The exchange rates of the naira to other trading currencies are important factors that shape the volume and value of items imported into Nigeria. As a highly import dependent nation, consumption at home, to a large extent, is subject to the vagaries of international trade. This means the more the naira is devalued, the higher the cost of importation. This is evident in the value of imported items in the last few months corresponding to the decreasing worth of the naira relative to other international currencies especially the US dollars and the Chinese Yuan/Renminbi.
Stepwise trend in Naira/Dollar exchange rates
The graph above shows the stepwise movements in the official exchange rates of the naira to the United States dollar. The level of demand for foreign exchange at the international foreign exchange market, receipts from the sale of crude oil determines the extent the Central Bank of Nigeria (CBN) will make foreign exchange available to individuals and businesses.
From Jan 2020, the official exchange rate of the naira to the US remained stable at N306/$ but on April 20, 2020, the rate was adjusted upward to N360.5/$.
On August 6, 2020, the exchange rate of the naira to the US dollar was further adjusted upwards to N379.5. That rate was maintained for months until May 24, 2021 when the official exchange rate rose to N409.75 to the US dollar.
On September 13, 2021, the widening gap between official and parallel market rates forced an upward review to N410.04 and on Nov 16, 2021 the exchange rate slightly went up to N411.04 before returning to N410.63 to the US dollar.
Stepwise trend in Naira/Yuan exchange rates
Yuan/Renminbi is another international currency of interest to Nigerian public officials and businesses. One, China, whose official currency is Yuan/Renminbi, is a major trading partner of Nigeria.
Second, China is one of Nigeria’s largest creditors. In this regard, the movements in naira/Yuan exchange rates are of interest to everyone in this country.
Since January 2020, Naira/Yuan exchange rate has trended upwards in a stepwise manner. From N44 to a Yuan at the beginning of 2020, the official exchange rate was raised in March 2020, to about N50.91 to a Yuan.
That rate subsisted till July 2020 when an upward review of the exchange rate took place and it became N54.6 to a Yuan.
In May 2021, another upward review sent the naira/Yuan to N63.81 in July 2021. The official exchange rate has hovered around this figure ever since.
Above all, the prices of crude oil at the international market play a major role in exchange rate volatility in Nigeria. The more money Nigeria makes from crude oil sales, the better it will be in a position to defend the Naira.
Rising trend in the values of imports- Wheat, used cars, herbicides and sugar cane
Nigeria imported N1.31 trillion worth of durum wheat (not in seeds) from the first quarter of 2020 to the second quarter of 2021, exactly eighteen months.
Total cost of importing wheat in 2020 was N730.66 billion representing 56 percent of the import bill within the reference period. In the first six months of 2021, a total of N514.79 billion was expended on wheat importation, representing 44 percent of the import bill on wheat.
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On a quarter on quarter basis, Nigeria imported N101.58 billion in the first quarter of 2020, and that was 2.41 percent of the total import bill for that quarter.
Import bill on wheat increased by 59 percent to N161.35 billion in the second quarter of 2020. Another 31 percent increase in wheat importation bill saw the total expenditure on wheat import jump to N211.24 billion in the third quarter of 2020. Import bill on wheat further rose by 21 percent to N256.49 billion in Q4 2020.
Nigeria imported N258.30 billion worth of wheat in first quarter of 2021, an increase of 1 percent over the last quarter of the previous year. The import bill on wheat in the second quarter of 2021 was N324.72 billion, amounting to 26 percent increase over the first quarter of 2021.
Importation of used cars is a major business in Nigeria as the worsening economic conditions constrain many individuals from buying new cars.
Between first quarter of 2020 and second quarter of 2021, N1.07 trillion worth of used cars, with diesel or semi diesel engine and of cylinder capacity greater than 2500 cubic centimetres(>2500cc), were imported.
Sixty seven percent (67%) of the used cars imported into the country or N718.82 billion came in in 2020, while N346.29 billion came in in the first two quarters of 2021.
By importing N198.40 billion worth of used cars, the import bill on used cars rose by 28.2 percent over the level of import in the first quarter of 2020.
The import bill on used cars fell by 13 percent to N172.05 billion at the end of the third quarter 2020. But in Q4 2020, total import bill on used cars rose by 13 percent to N193.57 billion.
In 2021, Nigerian importers brought in N174.22 billion and N172.07 billion worth of used cars in first and second quarters of 2021.
Herbicides are essential farming materials in Nigeria. As a country that falls within the tropical rain forest and savannah regions of the world, farming could be tiring without herbicides. Nigeria’s rich fertile soils support the growth of anything plant.
The graph above depicts how difficult farming was in 2020. Importation of herbicides was noticeable in the second quarter of 2020. Then, traders imported N59.9 billion worth of herbicides into the country.
Importation of herbicides could have taken place in the first, third, and last quarters of 2020, but on a negligible scale as the graph above only showcases herbicides importation into Nigeria whose value ranked among the top fifteen most imported items in a quarter.
Value of imported herbicides amounted to N61.06 billion in the first quarter of 2021, and another N84.5 billion worth of herbicides were imported in the second quarter of 2021.
The first half of every year coincides with the farming period in major parts of the country especially the middle belt and the southern parts of Nigeria.
Demand for sugar is growing for both industrial and domestic uses. This explains why it has consistently remained one of the top 15 most imported items in Nigeria since January 2020.
Whereas N263.79 billion worth of sugar was imported into Nigeria in 2020, the first two quarters in 2021 recorded the importation of N204.92 billion, which in effect means between January 2020 and June 2021, N468.71 billion worth of sugar was imported into Nigeria.
On a quarterly basis, N44.3 billion worth of sugar was imported in Q1 2020. The import bill slightly fell by 2.3 percent to N43.27 billion in the second quarter. It rose by 70.5 percent in the third quarter of 2020 to N73.77 billion. With another increase of 38.9 percent, the import bill on sugar cane rose to N102.45 billion in the last quarter of 2020.
In Q1 2021, N90.83 billion of sugar came was imported, representing a decline of 11.3 percent over the last quarter of 2020, but an increase of 105 percent over the first quarter of 2020.
In Q2 2021, Nigeria imported N114.09 billion worth of sugar cane, representing 25.6 percent increase over Q1 2021, and 163.7 percent increase over Q2 2020.
