With the gains of a market exchange rate still a mile off, it’s all pain and more pain for Nigeria.
The level of anger and misery is rising around Africa’s most populous nation as the seeming endless depreciation of the naira causes pain and despair for Nigerians at home and in their businesses.
In the northern region of the country, frustration over the exorbitant cost of pilgrimage to Mecca is a major source of the anger, according to Muslim teachers and other religious leaders.
In normal times, about 95,000 Nigerian Muslims will participate in the annual pilgrimage. This year, data from the pilgrims welfare board show that only 16,000 have registered. At the more than N5.2 million cost per pilgrim, the expectation is that some of those who have registered will pull out for inability to meet the financial burden made worse by the devaluation of the naira.
The last time officials provided advice on what this year’s pilgrimage will cost, the naira was at 833/$ on the official market and prospective pilgrims were told they would be required to pay over N5 million each. At the current rate of N1,400/$, the cost per pilgrim will be well over N6 million.
A leader in one of the mosques in Kaduna, Nigeria’s fourth most populous state, says the hopelessness of Nigerians over the surge in the cost of pilgrimage brings back sad memories of the time in 1984 when Muhammadu Buhari had in his first coming threatened that there may be no hajji. The then New Nigerian newspaper carried the story with a banner headline titled “NO HAJJ IF”. The banner headline caused panic and sent reverberations across the Muslim north, forcing Buhari to retrace his steps.
For those who are not bothered by the rising cost of the pilgrimage, surging food and medicine prices cause disaffection across Nigeria. The 50kg bag of rice has hit N65,000, while a bag of cement has reached N6,000.
Other Nigerians have been hit with vastly higher school fees for children in schools abroad, with some parents now considering bringing their children back home as a result.
“People might have to start transitioning their wards abroad back home. At N1,900/£ how will they cope,” Tosin Olaseinde, a financial advisor, said.
Nigerians faced with incredibly high food prices are having to cut meals and seek cheaper alternatives.
Senior officials of electricity distribution companies around the country are reporting rising defaults in the payment of monthly tariff by consumers.
Businesses, which were already hit by rising inventory, now face the dire possibility of closing down their plants and shops in the face of sharply falling disposable income.
Muda Yusuf, chief executive officer of the Centre for Promotion of Private Enterprise, said the naira freefall is bad news for manufacturers.
“This is not good news for manufacturers, as most manufacturers are import-dependent. It will affect their prices and further stoke inflation,” Yusuf said.
Nigeria’s inflation rate rose to its highest in more than 27 years in December as food prices surged, exacerbating a cost-of-living crisis and piling more pressure on the central bank to raise interest rates.
The naira’s sharp depreciation adds even more pressure on the Central Bank of Nigeria (CBN) ahead of the crucial Monetary Policy Committee (MPC) meeting in February.
Governor Olayemi Cardoso will however have to answer to lawmakers before then to address the currency free-fall.
That’s after the Senate Committee on Banking, Insurance, and other Financial Institutions summoned the former Citibank chief who replaced the embattled Godwin Emefiele last year to a meeting on February 6.
“The CBN does not have the capacity to intervene in the spot FX market because of the demand backlog that it is still clearing,” Yusuf said.
The naira slide will also affect the repayment of bank loans, particularly those taken by oil and gas firms.
The debts owed by oil and gas firms to Nigerian commercial banks jumped by over 40 percent after the CBN freed the currency last June.
Their debts ballooned to N9.7 trillion in June from N6.79 trillion in the previous month, accounting for 25.88 percent of the banks’ total credit, which grew to N37.48 trillion from N30.18 trillion, according to CBN data.
Firms operating in the downstream, natural gas and crude oil refining subsectors owed N7.03 trillion as of June as against N4.85 trillion in May, while those in the upstream and services subsectors owed N2.67 trillion, up from N1.94 trillion.
“The naira free-fall is leaving a bloodbath in its wake,” a senior executive at a leading multinational consulting firm said.
“We know the CBN is trying to achieve price discovery in the official market but there’s so much at stake if their efforts go wrong,” the person, who did not obtain permission to speak publicly, added.
The naira closed stronger at 1,455 per US dollar on Wednesday, compared to N1,482 per US dollar the previous day in official trading. The currency traded weaker on the streets at N1,500, according to data collated from multiple traders.
As the ripple effect of the naira free-fall wreaks havoc on the fragile economy, President Bola Tinubu is out of the country.
Some leaders of the President’s party are now even questioning his wisdom in being abroad at a time when his house appears on fire.
Tinubu, whose ministers have to wait for months to see him, has met with Daniel Bwala, ex-spokesperson for the presidential candidate of the PDP and former Vice-President Atiku Abubakar, twice in three weeks in France.
“Call it a sign of misplaced priorities,” a university lecturer said.