(3 Minutes Read)
The inflation rate in January rose to 29.9%, its highest since 1996, riding on the back of food and non-alcoholic beverages, while the naira plummeted to 1,524/1$ last Friday. This works out to a whopping loss of 230% loss of value in the last year, further eroding incomes and savings
Nigeria’s monetary policy is going through one of its worst phases as the currency is getting devalued against the US dollar. It is now at an all-time low provoking anger, and protests across the country. The inflation rate in January rose to 29.9%, its highest since 1996, riding on the back of food and non-alcoholic beverages, while naira plummeted to 1,524/1$ last Friday. This works out to a whopping loss of 230% loss of value in the last year, further eroding incomes and savings.
Millions are already struggling with hardship due to government reforms that saw the removal of gas subsidies, resulting in gas prices tripling and transport fares spiking. With a population of more than 210 million people, Nigeria is not just Africa’s most populous country but also the continent’s largest economy.
The economy is heavily dependent on the crude and services sector. When crude prices plunged in 2014, authorities continued to use foreign reserves to stabilise the naira amid multiple exchange rates. The services sector, which of late started playing an important role in the economy is driven by information technology and banking. The industry sector includes manufacturing, processing businesses and agriculture, which have not been growing on the expected lines.
The economy is far from sufficient for Nigeria’s booming population, relying heavily on imports to meet the daily needs of its citizens from cars to cutleries. Therefore, it is easily affected by external shocks such as the parallel foreign exchange market that determines the price of goods and services.
The country continued to subsidize fuel using scarce external reserves while shutting down the borders in a push for self-sufficiency and limiting access to the dollar in the official market for importers of certain items. As a result, food prices were rising as a parallel market for the US dollar boomed.
Shortly after taking the reins of power, President Bola Tinubu took bold steps to fix the ailing economy and attract investors. He announced the end of the costly decades-long gas subsidies which the government said were no longer sustainable, while the country’s multiple exchange rates were unified to allow market forces to determine the rate of the local naira against the dollar, which in effect devalued the currency.
However, analysts say there were no adequate measures to provide alternatives for citizens and the government doesn’t seem to know what to do. President Tinubu himself has directed the release of food items such as cereals from government reserves among other palliatives to help cushion the effect of economic hardship. The government has also said it plans to set up a commodity board to help regulate the soaring prices of goods and services.
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Pockets of protests have broken out in the past weeks, but security forces have been quick to quell them, even making arrests in some cases. In the economic hub of Lagos and other major cities, there are fewer cars and more legs on roads as commuters are forced to trek to work.
