Collapse of Naira: Why Nigeria heading for Recession, massive job losses
Stakeholders including the Manufacturers Association of Nigeria and the Association of Small Business Owners on Sunday lamented the worsening scarcity of forex in the country, saying they were already cutting costs as their profits were shrinking.
MAN, ASBON and the Lagos Chamber of Commerce and Industry and industrialists in separate interviews with The PUNCH said the free fall of naira and the attendant forex scarcity had worsened Nigeria’s harsh business environment in the past two months.
Some stakeholders, especially small business owners, told our correspondents that they were reducing their staff strength, warning that there would be massive job losses if forex scarcity continued.
The Central Bank of Nigeria had in July stopped selling forex to Bureau De Change operators on the grounds that they defeated their purpose of existence through illegally dealing in wholesale trading of forex beyond the statutory benchmark allowed by the law.
The CBN directed businessmen and others to source forex from commercial banks.
Since the apex bank gave the directive, naira has been on a free fall and accessing forex has been difficult for firms.
As of Sunday the dollar exchanged for N580 while pounds sold for N780.
Small businesses stop production, cut costs, retrench workers, says President
The President of the ASBON, Dr Femi Egbesola, in an interview with one of our correspondents lamented that small businesses were the worst hit by the forex scarcity.
He said some medium and larger businesses still had the opportunity of getting certain amount of forex from the commercial banks.
Egbesola stated, “For small businesses, bureaucratic bottlenecks hamper their access in commercial banks, pushing us to the parallel market.
“In the past few months, the naira has been on a free fall, and many of our members can no longer produce because the raw materials cannot be imported.
“You need to get payment overseas before you can get your shipment and if you cannot get your raw materials, you are going to close shop.
“Some of our members that have been able to get some forex in trickles have been under-producing. They have had to cut cost and downsise their staff. That is inflicting unemployment again. Even their products are now more expensive for consumers.
“The government needs to intervene at this moment to save the economy.”
Manufacturers can’t get forex to buy machines, raw materials, MAN laments
The Director-General of MAN, Mr Segun Ajayi-Kadir, told one of our correspondents that the general concern among manufacturers was the difficulty and ‘most often inability, to access the forex they need to purchase machines, spares and critical raw materials that are not locally available’.
He noted that manufacturers’ funds in Nigeria would be tied down at the point of making requests and if commercial banks finally released the regularly meagre forex, it would be inadequate to procure the inputs which distorts the production process and rocks their bottom line.
He said, “This abysmal allocation to the manufacturers is quite disappointing and unhelpful. It threatens the relapse of the recent gains in terms of the growth numbers in the economy.
“While appreciating the current situation of government in terms of paucity of forex, the strategic allocation of the limited forex stock is key, whilst we also pursue domestic activities that will generate forex in a sustainable manner.
“It is important for the CBN to go beyond the recent zero allocation of forex to BDCs and intentionally prioritize allocation to the productive sector, in particular, the manufacturing sector.
“This is because of the multiplier effect it induces on the other sectors of the economy, the value addition, job creation, tax income for government and quite importantly, increased local production and positive effect it has on the disposable income of the average citizen.”
Continuous Naira depreciation can drive Nigeria back into recession – Experts
A Senior Lecturer of Economics at the Pan Atlantic University, Olalekan Aworinde, said continuous deprecation of the naira was an indicator forex scarcity.
He said if the trend persisted, Nigerians would continue to suffer as the standard of living in the country would steadily decline and unemployment rates skyrocket.
He said, “The continuous deprecation of the naira tells us that the demand for the dollar is greater than the supply.
“If you look at the foreign exchange market, it affects the balance of payment equilibrium in Nigeria, the depreciation is good, if we are looking at exports, but we see that Nigeria has a huge trade deficit; we import more than we export.
“Because we import more than we export, the demand for our naira is low, which causes the value to continue to fall.
“The implication of all these is that we will have import inflation which causes the price of goods and services to spike and the impact of this will be on the society, on Nigerians.
“Nigerians will continue to suffer as prices go up, especially for fixed income earners. Also the standard of living in the country will continue to decrease.
“Furthermore, for businesses, producers, increased prices of goods and services will mean that there will be a fall in aggregate demand and once there is a fall in this aspect, it will affect the level of output and this will lead to increased unemployment rate.”
Another expert and a professor of economics at the Olabisi Onabanjo University, Ogun State, Sheriffdeen Tella, stated that the depreciating value of the naira would have adverse effects on business operations in the country and further increase unemployment rate.
He said, “The operating costs of business continue to increase due to the fall in naira. This is because Nigeria is an import-dependent economy. We import almost everything we use to produce commodities and imports are facilitated in foreign currencies, not naira. Thus, the cost of production has continued to increase.
“With a depreciating naira value, inflation will continue to rise which will also lead to increased cost of goods and services.
“In the long run, this can also affect unemployment rate, because when prices steadily rise but people’s income is not rising, they will start demanding less of such goods; when demand is low, businesses may be forced to cut down staff thereby pushing higher unemployment rates.”
He advised the government to stop importing commodities that could be produced locally to cushion the depreciation of the naira and its effects on the economy….Punch