Economic and financial experts have alerted that the recent devaluation of the naira by the Central Bank of Nigeria that not only will the prices of items rise, poverty level in the country will also increase.
The CBN officially devalued the naira as it adopted the NAFEX exchange rate of N410.25 per dollar on Tuesday as its official exchange rate after the apex bank had earlier removed N379 per dollar rate from its website.
In separate interviews on Wednesday, the experts said the devaluation would lead to further hike in prices of goods and services as well as reduce the purchasing power of Nigerians.
According to an economist, Amarachukwu Nwosu, the recent devaluation would have a huge impact on the costs of goods and services to be incurred by businesses and individuals.
He said, “Devaluing currency means the naira has a lower value. That is basic economics. The problem now is that Nigeria imports almost everything. For instance, a phone that cost N50,000 may now cost N60,000 because of the devaluation. Eventually, the implication of this devaluation will trickle down to everyone.
“The corporate cost of business will be higher with the devaluation of the naira. This is because an item now comes with a higher cost. Therefore, the amount of money businesses will be spending will be higher.
“It will also increase poverty rate because if you are earning a particular amount and that amount has lesser value or purchasing power, it means you are likely poorer. The devaluation will lead to the inability to live a decent life, which is poverty. Basically, it will affect everybody.”
Nwosu further stated that, since Nigeria is an import-based economy, the devaluation will likely have a devastating effect on the economy and the government might devalue the naira again in the next one year.
He added that, “What the government has been doing is managing the currency, which means using our foreign reserves to manage the currency.”
Dr. Sam Nzekwe, another financial expert, described the devaluation as a sign of economic weakness, saying the government should focus on providing an enabling environment for businesses and investment rather than constantly devaluing the naira.
Nzekwe said, “It will weaken the purchasing power of people who are fixed income earners, in the sense that the company is not going to increase your salary because the CBN has devalued the naira; so, you are still earning the same salary, whereas the costs of goods and services have gone up.
“The transport companies will also increase their fares because the cost of tyres, engine oil and all other important items and services needed for vehicles to functions will go up. It is going to increase the poverty rate.
“That is why we keep saying the government should provide an enabling and safe environment. Who will come to invest when killings and abductions are prevalent in the country? Every investor wants to invest in a safe place; they run away from unsafe places.”
The Director-General, Lagos Chamber of Commerce and Industry, Dr. Muda Yusuf, believes that the latest devaluation was a move towards exchange rate convergence.
While noting that businesses could get foreign exchange at the old official rate, he admitted that forex is still a big issue for private investors in manufacturing sector because there are two dimensions to it.
“There is the dimension of liquidity; because of the crisis of liquidity, many manufacturers and importers and even those in the service sector are not able to get the inputs that they need to import. That is affecting their output.”
According to Yusuf, the currency has been weakening so much so that many people are undertaking transactions with an exchange of N500/$, which is affecting costs and prices.
He said, “It is a welcome development that CBN is beginning to merge the rates. The rate on the CBN website now is the NAFEX rate. We are beginning to see a convergence, although we still have a long way to go. But at least, it is a move in the right direction.”