How Naira Scarcity is affecting Business People
Preamble
For a while now, the naira, Nigeria’s currency, has been in short supply. Businesses in the country are struggling as a result of a lack of money because of reduced purchasing power, higher expenses, and restricted access to foreign cash. In this article, we’ll look at how the shortage of the Nigerian naira is affecting local businesses and the economy as a whole in Nigeria.
Reduced ability to buy: Decreased buying power is one of the most noticeable effects of the naira shortage. The depreciation of the naira has made it more expensive for Nigerian businessmen to import goods and pay for services from outside. Therefore, firms must raise prices to offset these rising expenses, ultimately contributing to inflation. (Oshikoya, 2016).
When consumers feel they cannot afford to shop at these establishments, demand drops and firms lose money. Since companies are the primary engines of economic expansion, this has implications for the expansion of the economy as a whole. Costs for companies have gone up as a result of the naira’s shortage.
Businesses may face higher costs for inputs like raw materials, rent, transportation, and utilities as a result of inflation’s effect on the general price level. This may have a domino effect, making it hard for enterprises to make money or even stay in business. A bakery, for instance, may raise prices if it had to pay more for wheat, sugar, and other ingredients, making their baked products less accessible to the general public (Oshikoya, 2016).
Difficulty in Accessing of Foreign Currency: The inaccessibility of foreign cash for enterprises is another consequence of the naira’s shortage. Many Nigerian companies import items or pay for services from overseas corporations, both of which require foreign currency. However, the Central Bank of Nigeria’s foreign currency reserves have declined as a result of the devaluation of the naira. As a result, the government has tightened controls on the availability of foreign money, making it harder for enterprises to import items, particularly those that cannot be produced domestically (Eniolorunda, 2017).
Economic Growth Impact: There have been several negative effects on the Nigerian economy as a whole as a result of the naira shortage’s influence on enterprises. The increased expenses and reduced buying power have a particularly negative impact on small and medium-sized businesses (SMEs), which in turn has a negative impact on employment and economic growth. Small and medium-sized enterprises (SMEs) are essential to a healthy economy because they drive innovation, stimulate the economy, and provide much-needed jobs (Oshikoya, 2016).
More than half of industrial employment and output, and around 48% of GDP, are attributed to Nigeria’s small and medium-sized enterprises (SMEs), according to the World Bank (Eniolorunda, 2017). This suggests that a slowdown in the small and medium-sized enterprise sector might have far-reaching consequences for Nigeria’s economy.
Implications for Policy
The Nigerian government may take many steps to lessen the impact of the naira shortage on companies. One approach is to encourage investment in domestic manufacturing, which would expand employment, lessen the economy’s reliance on foreign goods, raise export earnings, and stimulate expansion.
Diversifying the economy away from oil exports through agriculture, industry, and services is another option for the government (Osabuohien & Matthew, 2018). In addition, the government might take steps to stabilize the value of the naira by encouraging foreign investment.
Facilitating SME access to financial services and finance should also be a governmental priority. Most small and medium-sized enterprises (SMEs) in Nigeria want easier access to financing and credit so they may develop and thrive. Financial incentives and regulations can be implemented to facilitate easier access to credit, lower borrowing costs, and streamline the loan application process for small and medium-sized enterprises. (Eniolorunda, 2017).
Conclusion
Nigerian entrepreneurs have been hit hard by the currency crisis. Businesses are finding it harder to function and expand due to a combination of factors, including falling buying power, rising expenses, and limited access to foreign money. This has had a devastating effect on the Nigerian economy, especially the small and medium-sized enterprise (SME) sector, which is essential to the country’s ability to generate new jobs and expand its economy. Financial inclusion and access to finance for SMEs, as well as diversifying the economy, are all ways the Nigerian government may alleviate the shortage of naira. As a result, companies and the Nigerian economy as a whole will be able to flourish over the long haul.
References:
Eniolorunda, S., (2017). How Nigerian businesses are being impacted by naira scarcity. Ventures Africa. Retrieved from https://venturesafrica.com/how-nigerian-businesses-are-being-impacted-by-naira-scarcity/
Osabuohien, E., & Matthew, E. (2018). Naira devaluation and industrial growth in Nigeria. Journal of Economic and Sustainable Development, 9(1), 131-143.
Oshikoya, T. (2016). Challenges of doing business in Nigeria. Bloomberg News. Retrieved from https://www.bloomberg.com/news/articles/2016-04-12/challenges-of-doing-business-in-nigeria-are-lethal-to-growth