AN IMPORT-DEPENDANT ECONOMY RESPONSIBLE FOR RISING INFLATION IN NIGERIA
AN IMPORT-DEPENDANT ECONOMY RESPONSIBLE FOR RISING INFLATION IN NIGERIA
By:
Nurudeen Dauda
June 17, 2016
nurudeendauda24@gmail.com
nurudeendauda24@yahoo.com
nurudeendauda.blogspot.com
Nobody closes the Nigerian border in fact an import-dependant economy like ours which imports simple things; such as: matches, toothpicks, handkerchiefs etc., cannot afford to close its borders. The government also uses the border as its sources of revenue through customs duty. If the border is closed you will not even see matches to buy. However, what brings about increase in the cost of goods and services is the fall in the “value” of “Naira” to the “Dollars” exchange from N197 “official rate” to $1 and to N380 to $1 as black market rate due to the collapse in the price of crude oil from as “high” as $115 per barrel in June, 2014 to as “low” as $27 in January, 2016.The price has increased to $51 per barrel now, but Nigeria does not benefit due to pipelines vandalism. We are supposed to be producing 2.2million barrel a day but now does less than 1million.
The relationship between the value of “Naira to Dollars” and price of crude oil is direct simply because about 95% of our sources of “Dollars” is from the sales of crude oil which is our “single major” export commodity. We import about 90% of what we eat locally and for you to import anything from abroad you need “Dollars” because it is the internationally recognize currency for trade at the international market. The greatest mistake we make as a country is to depend almost 100% on one product!
CBN was given “Dollars” to Commercial banks and Bureau De Change at “cheap rate” before because they had a lot of “Dollars” then and they later sold it to businessmen/importers. In June, 2014 when CBN sold a barrel of crude they got $115, but in January 2016 when the sold crude they got $27. That showed $88 lost per barrel, therefore, as a result of that situation the CBN lacked the “capacity” to give Banks and Bureau De Change enough “Dollars”, because they don’t produce the “Dollars” but they get the “Dollars” after selling crude oil whose price has fallen. The CBN completely stopped giving “cheap Dollars” to Bureau De Change because they don’t have enough. The Bureau de Change had to go and source for” Expensive Dollars” and sell to importers at N380 to $1 which the importers would later use to import goods and services and sell.
An importer who bought “Dollars” at N197 to $1 before the crisis began would now buy “Dollars” at N380 to $1.It is obvious that, the prices of goods and service will go up. However, one must say, some of our businessmen or farmers did not do well, because even the sellers of local rice which has nothing to do with “Dollars” has increased its price. Why does the value of Naira-Dollars exchange depends on the price of crude oil? The answer is our economy is a mono-culture economy as well as import dependent economy.
A monoculture economy simply means an economy that relies on only one source as it sources of revenue as well as foreign exchange. In Nigeria today 95% of foreign exchange (Dollars) comes from sales of crude oil whose price has fallen.
Had it been we are producing enough Rice, Palm oil, Tomatoes paste, Vegetable oil, Palm Kernel, poultry products (Chicken, Eggs, Turkey),and Tinned Fish in sauce (Geisha & Sardines) etc., we would have less dependency. We neglect Agriculture and mining which we can do very well. Don’t deceive yourself we import the above mentioned goods if you don’t know you better find out.
The only thing that will make our currency strong is through diversification of our economy which will improve local productivity. Nigerians need to be buying made in Nigeria goods in order to boost local productivity.
May God bless Nigeria!