The Naira Is Dropping! But Should You Panic?

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DISCLAIMER: I am not an Economist … I am just an Engineer.

If you are like me living in Nigeria, you are very worried about the dropping value of the Naira against the US dollar. People are worried, it has gone from 180 to 190 to 200 to 210 now…the Naira is just dropping like its hot (21% over 180 days) , soon 1 dollar will be able to buy a Nigerian made car!

naira to USD

Now there are several alleged reasons for the dropping Naira, from Oil prices, non-diversification of Nigerian revenue sources, Boko Haram insecurity, a low foreign reserve and others.

With all that information thrown at you especially when you add the election fear factor in … it’s easy to panic!

But recently I started doing some research, and found that not only is the Euro dropping (18% over 180 days) against the dollar, but the Russian Ruble (72% over 180 days) is as well … that thing is dropping like gravity!

ruble to USD

euro to USD

So back to the question, should Nigerians panic? I don’t think so …

Our Naira falling is largely due to Nigerians dependency on Oil (80% of our revenue comes from Oil) which is falling combined with the sudden rise of the US dollar and made worse by an Election fear that is accelerating the drop (more people in Nigeria want to buy dollars … thus demand and supply is kicking the Naira down).

Now based on my 10 year experience in the Oil industry I have never seen the price of Oil drop so fast … okay I take that back … it fell very fast in 2008 and the Naira value fell equally as fast (see graph comparison below). And one thing we know in the Oil industry is that the Oil prices always correct themselves, they eventually stabilize and it is already starting to happen.

oil versus naira

Also unlike Venezuela who have refused to devalue their currency, the Nigerian Central Bank (CBN)  has decided to deliberately devalue our Naira. Now this seems counter intuitive at first glance but after talking extensively with some Economic experts they explained how it makes sense. Per FinancialSense.com:

“A country with a cheaper currency will produce export goods which will be cheaper for foreign buyers, and the country will sell more exports. Most of the world’s central banks responded to the 2008 financial crisis with this very recipe — all using extremely loose monetary policy in an attempt to boost exports, raise inflation, and encourage growth.”

This is likely why we have not seen a sudden rise in the price of basic goods when compared to Venezuela who are forcing the Bolivar to stay at a value it should not be at and are now facing hyper inflation.

Venezuelan Bolivars (VEF) to 1 US Dollar (USD)

Thus it is my Engineering belief, that if the Elections conclude on February 14 March 28 without long term sustained violence and Oil prices start to stabilize (as is expected) across the world, then we would see our Naira appreciate to its correct value. But right now the election fear will keep artificially driving down the value of the Naira beyond the CBN devaluation … the sooner we have the Election the better it is for our Naira.

But again I am an Engineer…so don’t take my word for it…but you can definitely take my numbers.

Sources:
www.exchange-rates.org
www.financialsense.com

twitterResearched and Written By Okechukwu Ofili of ofilispeaks.com
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Ofili

Author: Ofili

Words by Okechukwu Ofili of ofilispeaks.com
Follow him on Twitter
Stalk him on Instagram
Read his crazy titled books on konga or okadabooks
Feed his children at…no wait he has no kids…. 

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16 comments on “The Naira Is Dropping! But Should You Panic?

    • Ofili

      The reality is in 2008. This is not the first time Oil prices have dropped. You can panic if you want sha…me I will spend my energy on something else.

      • frank on said:

        dear ofili, you lied. I told you one year ago that the naira was in for a great ride. Just thought id pop back in and let you know. Luckily you put your disclaimers many many years ago, so you are forgiven for doubting me 😀

  1. B P Will on said:

    Sir quite right, but the question is, what is Nigeria exporting?? remember that the quantity of oil is just as ignoble.

  2. bottom line is if we don’t begin to produce and export as a country (besides oil) our economic fortune is still going to be hanging in the balance, and stable electricity should be a priority to be begin with. first thing first!

  3. Bode Oladini on said:

    This is insightful! I’m glad there are people able to put in clear terms and data the truth about the country. Right now we have a lot hysteric propaganda creating fear and doubt in the hearts of Nigerians and this kind of objective professional well expressed view of our economy is heart warming and encouraging. Thank God for you. Keep up the good work.

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