not just for the immediate future but also for the long term. We were done with toiling in farms, mining and breaking our backs in factories. We would live off oil and probably welfare benefits and as long as its prices did not drop to $2.7/B again, we would be fine and the wealth from oil would last forever. Then we grew from a country of 45 million in 1960 to 182 million in 2016. To compensate for the population explosion, we thought primarily about increasing our crude outputs – we were hooked, some even called “oil crazed” even though crude production has still largely remained under 2.5mbpd since 1973. The prices of crude crashed by 269% from $109.45/B in 2012 to $40.68/B in 2016; by statistical proportions, the biggest crash in history, and then came the “HOLY SHIT, WE’VE MESSED UP” period. As at 2012, 95% of our exports were centred on crude oil with cocoa and rubber pulling behind hopelessly with no hopes of catching up.

I have come to realise something: handling a government or running an economy is something everyone knows how to do until that very moment when they finally get into the government. From it seemingly turns into a 4 year long series of epiphanies – had i known’s that only end the day after your tenure runs.

While we continue to point towards our trade as the main factor behind the slump in the naira, one major factor about which no one seems to be talking or even concerned with as far as managing finances go is the population.


Nigeria’s exploding population may very well be the primary determining factor of the country’s currency and economic fate as issues pertaining to rates of (un)employment, national levels of commercial and economic productivity and the rate of importation especially, which, has been shown to be a gaping hole in the nation’s coffers, relies almost entirely on meeting the demands of the people.

From assessment of available data, it seems to be the one factor which by approximation, has responded uncannily in tandem with the black-market NGN-USD exchange rates.



The official rates also show similar trends but are not exactly indicative of market trading. However, the trend is clear, as the Nigerian population continues its upward and steady curve; the NGN-USD has itself continued on a downward spiral.

official rate.png

The country in this case is like a man with a steady income stream. As a bachelor, he had a relative lot of money to spend with no one but himself to look after then times changed, he got married with the same income, had 2 children on the same income; things weren’t as good as bachelorhood but still manageable. Then the relatives; the unemployed, the elderly and frail especially, joined his group of dependents while his children’s population moved from 2 to 8 – on the same goddamn income. He has bills to pay, obligations to meet, mouths to feed and people to look after. He can do it and everyone would survive if he rations his income accordingly or he could look into making other sources of income to expand his stream and that way, he and everyone depending on him would not just survive but live comfortably. Nigeria is that man and since 1973, we have lived off oil with a daily output of less than 2.5mbpd and depended mainly on the increases in the prices of oil to balance our books. This not just stupid, it is also a very financially reckless way to run an economy.

In a recent interview, the governor of the central bank blamed the currency situation on Nigerians’ tendency to embrace the extravagant. He forgets here, that more than 61% of Nigeria’s 182 million people live well below the poverty line, earning and living on less than $2/day. Without entirely refuting his point on Nigeria’s import dependency, pinning the current fate of the currency on 30-35% of the population seems like a bit of a stretch in any respect.

Our dependency on oil has taken a lot from us and not just in the form of money we lose from other dying or in-the-process-of-ressucitation industries, it has taken enough jobs for a country of 182 million to have an unemployment rate of around 50% (please, do the maths) and the visionary Nigerian government is only now waking up to this reality.

However, I believe it is important, especially regarding economic planning on a nationwide scale to first, ascertain the roots of one’s problems and/or aspirations so that more realistic and executable plans may be made. It simply doesn’t pay for anyone to assume or promise during election campaigns to improve the economy without specifying factors like growth quota per period, specifics on proposed changes to the structure of per capita income and how they are to be achieved among a myriad of other points. Don’t just listen to anyone say “I will grow the economy” ask them how, over what period during the course of their administration, ask where they intend to source for the capital to fulfil their promises. Ask – a lot!

Concluding, population data with respect to economic planning (simply: how much it costs to fund a Nigerian compared with how much we make as a country) serves a function that cannot be understated. Structuring sectors of the economy in ways that are first focused on the Nigerian population as one of its most basic points is extremely crucial. Whether this is achieved by promoting the admission of propspective students into universities to study certain courses with a 4 year goal of assured employment for the intakes, a secondary objective of increase in productivity due to the adoption of more skilled personnel (might particularly be of help in the agricultural sector) and a tertiary goal of increases in exports volume, seems like a very good starting point. Negligence of this fact is the reason why the Nigerian economy is in the rot it sees today without even going into details of corruption and how we have national heroes who looted public coffers and got away with it.


You have two options: take the blue pill, believe I’m talking nonsense. Pray before you go to bed and wake up tomorrow to the same old Nigeria. Or, take the red pill and wise the hell up. The choice is yours.

If you read all three articles well; thank you. We can and we will turn things around for the better.

NB: Most of the data used in this three piece article was sourced from and

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