This article focuses on the reasons for the shortage of dollars in Nigeria in recent years. If you’re looking for information about the scarcity of the Nigerian dollar, this post will give you complete information about it. This post is very essential to read as this will give you a full breakdown of the reason behind the lack of US dollars in Nigeria.
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How important is the dollar to the Nigerian economy?
The US dollar is the main foreign currency in the Nigerian economy. This is because Nigerian importers use US dollars to import goods into Nigeria from other countries. Nigeria, as a country that imports more than it exports, tends to use more dollars, even more than the local currency.
Another thing that makes the dollar so important to the Nigerian economy is the fact that the country’s economy relies on crude oil as the primary means of generating foreign income, as oil is priced and bought in dollars, making the dollar a major player in the Nigerian economy. make .
Hence, when there is a shortage of dollars in the country, all sectors of the Nigerian economy suffer.
9 Reasons for Short Nigerian Dollars
Below are some of the reasons why we are short of dollars in Nigeria. Most of these reasons are related to each other. Read carefully.
Fall in Oil Prices
Unsurprisingly, this is the first reason on our list that raw heritage stocks account for 85% of the country’s import revenue and 55% of government revenue. As crude oil is valued and bought in dollars around the world and Nigeria relies solely on oil to generate dollars, the dollar has become very important. It means; Higher oil prices equal more dollars, lower oil prices per barrel equals fewer dollars.
Another major reason for the scarcity of US dollars in Nigeria is the high level of imports into the country. The fact that Nigeria imports more than it exports means more dollars are sent than it goes into the country. In 2019, more than $50 billion of goods were imported, Nigerian importers consistently used dollars to pay for these goods as well as paying for shipping and customs. As a result, dollars continually being sent out of the country exceed the dollars coming into the country.
Numerous Medical Trips to Overseas by Nigerians
This is one of the reasons why the dollar depreciates in Nigeria. Agree that many Nigerian elites prefer to go abroad for medical treatment than seek treatment in Nigeria. As they continue to make these trips, they need dollars to pay for flights, fund their stay, and even pay medical bills. While this further weakens the value of the naira, it also contributes to the tightness of the US dollar in the country.
Thousands of Nigerians study abroad
This is another reason why we are short of dollars in this country, many Nigerian parents send their children to colleges and universities abroad. They need US dollars to pay for their children’s tuition, food, and lodging. Whenever they want to send money to their children they have to sell naira and buy dollars to send them, this devalues the naira even more and makes the dollar stronger. It also increases the demand for dollars, causing a shortage at home.
Stashing dollars at foreign reserve
You may be surprised that we have listed this as one of the factors causing dollar shortage in Nigeria. Well that’s the problem, the Central Bank of Nigeria is always looking for more dollars to keep in the foreign exchange reserves. CBN needs more dollars to be able to manipulate the market and try to stabilize the local currency exchange rate. This is the main reason why dollars are scary sometimes. To keep the exchange rate stable, CBN needs more dollars in the bank. Now you can see that CBN looks for dollars the same way Nigerian exporters do.
Lack of foreign investment in Nigeria
The lack of foreign investment in the country has reduced the amount of US dollars entering the country. When investors go to a country to invest, they may choose dollars because it is the world’s currency and increases the availability of dollars in that country. This is not the case in the Nigerian economy. Corruption and insecurity have discouraged foreign investors from coming to the country to invest.
Unless we have another way for dollars to come in and continue to spend more dollars on imports, there’s bound to be a dollar shortage.
Although many economists do not like to talk about it, it is one of the contributing factors to the shortage of US dollars in the Nigerian economy. Many Nigerian politicians launder money in other countries, this money is mostly exported in dollars because the naira is a non-convertible currency and is not accepted in other countries.
For this reason, these politicians convert naira into dollars so that they can take it to any part of the world. This contributed to a shortage of dollars in Nigeria.
Nigerians prefer dollars to naira
Some Nigerian investors and business owners are gradually converting their investments and assets into dollars. Due to the fragile nature of the Nigerian economy and the volatility of the Nigerian currency, they sell their naira investments to buy dollars. This causes a greater demand for dollars, increasing its value and causing a shortage of dollars in the country.
Nigeria suffers from a shortage of US dollars because the amount of exports is less than imports. The more goods and services we export abroad, the more dollars we will have at home. But if the situation were to completely reverse, there would be a shortage of dollars as imports remain high.
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