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Nigerian Economy For Dummies.

So I figured a lot of people were clueless as to what\u2019s really going on in the Nigerian economy. I mean it\u2019s easier to blame someone when business isn\u2019t \u201cmoving\u201d or when there are layoffs at your workplace but how about we make informed decisions. When there\u2019s an economic crisis, here\u2019s what\u2019s really happening\u2026\r\n\r\n\r\nAs we all know, Nigeria is the largest oil producer in Africa. Also, 90% of our revenue is from oil, in other news, we depend on oil revenue to a large extent to sustain our economy. Now here lies our dilemma, other nations have started to discover and produce oil in large quantities (this implies excess supply) and this means since oil is becoming less scarce and easily accessible, countries are importing (demanding) less of it and what does this imply? Yes, you guessed right, falling oil prices. Hold on, it gets interesting\u2026\r\n\r\n\r\n\u201cWhat happens to a nation whose primary source of revenue is oil and that oil costs lower and lower as time goes on?\u201d, you may ask. Well, since our revenue from oil exports is at an all time low, it also implies less foreign currency (people pay dollars per barrel) and this implies unfavourable exchange rates for Nigeria. Have I lost you yet? This just means that there is less foreign currency in circulation to back up the Naira and this is why we have gone from Naira being exchanged at 150naira\/$1 to 350naira\/$1.\r\n\r\n\r\nTypically, the government comes to the rescue by defending it\u2019s domestic currency. To do this government has to spend to defend our currency, i.e., pump foreign currency into the economy to make up for the lack of it from less oil revenue. This however, is a temporary solution because if there is no significant increase in oil revenue, the government keeps spending it\u2019s own foreign reserves and keeps running into more deficit. The other apparent solution is a devaluation of the nation\u2019s currency. Did someone just cringe at the word \u201cdevaluation\u201d? Yes it sounds bad but it really has good intentions. Here\u2019s what it does; a devaluation of a nation\u2019s currency is a policy aimed at reducing importation and increasing exports. If the Naira is devalued, importing those nice designer dresses and shoes will seem less appealing to you when it\u2019s twice the price. This causes the better part of the population to rock those House of Sikirat lines that you\u2019d possibly ignore on a normal day but when you start to patronise them, you\u2019re really adding value to the Naira unknowingly. Also, foreigners can now get more of our currency with the same $1 so our House of Sikirat goods also become more appealing to them because if they could afford to import 10 ankara bags at N150\/$1, they can afford 20 at N300\/$1! With time, this inflow of foreign currency causes the Naira to boom again while also strengthening our local industries so we\u2019re not just dependent on oil revenue!\r\n\r\n\r\nI bet you\u2019re thinking, \u201cProblem solved! How about we devalue the naira right away?\u201d Well, that too has its clause \u2013 a country like Nigeria lacks basic infrastructure. So, while you may think devaluation is the answer, for a nation that struggles with power and lacks self-reliant industries, it is almost impossible to cut off importation because our industries are simply not there yet. I mean we even import toothpicks, even I can make those!\r\n\r\n\r\nThis is why the current government, in order to make up for falling oil prices, has decided to source for fund internally through tax and externally as well through borrowing. Maybe then they will equip our industries and enhance infrastructure and then we can consider a devaluation. But what happens when you increase taxation on an economy already facing recession? Or increase external borrowing when the nation is already neck deep in debt?\r\n\r\n\r\nWhat do you think is the answer to this puzzle?\r\n\r\n\r\nLet me know if this helps in the comment section.\r\n\r\n\r\nImage via Move Back To Nigeria
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