The expatriates in Nigeria are having the best of times. There is never going to be a better time to be paid in foreign currencies in Nigeria. And while President Buhari is busy trying to out-tour Rihanna, discussions on the fall in the naira have brought up macro-economic matters such as slowing down of economic growth, corporate earnings and market volatility. For the common man on the street, the falling rate of the naira is hurting the most.
From essentials such as food and education to foreign vacation and the hi-tech gadget you plan to buy, the falling naira will hurt you in more ways than one. Not too long ago, President Buhari and his economic advisers called for ‘a weaker currency.’ Now that we have one; their silence is deafening. Had it been that Nigeria exported anything, a weaker currency would make it easier for exporters to compete internationally.
You don’t need to be as high up as the president to know that the disadvantages of a weaker currency are much more harmful than the possible benefits. The most obvious disadvantage is that we are all poorer because of the naira’s weakness. Everything that is denominated in naira is worthless today than before the collapse of the currency. This includes wages, shares, houses, pensions, foodstuff, everything.
Some prices adjusted automatically and quickly to the fall in the naira, but in most instances, it will take a long time for all prices to ‘catch up’ to previous levels. Wages and salaries are good examples of prices that will take time to reach previous levels. Since certain prices adjust faster to the new level of the naira, all sorts of distortions will take place in the economy.
Many asset prices, especially liquid assets like listed shares, usually adjust quickly to the weaker currency. But prices that are determined mostly by local conditions, like salary, local produce and services, usually take time to adjust. The result of this skewed adjustment in prices is that we have to part with more of our money to those that use strong currencies like the US dollar, Euro and Pounds Sterling, which leaves Nigerians worse off, relative to the rest of the world.
Those that have assets, especially liquid assets, are better off. The inevitable result is that those with assets, the wealthy, are protected to an extent against a falling naira while those without assets, the poor, do not have the luxury of such ‘protection.’ Even amongst the poor, distortions will take place. Those with scarce skills will quickly demand higher wages and the more scarce their skills, the more successful they will be.
Those without scarce skills, and, especially those without jobs, are particularly hard hit. Their wage increases will be last in the chain of price increases. In the case of the unemployed, they have no way of increasing any of their own prices simply because they have no income, yet their cost of living has gone up like that of everybody else. And to add to our miseries, changing prices make it difficult to plan or do business. And again, it will be the poor and the unemployed who will be the hardest hit.
Expect inflation, social tension, weak economic growth, high unemployment and poverty after the collapse of the naira. Personally, I think even if the currency will soon regain some lost ground, much damage has been done already and the consequences will be painful.