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Naira devaluation

Naira devaluation

Against the backdrop of the devastating impact of coronavirus COVID-19, the global economic fallout of the central bank of Nigeria. CBN technically devalued the Naira at the Investors and Exporters window of the nation’s foreign exchange market. The naira appreciated the after days of panic buying amid speculations that the Nigerian central bank may devalue the local currency.

The Nigerian currency had lost ground against the dollar earlier in the week, trading between N366 and N368 amidst the slowdown in global demand for oil caused by COVID-19. While the central government made it known market fundamentals do not support naira devaluation this time around, here are the 10 things we learn about Naira devaluation in April 2020 Nigeria

Shopping gets more expensive :

It is a fact that naira devaluation affects the steady inflation of the economy, resulting in making goods more expensive, one of the things that should be expected is an increase in the price of commodities purchased regularly. Business analysts have predicted that there could be a double-digit increase in inflation from 8.1 percent to 10.1 percent.

Also, different business experts have emphasized that the recent naira devaluation would have a tremendous effect on the cost of goods importation, looking at the fact that the Nigerian economy operates an importing style of economy i.e the bulk of the goods and commodities consumed in Nigeria are imported into the country. Hence, imported goods will be more expensive which will, in turn, have an adverse effect on the masses.

Problems with foreign debts

This is indeed a very bad moment for Nigerians or organizations that have debts in foreign currency. As for naira devaluation increases, foreign debts will definitely increase. These categories of people will feel the real devaluation of the naira and its implication on their business.

Reduction and abandonment in government construction projects

With the recent naira devaluation due to the global declining oil prices, the government’s capital expenditure on construction projects will certainly reduce.
Unfortunately, this is going to affect all levels of government, i.e, Federal, State, and local. There will be a negative effect on the construction industry as its contribution to the Gross Domestic Product (GDP) will fall as fewer construction projects will be commissioned.

Effect on borrowing from financial institutions

The recent naira devaluation in Nigeria will make borrowing from financial institutions very difficult. The sudden increase in MPR (Monetary Policy Rate) means that access to financial loans will be reduced drastically. This is because interest rates will be skyrocketed by banks, making it very difficult for those who wish to borrow for business.

More investors may be scared off from Nigeria economy

The recent devaluation of naira may likely scare off investors away. Many investors do not like the idea of investing in something that will inevitably lose its price, inflation in the Nigeria economy may scare them off from investing in the country.

The high cost of properties

The effect of naira devaluation might have been more lenient if the cost of construction materials were produced locally, resulting in cutting down the cost of construction and making properties more affordable to those who can afford it.

Alas! The reverse is the case in Nigeria. Most of the materials used for construction are imported which in turn leads to an increase in the cost of selling and purchasing a property. According to some Nigerian industry experts, the estimated rise in the cost of housing will be around 30%-45% percent.

Effect on Nigerians schooling abroad :

It is a fact that many Nigerians schooling abroad pay their school fees in foreign currencies. The recent devaluation of naira will tremendously affect most of these Nigerians schooling outside the country. As their previous budget, estimation, and cost of schooling will be affected tremendously.

Inflation reduces the standard of living of those on a fixed income.

The standard of living of people living on a fixed income will be reduced as the price of goods and services increase without relevant market regulating mechanisms, millions of people who live on a fixed income will be affected.

Reduce the purchasing power of citizens abroad.
It will be more expensive for citizens to go on holiday abroad.

One unique thing about the recent naira devaluation is that exports will become cheaper and more competitive to foreign buyers which in turn provides a boost for domestic demand and could lead to job creation in the export sector.