Nigeria has been witnessing an increase in the rate of exchange for one dollar to one naira. This has led to mixed reactions from different quarters.Today, the official rate of a Dollar to one Naira stands at N415.46. The dollar to naira rate has been hovering between N411-415 between November 2021 and July 2022. This represents an increase from N359 to one dollar in July 2019. One Euro is officially N422.1994 while one Pounds Sterling is N501.731.
The story is drastically different on the black market, where a significant amount of exchange happens. A dollar could sell as high as N705.
What is the implication of the rising exchange rates?
The impact of the low value of the Naira does not only affect your “japa” plans; here are three sectors that are affected by the increase in exchange rates.
Food and Agricultural Produce
Nigeria still imports a large amount of its food components, a report by the National Bureau of Statistics, puts Nigeria’s total Agricultural import as at Q1,2022 at N443.36 bn. As at Q1, 2021, Nigeria imported a larger percentage of its Agricultural produce from America and Europe, with both accounting for N514 billion of the total N630 billion spent on Agricultural produce imports in the quarter.
Nigeria’s looming food crisis is driven by local forces like insecurity and compounded by the country’s heavy dependence on imports even for agricultural produce. Goods imported at high exchange rates are increasingly expensive and by implication increasingly unaffordable.
The more costly it becomes to import these products, the more the average consumer pays. Already, bread bakers have been reported to have hiked prices of bread by 20% in the country, signalling an increased cost of production that has translated into increase in the sales price of bread. The cost of Spaghetti, biscuits, chinchin, all products dependent on wheat, have also increased.
For instance, between Q4 2021 and Q1, 2022, the sum of N655 billion was expended on Durum Wheat importation while the sum of N 166 billion was spent on importation of cane Sugar. Durum Wheat for instance is used for Bread making, Semolina, Spaghetti among others.
So the next time you pickup your favourite biscuit or spaghetti and your customer says the price has tripled, or when your favourite buka says one wrap of semo is now N200, remember these three things: that wheat is the primary ingredient in them, that Nigeria imports wheat and so the higher the exchange rates the higher the cost of your favourite biscuit, spaghetti or Semolina.
Impact on Petroleum Availability/Subsidy
Nigeria is currently experiencing harrowing petroleum scarcity, blamed on disagreements between marketers and the Nigerian government. Marketers are demanding an increase in the pump price of refined petroleum.
Their demand is not unconnected with the increased price of crude oil at the global markets and the fact that Nigeria imports its refined petroleum.
The impact of an increasing Dollar to Naira exchange rate will affect how much more Nigeria spends on importation of refined petroleum because the U.S. dollar is the most used currency to purchase Oil.
In Q1, 2021, Crude Oil price per barrel averaged $61.25, while in Q1 2022, the crude Oil price averaged $104.17. As a result of the increases in crude prices, Nigeria spent the sum of N1.506 trillion in Q1, 2022 on refined petroleum import as against the sum of N687.740 billion spent in Q1, 2021. A 119% increase.
For every increase in the exchange rates coupled with increase in the price of crude oil, the cost of importing refined petroleum will increase.
The landing cost of petroleum will also increase.
And as the country holds onto its subsidy regime, keeping the petroleum price at official rate, the Nigerian government will pay more subsidy.
Earlier estimates said Nigeria will spend not less than N4 trillion on petroleum subsidy this year but already, there are predictions it will be more than the estimated N4 trillion.
If landing costs continue to rise as a result of higher exchange rates, the subsidy bill will also rise or potentially an increase in pump price of petroleum.
Going to look for fuel? Plan for long queues and you may also want to pack homemade snacks because gala and lacasera are now luxury goods.
Increase in Transportation Cost and Business Logistics
For every increase in the cost of petroleum or scarcity, there is a corresponding increase in the cost of transportation. A recently released NBS report shows how prices of transportation have been on the increase between June 2021 and June 2022.
For instance, in the North Central part of the country, bus Journey within the city in June 2021 which stood at N406.89 has risen to N565.43 as of June 2022. Okada (motorcycle) ride per drop stood at N316.21 in June 2021 but has increased to N471.12 in June 2022.
Journey within the city in the South East increased from N336.48 to N560.67 between June 2021 and 2022. An increase in the cost of transportation is one of the foundational causes of the spike in inflation in the country.
However, the cost of petroleum is not the only thing driving up transportation costs, both cars and motorcycles are imported into Nigeria. Motorcycles worth N74.593 billion were imported from India, China and Indonesia, used vehicles worth N72.321 billion were imported and vehicles, aircrafts parts worth N456.320 million were imported in Q1,2022 alone.
So your driver or favourite “okada” man is not only charging you for long petrol queues and high petrol prices, he/she also has to pay back the “cooperative loan” they borrowed to be able to afford the machine.
Nigerian lawmakers have summoned the governor of the Central Bank of Nigeria, Godwin Emefiele, to ask questions on Nigeria’s falling dollar to naira rate.
One potential positive out of these is that Nigerians may have to adopt the healthy lifestyle of walking. Why? The cost of transportation from Lugbe to Central Area or Yaba to Victoria Island has tripled and cumulative monthly transportation costs to the office alone might become as high as half of a gross salary that has not seen an increase since Nigeria’s inflation was 11.40% in 2019.
Bonus Paragraph: Survival Guide in this Nigeria Streets
- Grow your own food! And encourage your friends to do the same, You know that tiny little space behind your kitchen you have been asking your landlord to come and cover with cement, plant ugwu or tomato!
- Eat the food you grow, tomato from chinyere, rice from Ahmadu, pepper from Bola and Ugwu from your own kitchen and viola, an entire meal is ready. Don’t worry about meat, we’re trying to lose a few extra pounds anyway. Don’t buy biscuits or gala in that traffic or on the fuel queue, have you tried ugwu salad? Yummy!
- Walk, Walk, Walk, Walk, Walk Walk! (but in Rihanna’s voice). You’re already eating healthy so why not add exercise to it? Surulere to Victoria Island? Here is the trick, take the bus to Obalende, walk the rest of the way! It’ll take just 1hr, you would have saved on the cost of taxis and since you left home at 4:30am anyway, you’ll be on time for your 8:30am client meeting, a little sweaty but on time. Getting from your house to the bus stop? Take a stroll, that 5am cold air is invigorating!