Nigeria's currency hit record low amid inflation surge

Nigerians are grappling with one of the most severe economic crises in West Africa in years, sparked by a surging inflation rate and monetary policies that have caused the local currency to plummet to an all-time low against the US dollar. This has led to widespread anger and protests across the country.

According to the latest government statistics released Thursday, the inflation rate in January surged to 29.9%, the highest since 1996, with food and non-alcoholic beverages being the main drivers.

The value of the naira has also plummeted further to 1,524 naira per US dollar on Friday, marking a staggering 230% loss of value over the past year.

The deteriorating situation is eroding incomes and savings, putting additional pressure on millions already grappling with hardship due to government reforms. These reforms included the removal of gas subsidies, which resulted in gas prices tripling and transport fares spiking.

With a population exceeding 210 million people, Nigeria stands as not only Africa’s most populous country but also the continent’s largest economy. Its GDP is primarily driven by the service sector, encompassing industries like information technology and banking, followed by the industrial sector, which includes manufacturing and processing businesses, and agriculture.

“Everything is too expensive; they should help us,” said Obiajulu Blessing, a mother of three who came to the market to get some food for her family in Nigeria’s commercial capital Lagos.

The challenge lies in the fact that Nigeria’s economy is not sufficiently equipped to meet the needs of its rapidly growing population, heavily relying on imports for everyday necessities ranging from cars to cutlery. Consequently, it is highly susceptible to external shocks, such as fluctuations in the parallel foreign exchange market, which dictate the prices of goods and services.

The economy’s heavy reliance on crude oil exacerbates the situation. When crude prices plummeted in 2014, authorities tapped into foreign reserves to stabilize the naira amidst the existence of multiple exchange rates. Despite dwindling reserves, the country continued fuel subsidies and shut down borders in a bid for self-sufficiency, while also restricting access to dollars in the official market for importers of specific items. This led to a surge in food prices as the parallel market for the US dollar flourished.

For trader, Adeniyi Bisola, there’s too much hunger.

“For some when they eat in the morning, they only get to eat at night while others do not even have access to food,” she said.

Policies and Execution

Shortly after assuming office, President Bola Tinubu embarked on bold initiatives to address the challenges plaguing the economy and to attract investors.

He made the significant decision to end the costly decades-long gas subsidies, which the government deemed unsustainable.

Additionally, the country’s multiple exchange rates were unified to enable market forces to determine the rate of the local currency against the dollar, resulting in the devaluation of the currency.

However, analysts argue that there were insufficient measures put in place to provide alternatives for citizens, and there appears to be a lack of direction from the government on the way forward.

“This is quite unfortunate because somehow it seems like the government hasn’t been able to get a handle of it, and it has been increasing, and it keeps increasing right now,” says strategy consultant Dipo Oyewole.

President Tinubu has personally directed the release of food items, including cereals, from government reserves, along with other palliative measures aimed at alleviating the impact of economic hardships. The government has also announced plans to establish a commodity board to regulate the skyrocketing prices of goods and services.

However, the situation is particularly dire for those in conflict zones in northern Nigeria, where farming communities are unable to cultivate their own food due to violence, forcing them to flee their homes.

In recent weeks, sporadic protests have erupted, but security forces have swiftly intervened to suppress them, sometimes resulting in arrests. In the economic hub of Lagos and other major cities, there has been a noticeable increase in pedestrians as commuters are compelled to walk to work due to fewer cars on the roads.

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