President-elect Bola Tinubu will be sworn into office on May 29, 2023, after a hotly contested election mired with allegations of fraud, intimidation, and irregularities across the country led to a period of angst, apprehension, and suspicion. The nation seems ready to move on to the next iteration of an administration, hoping for a better outcome with more stability, economic vitality, and security.
Bloomberg reports that the Naira is expected to be devalued by about 15% in the coming weeks. This is likely to happen after the inauguration of Tinubu in late May. This maneuver is an attempt to spur economic activity but if we delve into this matter, things can get messy when currency manipulation is at play.
Impact of Devaluation on the Economy
Devaluation makes imports more expensive, which can lead to inflation. This is because businesses have to pay more for imported goods, which they then pass on to consumers in the form of higher prices. Inflation can also lead to a decrease in demand for goods and services, as people have less money to spend. Nigeria’s inflation rate is already alarmingly high (22%), so this could have a compounding effect which could have a disastrous impact.
Devaluation complicates the job market and productivity. Devaluation can lead to job losses in several ways. First, it can make it more expensive for businesses to operate, which can lead to them laying off workers. Second, it can lead to a decrease in demand for goods and services, which can also lead to job losses. Third, it can lead to a decrease in investment, which curtails business activity.
Prices of Goods and Services
Devaluation makes imports more expensive. This can lead to higher prices for goods and services. This is because businesses have to pay more for imported goods, which they then pass on to consumers in the form of higher prices. Higher prices can make it difficult for people to afford basic necessities, such as garri, rice, fuel, and medical needs.
Typical goods can see large fluctuations in price with a devaluation event, and this situation will be no exception. Merchants are keenly aware of the economic status and are plugged into the ongoing of the federal government and their policies.
Impact on the Nigerian Real Estate Sector
Most construction and building materials in Nigeria are imported. While cement can be gotten locally, many of the other critical supplies are imported. So when the devaluation occurs, we can expect building supplies will become more expensive. This will drive up the costs of construction, and subsequently, the cost of renting or buying real estate in Nigeria will rise. This will cause more hardship for those who are trying to build or purchase real estate in Nigeria.
Who will feel this impact the most?
Devaluation will impact the poorest Nigerians the most. This is because they are the most likely to spend a large portion of their income on basic necessities, which will become more expensive as a result of devaluation. Devaluation will also make it more difficult for the poorest Nigerians to save money, as their savings will lose value in real terms.
However, exporters may benefit from devaluation since Nigerian exports will be cheaper on the global market. So businesses that ship commodities abroad may be in for a windfall in the coming months if all goes well.
How can Nigerians Prepare?
There are a few things that Nigerians can do to protect themselves from the negative effects of devaluation. First, they can try to save money in foreign currencies, such as the US dollar or the Euro (however most Nigerians do not have this luxury). This will help to protect their savings from the effects of inflation. Second, they can try to buy goods and services that are produced locally, as these goods and services will be less affected by devaluation. Third, they can try to negotiate lower prices with businesses, as businesses may be more willing to offer discounts in order to attract customers.
Devaluation is a difficult economic challenge, but Nigerians have seen this movie before. Nigerians have become accustomed to the ebbs and flows, ups and downs of the economy, the different administrative policies, corruption, and strife. They will continue to push through and make the best of whatever situation is at hand – that we can be sure of.