Reports just coming in inform that the Nigerian naira traded at an all-time low of 365.25 to the dollar on Thursday, August 18, 2016, in a single interbank market trade of $1 million.
According Thomson Reuters data, Interbank trading started two hours after the market opened and offered the currency sharply lower against the dollar.
It was gathered that a total of $13 million had been traded by 12:35pm Nigerian local time.
Nigeria’s currency has slumped 37 percent since the central bank ended a 16-month peg of 197-199 per dollar on June 20.
Below are five reasons this trend will continue until something effective is done:
Poor Infrastructure
The infrastructure on ground doesn’t support the production and manufacture of goods in Nigeria. Bad transportation networks and facilities, inadequate power supply coupled with an unfavourable climate to run businesses make it hard for goods to be produced in Nigeria. As a result Nigerians turn to other countries to get stuff that aren’t easily available in the country. This includes products like rice, toothpick, turkey and other goods that can be produced locally.
Moreover, the demand for goods is ever present and needs to be met. If there isn’t infrastructure to support poultries, toothpick-making factories, rice farms, and so on the need to import these products will always be on the rise. This will cause the naira to continue depreciating against the dollar.
Unwholesome practices of middlemen
There’s a lot of round tripping going on at the Nigerian forex market. People buy dollars at the official market and sell at an inflated price on the parallel market. This has caused the gap between the official market and the parallel market to keep widening, resulting in the weakness of the naira. The CBN has put some measures in place to checkmate this but the results so far haven’t been encouraging.
Persistent negative predictions and projections by Naysayers
Nigeria is known and associated with many bad things globally. Foreign and local media most times have a negative projection about the country’s economy. Things are most of the times, projected to get worse and negative predictions about the naira abound as well. This scares investors and most of them won’t want to put their money into the Nigerian economy when they should, causing a shortage of dollars in the foreign exchange market. Dollar scarcity in turn causes the naira’s value to fall.
“Made Abroad” Mentality of Nigerians
It goes without saying that a lot of Nigerians prefer imported goods to those made locally. We prefer to buy things made in foreign lands, which can easily be produced locally. It’s generally assumed that made-in-Nigeria goods are fake and of substandard quality. Until Nigeria starts producing standard goods and Nigerians have a different mentality, the demand for dollars will always be on the high and the naira will keep depreciating.
General Instability
Nigeria needs to be stable economically, politically and socially for the currency to stabilize. Clashes between rival tribes, political instability and lack of definite economic direction all make the country look unstable to outsiders, disrupting foreign investors and investments.
These 5 issues need a long term solution for the Naira to stabilize and stop depreciating against the dollar and other major currencies.
