Introduction
The USD is not Nigeria’s currency. The USD is the currency of the United States of America. So why does scarcity of dollars impact Nigeria’s economy? In fact, ‘wetin concern Nigeria with American dollars sef?’ These was a juvenile question posed to an economic lecturer, by a young student in class years ago which elicited laughter from fellow students.
As ignorant as the young student may sound then, this was a legitimate question that gave impetus to the lecturer’s explanation of the importance of foreign trade and how balance of trade actually impacts a nation’s economy The USD is not Nigeria’s currency. The USD is the currency of the United States of America. So why does scarcity of dollars impact Nigeria’s economy? In fact, ‘wetin concern Nigeria with American dollars sef?’ These was a juvenile question posed to an economic lecturer, by a young student in class years ago which elicited laughter from fellow students. As ignorant as the young student may sound then, this was a legitimate question that gave impetus to the lecturer’s explanation of the importance of foreign trade and how balance of trade actually impacts a nation’s economy
Reality is that the availability or otherwise of the US dollars, impacts Nigeria’s economy in multifaceted ways. But first, what is dollar scarcity?
What is meant by dollar scarcity in Nigeria?
According to Cory Mitchell of Investopedia, “A dollar shortage occurs when a country lacks a sufficient supply of U.S. dollars (USD, to manage its international trade effectively. This happens when a country has to pay out more USD for its imports than the USD it receives from its exports.” In other words, US Dollar scarcity as it relates to Nigeria, is when there is not enough dollars available in the country to fulfil her foreign trade and other international monetary transaction obligations.
Causes of dollar scarcity?
Explaining further, Mitchell maintains that “A [US] dollar shortage occurs when a country spends more U.S. dollars on imports than it receives on exports. Since the USD is used to price many goods globally, and is used in many international trade transactions, a dollar shortage can limit a country’s ability to grow or trade effectively.”
Herein is at the heart of Nigeria’s dollar scarcity quagmire. Shortage or scarcity of dollars in Nigeria, is a direct result of our import and export activities. Nigeria earns dollars (USD), primarily through exports of goods and services, that is, foreign or international trade. The questions then is how much export is Nigerian making? Where do we export them to? What exactly is Nigeria exporting to the rest of the world? What is the quality of Nigeria’s goods and services exported overseas? What does Nigeria have that the rest of the world desperately need and are willing to pay us their dollars for?
These are the questions begging for answers; and answering them will clarify the question of why Nigeria is experiencing acute dollar shortage, how this can, and is indeed crippling Nigeria’s economy, and what can be done to stem the tide.
But, before we dig deeper into the above issues, let’s examine other sources through which Nigeria earns her much needed dollars. Apart from earning US dollars through export of goods, primarily oil and gas, Nigeria also meets a significant amount of its dollars needs through diaspora remittances.
These are dollars sent home from abroad by Nigerians living and working overseas. According to ‘The Cable’ online report of August 2022, Nigeria’s Central Bank (CBN) says the country recorded $2.4billion in diaspora remittances through its ‘Naira 4 Dollar’ Scheme, within eight months of the scheme’s launch.
Other major sources of dollar revenues for Nigeria, include export of largely unprocessed agricultural goods such as sorghum, millet, maize, cocoa, timber, cashew, rubber, gallstone, cotton, cashew nuts, palm oil, palm kennels, yam tubers, chili, and sesame seeds, among many others.
Meanwhile, Nigeria’s solid mineral assets such as gold, iron ore, zinc, tantalite, barite, limestone, bitumen, topaz, kaolin, dolomite, bentonite, gypsium, magnesite, uranium, cassiterite and charcoal e.t.c., and estimated over 40 different types of solid mineral deposits remain largely untapped.
As we dig deeper into Nigeria’s dollar shortage or scarcity, we found several root causes:
a) Debt servicing: a significant amount of our dollar earnings goes into debt servicing. Nigeria’s debt is rising astronomically as the current government keeps borrowing for consumption including payment of salaries. Nigeria current debt burden has been variously described as unsustainable. Yet, the government just keeps on borrowing purely for consumption, without any serious corresponding plan for utilizing the borrowed money for production, which would actually add values in her balance of trade. These borrowed money are repaid in dollars putting further pressure on the flow of forex.
b) Foreign trade imbalance: Nigeria pays more to import finished goods than it earns from export of goods. What is really significant here is that Nigeria export mostly raw goods including oil, which is then refined overseas at significant cost and then imported back into the country through payment in dollars, thus further depleting the country’s dollar assets.
c)
Corruption: a significant amount of Nigeria’s wealth is stolen by corrupt politicians, and these stolen monies are stashed away in overseas banks, with Switzerland, Dubai, USA, UK etc., being the highest beneficiaries.
d) Capital flight: Many foreign businesses in Nigeria remit most of their earnings to their home countries. As many foreign companies pull out of Nigeria due to economic downturn, they exchange their money into dollars sometimes at very ridiculous rates just to get out of the country.
e) Payment for luxury goods: Nigeria is known to have an insatiable taste for the finest goods and services, and expend significant foreign exchange in obtaining these luxury items and to maintain a luxurious lifestyle.
f) Academic pursuits overseas: The highest number of student enrolment in overseas university from Africa, are Nigerians. Tuition and living expenses for these overseas schools are paid mainly in US dollars. Many Nigerian government officials have their children studying in the best schools in US, UK and other parts of the world. Their education is funded by dollars taken from Nigeria.
g) The dollarization of Nigeria’s economy: It’s been said that every Nigerian who can save up to N100,000 monthly may have converted their savings into dollars. The move by Nigerians is to hedge against inflation, which the naira is unfortunately prone to. When a nation shows no regard for its own currency, the world will follow suite. It is a fact that there are few countries in the world, if any, who actually want the Naira. But even Nigerians don’t seem to want the naira either. Many highbrow secondary and tertiary schools in Nigeria today, insist on payment of tuition in dollars. Same also goes for some multinational companies who do business in Nigeria, but pay their staff and contractors in dollars. It is becoming an open secret that most Nigerian politicians spend only dollars. A contact of mine who does contracts for some politicians, told me recently that anytime he is invited to a meeting with some state government in Nigeria, he is sure of receiving transportation money in thousands of dollars. According to him, this is usually no less than the US dollar equivalent of N10million naira, just for transport money.
Recently, it was reported in several Nigerian newspapers that delegates of both the ruling party and the main opposition party in Nigeria, paid their delegates to its presidential primaries in thousands of US dollars, and these delegates are in their thousands.
Currently, Nigeria is in its electoral season and as it has become a tradition, that most aspirants have budgeted billions of dollars for their campaigns. Most of these money will go towards vote buying or inducement, furnishing of corrupt party structures, bribing of electoral workers and production of party paraphernalia, etc. One particular presidential aspiration has reportedly budgeted billions of dollars, to sponsor his forthcoming presidential ambition for the 2023 election. The dollarization of Nigeria’s economy has put significant pressure on the dollars, making it difficult for manufacturers who actually need the dollars for payment of imported goods and materials for production, to obtain them.
In a Premium Times article of August 1, 2022, Tope Fasua wrote; “Of a fact, the president, his vice, all ministers, all members of National Assembly, judges, top policemen, members of the armed forces, bankers, oil workers, and everyone in between save in dollars, and also spend dollars, alongside their children, and grandmothers. And in doing this, we are killing our country.”
The economic and social impacts of dollar scarcity
The shortage of US dollars has impacted negatively on Nigeria’s economy in many ways. Cory Mitchell of Investopedia further explains that “Dollar shortages impact global trade, because as the currency of the world’s largest economy, the USD acts as a peg for the value of other currencies. Even when two countries other than the United States engage in foreign trade, the status of the dollar as a reserve currency, with a reputation for stability, makes it widely used for pricing assets. For example, oil is typically priced in USD, even if two countries engaged in an import/export oil deal don’t use the USD as their domestic currency.”
What Nigeria can do to earn more dollars?
Tope Fasua narrows it down to “What are you selling versus what are you buying? We should be looking at ‘what are you producing versus what do you need from the rest of the world?’” In order words, to increase Nigeria’s dollar assets significantly, the country must deliberately shift from a consumption economy to a production economy. In doing this, we can borrow ideas from the same country that gave the world the dollars, the USA. Mr. Fasua explains that, The US “produces some of the best education in the world, where we pay top dollar; produces the best defense weaponry and technology in the world; maintains the lead in technology with her Silicon Valley; has the most sophisticated financial markets; is one of the top tourist destination in the world with states like Las Vegas, Florida, New York, and so on; is the most diversified economy in the world.” What can Nigeria give to the world that the world can’t get elsewhere? The world will pay for it in dollars. That is the key to turning this ugly tide of crippling dollar scarcity
