The Zimbabwean dollar was abandoned as a currency in 2009 after achieving a peak annual inflation of 7.3x 1022% in the last quarter of 2008. Nigeria, a large oil exporter and the most populous country in Africa, has seen large increases in prices as the government attempts to control the currency markets. This article aims to predict if Nigeria’s inflation and currency (the Naira) will have a similar outcome to the Zimbabwean equivalents.
With the recent fall in oil prices from above $100 per barrel to below $40, many oil driven economies have suffered yet few have taken the hit like Nigeria. Oil is almost the only product that the country exports and due to large inequality and lack of infrastructure, domestic demand is very low. Given this, the price fluctuations of oil have a direct impact on the currency, in the free markets that is, and therefore in the economy. Growth rate has fallen to 2.1% from above 6% in 2014.
With the recent fall in oil prices from above $100 per barrel to below $40, many oil driven economies have suffered yet few have taken the hit like Nigeria. Oil is almost the only product that the country exports and due to large inequality and lack of infrastructure, domestic demand is very low. Given this, the price fluctuations of oil have a direct impact on the currency, in the free markets that is, and therefore in the economy. Growth rate has fallen to 2.1% from above 6% in 2014.
The artificially high Naira, controlled by the country’s central bank, is leading to the growth of the black market where the dollar is around 250 Naira’s, compared to the official 198. Business managers have approached the issue by rushing to sell liquid assets such as gold jewelry abroad in dollars. The third way to get dollars is to be one of the few lucky enough to purchase some of the $200m issued by the central bank every month. Obviously, this “luck” usually depends on a premium paid to central bank officials.
The most severe impacts are felt by the general population. The fall in purchasing power of the Naira has made lead to an increase in the price of essentials such as rice by 12.5% a month. Supermarkets are becoming deficient of other essentials such as milk as the central bank refuses to supply dollars for import of many foodstuffs.
The most severe impacts are felt by the general population. The fall in purchasing power of the Naira has made lead to an increase in the price of essentials such as rice by 12.5% a month. Supermarkets are becoming deficient of other essentials such as milk as the central bank refuses to supply dollars for import of many foodstuffs.
Zimbabwe, on the southern end of the continent, had a large currency crisis from 2003 to 2009. Its economy started to cripple in 2000 following its participation in the Second Congo War which diverted capital from the mining industry, one of its main exports, and decreased foreign exchange reserves dramatically. Mr. Mugabe, Zimbabwe’s 92-year-old head of state, also began seizing big commercial farms which wrecked the country’s largest industry.
To pay for the country’s debts, the central bank, largely controlled by the government, began to issue large amounts of Zimbabwean Dollars, kept exchange rates at a fixed level and introduced price caps on staple foods. This led to massive shortages and hyperinflation reaching 80 billion percent in November 2008.
It is too early to determine whether Nigeria will follow this path. Although it acts against market forces, has decreasing foreign exchange reserves and large inflation rates; Zimbabwe’s government intervened in many other ways: by nationalization as mentioned above, rigging elections and hiring war veterans to intimidate political opponents. Furthermore, while Zimbabwe essentially destroyed all of its industry, in Nigeria, crude production, for example, has not stopped increasing. Nevertheless, one thing is certain: if it does, the effects will ripple throughout the continent!
Sebastiao Carvalho Martins
To pay for the country’s debts, the central bank, largely controlled by the government, began to issue large amounts of Zimbabwean Dollars, kept exchange rates at a fixed level and introduced price caps on staple foods. This led to massive shortages and hyperinflation reaching 80 billion percent in November 2008.
It is too early to determine whether Nigeria will follow this path. Although it acts against market forces, has decreasing foreign exchange reserves and large inflation rates; Zimbabwe’s government intervened in many other ways: by nationalization as mentioned above, rigging elections and hiring war veterans to intimidate political opponents. Furthermore, while Zimbabwe essentially destroyed all of its industry, in Nigeria, crude production, for example, has not stopped increasing. Nevertheless, one thing is certain: if it does, the effects will ripple throughout the continent!
Sebastiao Carvalho Martins