On the wealthy peninsula of Victoria Island in Lagos, Nigeria’s commercial capital, no one knows how much their grocery shopping costs. Prices are changing so quickly that shopkeepers have given up on tags altogether. At the till, one might be shocked to discover that a tomato is now 120 naira (8 cents). Last year that could get you four, enough to balance out the hot spice in a pot of jollof rice. Soaring onion and rice prices make staple dish unaffordable for poorest Nigerians, leading to skipped meals. Nigeria’s import dependency and weakened currency drive annual inflation rate toward a three-decade high, nearing 30%.
Last year 23 African currencies hit record lows against the dollar. The naira, which is moving towards being fully floated, has been devalued twice in attempts to close the gap with a parallel market rate. That makes it the second-worst-performing currency in the world, after the Lebanese pound. The decline is also eating into the hard-currency profits of multinational businesses. MTN, South African telecom giant, predicts 60-80% profit drop; Nigerian unit expects loss due to naira depreciation. The currency volatility is eroding confidence, sparking protests from unions and deterring much-needed investment.
For more than four decades, oil provided Nigeria with a steady stream of dollars that boosted the naira. In many cases this made it cheaper to import things than to make or grow them. But oil production has slumped over the past 20 years and no other big source of export earnings has replaced it. With hard currency in short supply, Nigerians are panic-buying dollars, putting further pressure on the naira.
Under new governor Olayemi Cardoso, central bank raises interest rates to 22.75% last month to curb inflation and attract foreign investment. Juicy rates draw foreign buyers for four-fifths of short-term debt. Bank clears $2.3bn of backlogged foreign-exchange transactions, easing frustrations for airlines and multinationals.
Taming the naira will take more than quick fixes and tweaks to monetary policy. “For the first time in ten years we have very clear direction on what [the central bank] is doing and why,” says Amaka Anku, who leads the Africa practice at Eurasia Group, a political-risk consultancy. “But the central bank cannot earn foreign exchange!”
Nearly a year into Bola Tinubu’s presidency, concerns arise over government’s ability to handle crisis. New tax on firms hiring expatriates discourages investment, while currency speculation curbs divert focus from necessary reforms for Nigeria’s business attractiveness. Solving dollar shortage requires boosting exports and foreign investor confidence.
