Cardoso blames continuous Naira fall on increased demand by students studying abroad, healthcare, others

Thu, Feb 8, 2024
By editor

Economy, Featured

By Anthony Isibor

OLAYEMI Cardoso, Governor, Central Bank of Nigeria, CBN, has said that given the substantial demand for foreign education, healthcare, professional services, personal travel and similar needs, the exchange rate is bound to face ongoing pressure. 

Speaking at Sectoral Debates by the House of Representatives on Tuesday, Cardoso examined how the exchange rate has performed in recent years by applying the principle of demand and supply for a product or service, which is the major determinant of exchange rate.

He explained that the exchange rate in Nigeria has increased/depreciated due to the simultaneous occurrence of two factors: a decline in the supply of US dollars coinciding with a surge in the demand for US dollars.

“In essence, similar to the pricing of cows or cars, the value of the US dollar in Nigeria is determined by the balance of US dollars entering the country and the demand for US dollars among Nigerians,” he said.

Growing number of Nigerian students studying abroad

“Looking at the demand side of the exchange rate, it’s important to note the growing number of Nigerian students studying abroad. In the 1980s and 1990s, the need for US dollars for their living expenses was minimal. However, recent data shows a significant change. According to UNESCO’s Institute of Statistics, the number of Nigerian students abroad increased from less than 15,000 in 1998 to over 71,000 in 2015. By 2018, this figure had reached 96,702 students, as per the World Bank. Another report projects the number of Nigerian students studying abroad to exceed 100,000 by 2022. Additionally, the UK’s Higher Education Statistic Agency noted a 64% increase in Nigerian students studying in the country, rising from 13,020 in the 2019/2020 academic session to 21,305 by the 2020/2021 session.

“Given this data, it’s crucial to highlight that between 2010 and 2020, foreign education expenses amounted to a substantial US$28.65 billion, as per the CBN’s publicly available Balance of Payments Statistics. Similarly, medical treatment abroad has incurred around US$11.01 billion in costs during the same period. Consequently, over the past decade, foreign exchange demand for education and healthcare has totaled nearly US$40 billion. Notably, this amount surpasses the total current foreign exchange reserves of the CBN. Mitigating a significant portion of this demand could have resulted in a considerably stronger Naira today.

Personal Travel Allowances

He explained that Personal Travel Allowances have accounted for a total of US$58.7 billion during the same period. Notably, between January and September 2019, the CBN disbursed US$9.01 billion to Nigerians for personal foreign travel.

Nigeria’s annual imports

“Continuing on the topic of the demand for US dollars, Nigeria’s annual imports, which require dollars for payment, amounted to US$16.65 billion in 1980. By 2014, the annual import expenditure had significantly surged to US$67.05 billion, although it gradually decreased to US$54.71 billion as of last year. Similarly, food imports escalated from US$2.63 billion in 1980 to US$14.84 billion in 2019.

“In 1980, more than 75 percent of the vehicles used in Nigeria were domestically produced by companies like Volkswagen in Lagos, Peugeot in Kaduna, and others. Presently, over 99 percent of the cars driven are imported, necessitating dollar payments. Similarly, in 1980, the majority of the clothing worn was sourced from Nigerian textile mills in Funtua, Asaba, Kano, Lagos, and various other towns and cities. Today, nearly all the clothing worn is made from imported fabrics.

“On the supply side of the exchange rate, to bolster the inflow of US dollars into a country, the economy must “earn” these dollars through exports, whether oil or non-oil, or by attracting foreign investments. A robust economic foundation is essential to produce goods and services that the global market is willing to pay for in US dollars. When such supply surpasses demand, the exchange rate appreciates, causing the price of the dollar to fall. Unfortunately, in Nigeria, the contrary has taken place.

“In 1980, our import expenditure stood at US$16.65 billion, while our exports amounted to US$25.97 billion, resulting in a surplus of US$9.32 billion. Thus, during that year, we managed to fulfill the demand for US Dollars from our existing supply and still had over US$9 billion in surplus. In such a situation, the exchange rate (the value of the US dollar) would not increase because, similar to any commodity, its supply surpassed the demand. Moreover, from 2003 to 2013, we experienced a surplus of US$331.73 billion in the economy, with oil exports alone contributing over US$798 billion. This surplus of dollars would typically stabilize the exchange rate, leading to a “strong” Naira.

“Regrettably, over the past 12 years, oil exports, constituting over 90 percent of our foreign exchange earnings, have declined from US$93.89 billion in 2011 to US$31.4 billion in 2020.

“From the aforementioned points, we can infer that the genuine issue impacting the exchange rate is the simultaneous decrease in the supply of, and increase in the demand for, US dollars. It also seems that the task of stabilizing the exchange rate, while an official mandate of the CBN, would necessitate efforts beyond the Bank itself and indeed to an attitudinal change of all our citizens,” he added.

He, however, promised that the CBN team is dedicated to refocusing the Bank by giving primacy to price stability.

“We also aim to build confidence in the Nigerian economy through the maintenance of stability in consumer prices and the foreign exchange market.

“We are aware that the twin challenges of inflation and exchange rate depreciation on our economy are daunting, however, they are not insurmountable. 

“Monetary policy actions are sometimes inhibited by transmission lags, nonetheless, it is expected that the policy measures implemented by the Bank will permeate the economy in the short- to medium-term. 

“Inflation pressures may persist, albeit temporarily, but are expected to moderate significantly by Q4 2024. Exchange rate pressures are also expected to reduce with the smooth functioning of the foreign exchange market.  

“We are committed to implementing policies that will ensure a stable macroeconomic environment and guarantee improved livelihoods for all Nigerians,’ he said.


-February 08, 2024 @ 12:55 GMT|


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