There was a day I attended a business meeting with some folks somewhere. In the course of the meeting, the moderator gave us forms to open an account. In that form, there was an option to open a naira or dollar account. The moderator instructed us to tick the dollar box. I raised my hand in objection and simply asked, " what if I want to open a naira account? He cast a funny glance at me as if he wanted to ask me " have you been living under the rocks? I insisted on standing by the naira, though I later felt stupid. At that point, he made me to realize that the naira is dead and gone. Yes, if you trace the trajectory of our exchange rate regime from the 80s, you may want to doubt the capacity of the naira to function as a store of value. The exchange rate has increased by more than 5000% since 1986! Can you beat that?? Without further ado, let's see the reasons why the redemption of naira is a lost battle.
Firstly, our insatiable appetite for foreign goods: As ridiculous as it may sound, we prefer to buy fairly used foreign goods than brand new locally made alternative. Not too long ago, members of the National Assembly bought utility vehicles from Japan (Toyota) when we have an alternative in Nnewi (Innoson). We prefer parboiled rice from Thailand to local alternative in Abakaliki. We prefer Italian shoe and despise Aba shoes. The few industries we have prefer foreign inputs to local alternatives. The fuel that power our machines is refined abroad. The list is endless. Data released by the CBN shows that our trade deficit has been on the increase, even during the pandemic. I wonder how the naira can survive this onslaught.
Secondly, the CBN have implemented policies that led to a systematic devaluation of the naira. I won't go into details here as I have another write up dedicated to this subject. Just know that the CBN, through their actions (and inaction) have successfully placed the naira on the path of annihilation.
Another factor is globalization. The world is a global village, so they say. International transactions are made just by clicking a button. A lot of people order for goods from abroad in the comfort of their room. Companies can even raise capital for business abroad. A good example is Jumia. They bypassed Nigeria Stock Exchange and went to New York Stock Exchange (NYSE) to float their shares. At the end of the day, US dollar wins.
In conclusion, I think the US dollars is the new bride in Nigeria, especially when it comes to financial assets. You might have noticed that most mutual funds in Nigeria now have dollar denominated funds. US dollar deserves a place in your portfolio.
Don't take my write up for investment advice. Always consult a registered financial advisor.
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