This is also the reason why increasing the minimum wage as a solution to solve Nigeria Economic crisis will never work.

I'm IAmHim1, not a prophet of doom

...

Increasing minimum wage without solving THE underlying cause of WHY the minimum wage is to be increased in the first place is like spraying fine perfume in a smelly congested room.
No!
You're supposed to allow ventilation FIRST so the bad smell can escape before spraying the room with your fine perfume

Spraying a smelly room with a fine perfume would be a disaster to one nose

But thats exactly what the Nigerian government has been doing since as long as YOU KNOW WHEN




To truly understand what has been going on in background all these while, FIRST, we have to start this post with...

PART 1: THE WONDERING

Haven't you wondered why the price of goods in the market vary.
More specifically, why the price of foreign goods seem to rise and the price of local goods fall OR why foreign goods price falls while the local goods price rise

Imagine News headlining the price of a bag of local garri almost equal to the price of foreign rice

Doesn't such a headline sound suspicious to you or doesn't that eerie vibe jump out yet.

Well it did to me.
Which led to this discovery of mine: A general frame work to Understanding the WHY behind the price of foreign and local goods in Nigeria and their common denominator

There is a relationship...a common denominator, if you will, between the price of local goods be it farm produce or not, and foreign goods in Nigeria but this relationship although seemingly NOT TIED DIRECTLY, IS -- with one pulling the strings, The Puppet master and the other closely following, the puppet.

PART 2: THE UNDERSTANDING

Forex and Insurgency: Which pulls the string and which follows.

The price of local goods in the market is LARGELY HINGED ON INSURGENCY

while the price of Foreign goods in the market is LARGELY HINGED ON THE EXCHANGE RATE

Quite simple. In this case, we'll use food crops.

The price of your locally made garri and locally made rice is set MAJORLY by the forces of DEMAND and SUPPLY

HOW

If more farmers in Nigeria produce more food crops to feed the multitude in Nigeria, AND the demand of such food crops is less, then the price of food crops will crash and you and i can buy them relatively cheaper

If farmers in Nigeria produce less food crops to feed the multitude and the demand for such crops is high, then the price rises and you and i will buy them expensive. wink wink

BUT

if farmers produce MORE food crops to feed the multitude and the demand for such crop stays relatively level, THEN THE PRICE STAYS RELATIVELY STABLE and you can buy a bag of local rice for #30,000 this year, 2024 and still buy it at
#35,500 AT MOST at 2034, all things being equal.

WHY

The farmers keep producing and everyone has already bought in their homes and no one wants to buy again so the priice crashes as farmer flood the market to sell off their farm produce

(with less expensive farming practice brought about by proper farm education and agricultural innovation, THIS CAN HAPPEN REPEATEDLY.

Dont worry
Farmers Farm. Footballers play footballs. Footballers retire to coaching, FARMERS retire to supervising. The work on the farm still gets done. nobody is going anywhere)

At this point, hoarding of farm produce wont be encouraged because everyone has and IS SURE OF CONTINUOUS SUPPLY so nobody buys and keep in a storehouse hoping for scarcity or alteration in supply pattern to make quick bucks by ARTIFICIALLY INFLATING PRICES of their hoarded farm produce.

Everyone is happy.

BUT THIS IS FOR LOCALLY PRODUCED GOODS ALONE

lets move over to foreign produced goods

The price of Foreign made rice is largely dependent on the exchange rate of the countrys currency the naira is exchanged for to buy the goods in such a country

Now walk with me:

SAY Nigerian food importers are buying rice in America to import to Nigeria. Whenever the naira falls against the dollars, the price of the foreign Rice imported BECOMES EXPENSIVE because now, more naira will be exchanged to buy the dollar in order to buy rice in America having dollar value.

but if the value of the naira was to gain against the dollar, then the price of goods bought with the dollar BECOMES CHEAPER.

Hence the price of foreign rice becomes cheaper.
Thats why you see that the price of foreign rice sometimes is cheaper compared to the price of our locally made garri: The price of the foreign rice is hinged on the exchange rate while the price of the locally made rice is hinged on the production capacity of which the production capacity is largely hinged on insurgency. If farmers dont farm because they're scared to go to their farms, what is going to be produced.

And if less is being produced in the farm and the minimum wage is increased making more money to be in circulation, then you read it here first that price of locally made foodstuff will rise higher than foreign imported ones as the minimum wage is increased and farmers aren't back on their farms

And if the fx crises is not resolved, both the price of foreign and locally made good will rise together



PART 3: THE UNVEILING

Although i did say the price of foreign made good is largely hinged to the exchange rate, what i failed to mention was that the exchange rate DOESN'T HAVE TO BE DOLLAR PEGGED!

You dont have to exchange the naira to purchase all goods produced in America

WHY

Because Americans are not the only ones producing such goods!


**But theres a paradox to this understanding which if you look deeper, you can see it for yourself. Its quite ugly and a dirty tactic**

Say Nigerians decide to ditch importing goods from America because American goods are priced in dollar and the dollar to naira rate is 1$ to #1400 naira

This means that we Nigerians, would have to exchange 1400 units of our Naira In order to purchase 1 unit of the Dollar!

so go buy a good priced $500, we would have to exchange 1400 of our Naira units multiplied by 500 which gives 700,000 of our Naira units!!

This sounds soo soo absurd

BUT LETS IMAGINE THERE WERE OTHER COUNTRIES WHICH WOULD MAKE US EXCHANGE LESS UNITS OF OUR NAIRA TO BUY THEIR GOODS

so say there are countries where we would only have to exchange 200 of our units to purchase 1 unit of their currency and their goods is priced 500 units

this means to buy 1 unit of their countrys currency, we would have to exchange just 200 units of our countrys currency

so the exchange rate would be #200.0 to Nl1.0

and importing a good worth NL500 from such a country would give us...

#200 X 500 = #100,000

compare this to the #700,000 we calculated up there

and this doesn't have to be food crop alone. it could be a whole host of other things that are expensive to buy in dollars but cheaper in other countrys currency



and its quite funny because i see people buying up the dollar with the Naira when they could buy up a whole host of other countries currency cheaper and quantified and then purchase these goods in the countrys currency they purchased

You can buy chinese yuan to import goods from china...even US outsource skilled workers from china because they know what's up

You can buy rice from ghana and just exchange naira for cedis

but sadly, theres a thin window to this as a country's currency becomes relatively stronger when it export base grows
so be counting on the country you're importing from being hidden so its currency doesn't grow as its export base grows

So you can see that the ONLY reason we need the dollar is to buy few goods priced in dollars, pay some school fees (BECAUSE OF COURSE, LOCAL PRODUCTION IS LAGGING and our schools isnt anything to wrote home about) and those that buy the dollar with the naira hoping the value of the dollar goes up and the naira falls so they can profit miserably

Any reason why Nigeria government will hold the dollar as reserve is because thay think the dollar will outperform their currency so they are preparing themselves to fail with a bailout and an excuse

(Fine, hold some dollar reserves and work on your COUNTRY'S ECONOMY instead of just holding the dollar in case your country's currency isnt performing as you'd expect. BECAUSE if you plan to fail, you fail to plan. FLIP THAT!)




PART 5: THE VALUATION OF THE NAIRA

Most of the southwest have been industrialized and industrialisation takes useful lands which can be used for farming to build industries.

Majority of farm crops comes from the North because of available lands and insurgency drives farmers in the north away from their farm.

THIS ACT ALONE DRIVES FOOD PRICES UP AND MAKES INFLATION RATES SKYROCKETS

because farmers not producing leads to few goods which is expected to feed not only the farmers themselves but also these industrialist and their workers who have instead used their useful lands to build industries

The few goods that wiil be produced Is going to be expected to go round to feed the whole Nigeria population and if youve read my wealth series, you'd know that excess money + few goods available spells inflation



PART 6: STEPS TO ACHIEVING PART 5

1) Insurgency has to end. Short and simple.

Or else, no real growth in Nigeria will happen.

Say all you want, do all you want, but if a country isnt export diversified to make the international community want to buy its currency AND is heavily soiled in insurgency THAT DRIVES AWAY INVESTORS AND BUSINESS THAT BRINGS IN FOREX, that country will be doomed in the long term.

no beating around the bush. floating your currency means its positive value is largely dependent on ITS DEMAND and not its supply. and i would have said we sell our crude oil in Naira so that we drive demand for naira but then i thought, Nigeria isnt the only country selling sweet crude oil. what happens when other countries selling sweet crude decide to demand their country's local currency too. Link:
https://www.nairaland.com/8075867/naira-still-pegged-dollar-freedom

a) Farmers should be encouraged with proper education and locally made machineries...if a farmer due to his ignorance or lack of education makes a loss in the farm, such a loss is added to the price of the farm produce as a means for the farmer to recover his/her loss. This is why proper farming education AND INNOVATION is important
(how can we produce bigger yams: what's the part of the yam.seed that is connected to the soil to make it absorb nutrients...whats the nutrient.in the soil that makes farm produce bigger...how can we tweak.it...what are the external conditions to make this work... sunlight or water...which is more important...how do we replicate it artificially. THAT'S INNOVATION. not cramming nonsense in class just to pass examinations)

b) The youths need to be encouraged to learn to grow what they eat. This is done by splitting the year spent in NYSC CAMPS INTO TWO SECTIONS.

6 MONTHS SPENT In INDUSTRIES AND 6 MONTHS SPENT IN FARM

but some of these farm produce takes more than 6 MONTHS to germinate and harvest so a better solution can be:

University undergraduates getting into the NYSC should be made to choose if they want to be be in companies or they wanna learn to not only feed themselves but their loved ones and the world in general, whilst making profits on the side

So now you know: Insurgency controls the Foreign Exchange portfolio in Nigeria as insurgency not only makes us as a country to not diversify into agricultural exports, but it also drives away foreign investors seeking to do business in Nigeria, hence bringing more forex if such business becomes export worthy

INSURGENCY is the puppet master...forex exchange crisis is just a puppet... following closely


What do you think

Please feel free to ask your questions. And I'm sorry for any typo or blunders. Sleep dey my eyes


If you like what you just read, dont forget to like and share as sharing makes other people read too as this piece gets to them.
Thanks!

Apt.

Good attempt at analysing the problem facing Naija and proffering possible solutions. I agree with you on most of your discourse and provisions - isn't this exactly what PO has being saying even before the elections?

However, out of sentiments we let this country to be grabbed by clueless lots. Imagine one Kashim Shetima saying that this government implemented exactly what PO and Atiku have said they will do when they become president? See how dull these guys are? You copied what you don't understand and the result is where we are today. There are steps i will take before floating the rates and removing fuel subsidy, but these clueless copy copy masters are only driven by freeing money to looth, and are intellectually shallow, therefore unable to think through a grievous policy before making declarations.

Back to your points, yes, we have to be self sustainable to reduce the demands for fx, a key step is have farmers able to go back to farms and wheels turning again in out industries - this is what PO advocates as Production. Insurgencies is a key hindrance to achieving this.

Secondly, we have to discourage demand for FX, be it legitimate need for educational purposes, medical flight, food and equipment but most importantly demands to fuel corruption and money laundry - this is another PO's sermons.

Is the government making efforts in this direction? Unfortunately no! They are busy chasing shadows and opening up avenues for extravagant impunities, hence further sinking us deeper into muds as a nation

IAmHim1:
This is also the reason why increasing the minimum wage as a solution to solve Nigeria Economic crisis will never work.

Nice analysis, You tried a lot. Insecurity has to end for any tangible progress to happen. On the issue of people buying dollars and not other countries currencies, those countries won't accept naira or most other local currencies. You have to purchase dollars first, before purchasing those currencies. That is why dollars and euros are like international currencies, They are trusted.

On inflation, insecurity is not the only factor driving up inflation in Nigeria. Unregulated overprinting of naira is also a big factor and it also affects the exchange rate. Majority of African countries don't have strong regulations and institutions to prevent such abnormalities and decay. Solution: Regions in Africa, West Africa for example should create a general currency like the euro, the countries will regulate it together. This way no corrupt or incompetent president or central bank governor can easily usurp it or do as they want with it.
Transition to parliamentary democracy will also strengthen the rule of law and institutions, since nobody will be too powerful. This way the country also doesn't have to tolerate incompetent heads of government till the end of their fixed tenure.

Printing of Naira note is TO MATCH THE REALITY OF FRACTIONAL RESERVE BANKING because not everyone (abokis, market women) can use internet banking to facilitate their transactions so that the bank can multiply the money via reserve banking ratio

...its an effect NOT A CAUSE


Internet banking makes Fractional Reserve banking happen for the educated folks WHILE physical cash deposits makes Fractional Reserve banking happen for the uneducated folks

https://www.nairaland.com/8080394/nigerias-inflation-what-uba-gtbopay

This should give you the insight you need

fredwill1357:
Nice analysis, You tried a lot. Insecurity has to end for any tangible progress to happen. On the issue of people buying dollars and not other countries currencies, those countries won't accept naira or most other local currencies. You have to purchase dollars first, before purchasing those currencies. That is why dollars and euros are like international currencies, They are trusted.

On inflation, insecurity is not the only factor driving up inflation in Nigeria. Unregulated overprinting of naira is also a big factor and it also affects the exchange rate. Majority of African countries don't have strong regulations and institutions to prevent such abnormalities and decay. Solution: Regions in Africa, West Africa for example should create a general currency like the euro, the countries will regulate it together. This way no corrupt or incompetent president or central bank governor can easily usurp it or do as they want with it.