Next year was supposed to be a big year for Nigeria.
The country’s population of 180 million people will vote in what is sure to be the closest and most expensive presidential election since the end of military rule.
A victory for democracy – but in the midst of it all, the country faces a wage crisis, falling oil prices, and an Islamic insurgency in the north.
The combination of all of these factors was the catalysts for the fall in Nigeria’s currency, the naira.
“Oil has dropped by as much as 30%. And when we earn less, we have less to spend… and what we have to spend are the dollars we’ve earned, so the naira has actually reduced in value compared to the dollars that we have available,” said Bismarck Rewane, a financial analyst.
You see, Nigeria is Africa’s top oil producer. And though oil constitutes a measly 14% of its GDP, crude still dominates almost all of the country’s foreign exchange, not to mention 80% of the government’s revenue.
Prices have taken a dip, and Nigeria’s currency is following suit.
Where the Oil Goes, the Money Goes
Adding insult to injury, Nigeria’s weak currency has lead financial institutions to change their classification of the country, and thus their financial flexibility.
The country changed from being seen as a developing economy to an underdeveloped one.
The niara’s freefall has prompted foreign exchange reserve sales from the central bank, as well as lowered limits on foreign currency borrowing.
This is not helpful when Nigerians are already struggling with the cost of living.
With elections around the corner in February 2015, current president Goodluck Jonathan will have a hard time making any significant changes to improve the economy.
And “the chase” continues,
Commodities Research Team