Dollar Scarcity in Nigeria Causing Huge Increase in International Fares
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Dollar Scarcity in Nigeria Causing Huge Increase in International Fares
When Muhammad Buhari was elected as President of Nigeria last year, many people said that it was good because he wouldn't repeat the mistakes of his predecessor, Goodluck Jonathan. It's quite true he isn't - instead he's repeating all the economic mistakes he made during his disastrous tenure as military Head of State between December 1983 and August 1985. Just before he seized power in 1983 the oil price went into a long nosedive, the economy colapsed and Buhari was overthrown in another coup. The last time he was President he introduced large import bans and refused to devalue the Naira. Now, the price of oil has slumped again and he's brought in the same failed policies.
Economist January 2016
Now, even the black market is suffering from dollar scarcity and foreign airlines are unable to repatriate Naira funds in the dollars they need to pay for fuel, servicing and spares. Of course one problem with having the funds trapped in Nigeria is that when the Naira is eventually devalued as it will have to be, the value of the funds they've been holding for months will also devalue. This has led to most of the major international carriers raising their fares for flights from Nigeria by between 80 - 120%. If the situation continues as it is for much longer a number of airlines are also considering reducing flights to Nigeria or using lower capacity aircraft. IATA has made representation to the governor of the Central Bank of Nigeria to help by making dollars available, but have so far received no response.
When the currency is devalued, all imports become more expensive. But under Mr Buhari’s system the restrictions on imports are by government fiat. Factory bosses complain they cannot import raw materials such as chemicals and fret that, if this continues, they may have to shut down. Many have turned to the black market to obtain dollars, and are doubtless smuggling in some of the goods that have been banned.
Nigerians have heard this tune before. Indeed, Mr Buhari tried something similar the last time he was president. Then, as now, he resisted what he called the “bitter pill” of devaluation. When, as a result, foreign currency ran short, he rationed it and slashed imports by more than half. When Nigerians turned to the black market he sealed the country’s borders. When unemployment surged he expelled 700,000 migrants.
Barking orders at markets did not work then, and it will not work now. Mr Buhari is right that devaluation will lead to inflation—as it has in other commodity exporters. But Nigeria’s policy of limiting imports and creating scarcity will be even more inflationary. A weaker currency would spur domestic production more than import bans can and, in the long run, hurt consumers less. The country needs foreign capital to finance its deficits but, under today’s policies, it will struggle to get any. Foreign investors assume that any Nigerian asset they buy in naira now will cost less later, after the currency has devalued. So they wait.
Nigerians have heard this tune before. Indeed, Mr Buhari tried something similar the last time he was president. Then, as now, he resisted what he called the “bitter pill” of devaluation. When, as a result, foreign currency ran short, he rationed it and slashed imports by more than half. When Nigerians turned to the black market he sealed the country’s borders. When unemployment surged he expelled 700,000 migrants.
Barking orders at markets did not work then, and it will not work now. Mr Buhari is right that devaluation will lead to inflation—as it has in other commodity exporters. But Nigeria’s policy of limiting imports and creating scarcity will be even more inflationary. A weaker currency would spur domestic production more than import bans can and, in the long run, hurt consumers less. The country needs foreign capital to finance its deficits but, under today’s policies, it will struggle to get any. Foreign investors assume that any Nigerian asset they buy in naira now will cost less later, after the currency has devalued. So they wait.
Now, even the black market is suffering from dollar scarcity and foreign airlines are unable to repatriate Naira funds in the dollars they need to pay for fuel, servicing and spares. Of course one problem with having the funds trapped in Nigeria is that when the Naira is eventually devalued as it will have to be, the value of the funds they've been holding for months will also devalue. This has led to most of the major international carriers raising their fares for flights from Nigeria by between 80 - 120%. If the situation continues as it is for much longer a number of airlines are also considering reducing flights to Nigeria or using lower capacity aircraft. IATA has made representation to the governor of the Central Bank of Nigeria to help by making dollars available, but have so far received no response.
