What Makes the Dollar Increase in Nigeria: There are many factors behind the continued escalation of the US dollar in Nigeria. One of these factors is that the demand for dollars is greater than the supply. The basic law of supply and demand has contributed to the steady appreciation of the dollar in Nigeria.
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Entrepreneurs and importers use dollars to pay for their imported goods and many other Nigerians also use dollars to pay for services abroad. Nigeria’s constant demand for dollars is one of the main factors that have contributed to the continuous rise of the dollar.
The idea that Nigeria operates with a mono-product economy makes it almost difficult for the country to control its economy, the country’s economy is almost controlled by external factors.
The fact that Nigeria is so dependent on oil is another reason why the naira continues to depreciate, especially when oil prices fall.
The Covid-19 pandemic has also contributed significantly to the appreciation of the US dollar, particularly in Nigeria. The demand for US dollars has been increasing worldwide and its impact is being felt in Nigeria.
Every Nigerian will agree that commodity prices have increased dramatically, especially in the last year. This article attempts to explain how the rising dollar affects the price of this commodity.
How the dollar exchange rate affects commodity prices in Nigeria
The appreciation of the dollar affects commodity prices in Nigeria in several ways. Prices of imported products such as rice skyrocketed due to the strengthening of the dollar.
If a sack of rice is imported for $50 while a dollar is N300, it will be N15,000. Now one dollar is about N440, the import price for the same amount of rice is N22,000.
Clearing and delivery amounts also increased as most clearing and delivery payments were made in dollars. As handling and shipping costs increase, there will inevitably be a corresponding increase in the price of the item.
Therefore, we have a worrying increase in commodity prices in Nigeria, the more the dollar continues to rise, the prices of these commodities will increase.
Second, most of the equipment used to produce domestic goods is imported, meaning it is bought in dollars. Of course, the sellers of these commodities have to increase the prices of their finished products to cover production costs, including the purchase of equipment.
The appreciation of the dollar has also increased transportation costs, buying a car is now more expensive than in the last 2 years. This is because cars are not manufactured in Nigeria but are imported and therefore any increase in the exchange rate of the dollar in Nigeria means that buyers are buying cars at a much higher price than they should have paid.
Let’s say the person buys a car to use as public transportation and after buying a car for a higher amount than expected, the cost of the ticket will definitely increase. If this increases, it will affect the price of goods, because sellers of these goods will increase the price, having spent more than usual on transportation.
These are some of the different ways the dollar exchange rate has affected commodity prices in Nigeria.
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