By Adedotun Ajayi.
Palpable apprehension has enveloped small-scale business owners, representatives of the Nigeria Employers’ Consultative Association, and manufacturing industry leaders, over the depreciating value of the naira. They’ve issued a stern warning, cautioning that this troubling trend has the potential to trigger factory closures and, inevitably, a surge in job losses.
The naira’s value has persistently weakened ever since the Central Bank of Nigeria instituted a free float system for the national currency against the dollar and various other global currencies in June.
Consequently, this ongoing depreciation has exacerbated the already challenging situation for manufacturers who are grappling with severe shortages of essential raw materials. This predicament is compelling more companies to contemplate workforce reductions or even complete factory shutdown.
As the naira continues to lose value against foreign currencies, manufacturers find themselves in the unenviable position of being compelled to make difficult choices. These choices include scaling down production, shedding jobs, and wrestling with the dilemma of reducing or altogether halting the importation of crucial raw materials.
Bureau de Change operators, during interviews with The Hope, disclosed that the exchange rate between the naira and the dollar at the parallel market fluctuated between 1,025/$ and 1,040/$.
Usman Euro, a bureau de change operator based in Akure, noted, “we purchase at the rate of N1,025 per dollar and sell at N1,040 per dollar. The currency remains in limited supply, and the value of the naira continues to decline.”
Another BDC operator in Akure, who chose to be identified as Lawal, added, “currently, it’s uncertain whether you can obtain more than $1,000 from me due to scarcity. We acquire at a rate of 1,000/$ but sell at 1,040/$.”
Oluwole Olakunle, a distinguished economic expert, provided insights into the potential repercussions of a further plunge of the Naira on the Nigerian economy.
Olakunle emphasized the gravity of the situation, stating, “continued depreciation of the Naira will undoubtedly exacerbate the economic turmoil already facing the country.”
He explained that a weaker Naira leads to higher import costs, which, in turn, drives up the prices of essential goods and services.
Olakunle elaborated: “Inflation can spiral out of control, eroding the purchasing power of consumers and posing challenges for businesses as they grapple with reduced demand and elevated production costs.”
He also addressed the impact on businesses, saying, “for companies, especially those reliant on imports or foreign debt, a further Naira plunge can result in financial stress, possible job cuts, and decreased investment. This, in turn, has the potential to exacerbate the unemployment situation and hinder economic growth.”
He emphasized the importance of taking swift and prudent measures to stabilize the currency and mitigate the economic turmoil. “The Naira’s value is closely linked to the overall well-being of Nigeria’s economy,” Olakunle concluded, “saying concerted efforts are needed to safeguard the country’s economic stability and prospects.”
In summary, Oluwole Olakunle’s insights underscored the significance of addressing Naira depreciation and its far-reaching implications for the economy, urging a comprehensive approach to navigate these challenging circumstances.
Olubunmi Adewa, a seasoned economist, shed light on the potential economic consequences of naira depreciation.
Adewa emphasized that a depreciating currency could significantly impact the economy in several ways. She stated, “Currency depreciation can lead to a rise in the cost of imported goods, which, in turn, can contribute to inflation. This has a direct impact on consumers, as they face higher prices for everyday items.”
Adewa further explained that a weaker currency might impact the trade balance, affecting a country’s exports and imports. “While a depreciating currency can make exports more competitive, it can also lead to increased costs for businesses that rely on imported materials, potentially affecting profit margins and, in some cases, leading to job losses,” she remarked.
She also pointed out the challenges businesses face when managing foreign debt, as the cost of servicing that debt can increase with a depreciating currency. “In such situations, businesses need to consider risk management strategies to navigate currency volatility effectively,” Adewa added.
Adewa highlighted the importance of monitoring currency depreciation’s impact on the economy and emphasized that government policies and businesses’ adaptability play crucial roles in mitigating potential adverse effects.
Also speaking, Olumayowa Adeoye, a business owner, while expressing her concerns and challenges said; “The continuous depreciation of the Naira has been incredibly tough on my business. Our expenses have shot up significantly as we import raw materials for our products. We’ve had to raise our prices, which, unfortunately, is turning away some of our loyal customers. It’s a double-edged sword because we need to cover our costs, but we’re also losing customers.”
Olumayowa also talked about the impact on her profits. She said “Our profit margins have been squeezed to the point that we’re barely breaking even. I’m worried about our ability to invest in the business and expand. It feels like we’re constantly treading water just to stay afloat.”
She also discussed the challenge of volatility in the exchange rate. According to her “The unpredictable nature of the exchange rate makes it difficult to plan. It’s like trying to hit a moving target. Sometimes, we buy currency to import materials, and by the time we use it, the Naira has devalued even further. This erodes our profits and makes financial planning nearly impossible.”
Olumayowa emphasized that the situation is not only affecting her business but also her personal life. She said “It’s not just about the business; my personal finances have also taken a hit. The cost of living has gone up, and I find myself spending more just to maintain the same standard of living. It’s a real struggle.”
She expressed her hope for more stability in the currency market. She said “I’m really hoping for some stability in the Naira. It would make business planning and forecasting so much easier. Small businesses like mine need a reliable economic environment to thrive and contribute to the country’s economy.”
The impact of the Naira’s further depreciation is clearly taking a toll on small business owners like Olumayowa Adeoye, affecting not only their businesses but also their personal lives.