DEPRECIATION OF NAIRA ON NIGERIAN ECONOMY: CAUSES, EFFECTS AND REMEDY.
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DEPRECIATION OF NAIRA ON NIGERIAN ECONOMY: CAUSES, EFFECTS AND REMEDY.
Chapter one
Background of the study
1.1 Introduction
In economics, depreciation is the loss in the economic value of a corporation, nation, or other entity’s capital stock caused by physical deterioration, obsolescence, or changes in demand for the capital’s services. Depreciation refers to two distinct but related concepts: the decline of assets over time as they are used.
Soludo stated that the reduction in the value of the local currency was a government-supported devaluation in response to dropping oil prices. Oil money accounts for 90% of Nigeria’s export revenue.
Oil is down more than 60% from a year ago. The naira has fallen by more than 23 percent since November, when the central bank limited the supply of dollars to protect its foreign exchange reserves.
Some commentators have criticised the central bank’s depreciation programme, claiming it might have serious consequences for the Nigerian economy, which is heavily dependent on imports.
Mike Obadan (2005) stated that “each time the naira depreciates in relation to the dollar and pound sterling, it adds to the inflationary problems in the economy.”
Obadan (2004) also stated that the reason for this is that the Nigerian economy’s production structure is heavily reliant on the importation of inputs in the form of equipment, transportation for production, and even raw materials.
As a result, each time the naira depreciates, the cost of importing all of these inputs rises, as does the cost of production, and the producers pass on the higher costs in higher pricing.”
The naira fell to a record low of 153 per US dollar on Monday, from 146 on January 9. Central Bank Governor Soludo said the government is committed to maintaining a stable, market-determined currency rate.
Analysts expect that the naira will drop more as demand for foreign money increases and there is uncertainty about the Nigerian economy’s health.
The future of the Nigerian economy is hazardous; indeed, the country’s economy is under significant jeopardy as crude petroleum, the mainstay of the economy since the early 1970s, has constantly declined since last November.
As most experts have remarked, the dynamics that caused the naira’s value degradation throughout these periods are mostly obvious in the downfall of the country’s biggest foreign exchange earner, which has gone from an all-time high of around $140 per barrel in July 2008 to less than $40 per barrel in early January 2009.
What makes the scenario even more troubling is that President Umar Yar’Adua had previously predicated his 2009 Appropriate Act on an exchange rate of N 117 -8 per dollar, with the understanding that crude oil earnings would not go below the $45 benchmark.
However, multiple things appear to have broken wrong, and the largest difficulty for the Central Bank of Nigeria, which had earlier this year told Nigerians that the global economic catastrophe would not harm Nigeria or her economy, remained how to keep the naira from plummeting further.
Economy experts have since argued that the government’s consent to the naira’s depreciation at this time may be linked to its attempt to partially finance the budget with market proceeds, as expectations of doing so through oil revenue are rapidly fading with the collapse in the price of 0’£ crude petroleum at the London spot market.
1.2 The current state of the problem
The naira’s fall has caused enough heat in the country that its economy is currently fragile, if not in chaos. The objective of this investigation is to discover the key causes of the naira’s depreciation in order to propose ways to appreciate the naira, utilising Lagos State as a case study.
The naira’s continued devaluation is a very critical issue at this point in time when our economy is deregulated. With the naira’s depreciation, every commodity in the country is now extremely expensive.
It appears that too much money is being spent on a small number of things, which is driving up costs. In order to implement a realistic exchange rate policy, the degree of overvaluation of the naira would be reduced.
1.3 Aim and Objectives of the Study
This paper aims to explore “The Depreciation of Naira on Nigerian Economy: Causes, Effects and Remedy (A Case Study of Lagos State)”. The following are the study’s particular objectives:
i. To investigate the impact of naira devaluation on the Nigerian economy.
ii. To investigate the causes of naira depreciation in the Nigerian economy.
iii. To investigate the impact of naira devaluation on the Nigerian economy.
iv. Finally, analyse the solution to Nigeria’s economic progress.
1.4 RESEARCH QUESTIONS.
As a result, the explanation of problems is stated below by answering the following questions.
a. How does the depreciation of the naira affect the Nigerian economy?
b. What are the causes of the naira’s depreciation?
c. What are the solutions for Nigeria’s economic growth?
b. What are the negative consequences of the naira’s depreciation for the Nigerian economy?
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