Nigeria’s currency is weaker than Afghanistan’s Afghani and Pakistan’s Rupee on the international market. Currently, one dollar equals N411 (Naira). 79.92 AFN (Afghani), and 174. 43 PKR (Pakistani rupee).
These three countries are threatened by terrorism and insecurity, with Nigeria and Afghanistan taking the top two places on the global terrorism index and Pakistan is in the seventh position.
In recent times there have been concerns over Nigeria’s currency and its purchasing power. This development has led to debates on devaluation and fixing the naira by allowing market forces to act as determinants.
Why are these countries’ currency faring better than naira?
Indicators such as demand and supply of foreign exchange occasioned by imports and as well as the balance of trade help to diagnose the economic health of a country and its currency.
According to the latest information available on the Observatory Economic Complexity Afghanistan ranks 118th in the world in terms of imports and 138th in exports. The value of the country’s import was put at $8.11 billion while export was $2.6 billion.
Pakistan was ranked 68th largest export country and 47th largest importer by the OEC. The value of Pakistan’s exports was put at $24.8 billion while imports was $55.6 billion.
Nigeria was ranked 47th in total exports and 50th in total imports. The value of Nigeria’s transactions on the international market was higher with exports at $67 billion (products and services) and imports at $90 billion (products and services), according to the latest information by the OEC.
All three countries have trade deficits, with Pakistan at $30.8 billion, Afghanistan at $6.5 billion and Nigeria at $23 billion (goods and services calculation).
Afghanistan does not have a vibrant export market compared to Nigeria and Pakistan, their biggest export is linen followed by rice, both valued at about $5.4 billion; their demand for foreign goods and services is also not high based on their import figures (oils and minerals are the highest imports followed by industrial machinery).
In terms of ranking, Nigeria and Pakistan’s rankings are almost at par on the global index of imports and exports, however, the volume of trade by Nigeria far outweighs that of Pakistan. The difference in the volume of imports between Nigeria and Pakistan is $34.4 billion, higher than the entirety of Afghanistan’s import and export volume. The value of export also stood at $67 billion for Nigeria while Pakistan’s stood at $24.8 billion, with a difference of $42.2 billion.
Close global ranking index between Pakistan and Nigeria notwithstanding, the volume of Nigeria’s imports trade compared to its exports trade occasions an imbalance of trade that also aids the devaluation of its currency.
Despite Nigeria being one of Africa’s biggest oil-producing countries, according to the OEC, refined petroleum tops Nigeria’s import burden, gulping $10 billion as at 2019 and accounting for a substantial part of forex demand. Other than oil, Nigeria imported cars worth $1.57 billion, transactions like this put pressure on the naira.
The nature of imports of these three countries is also a pointer to the effect it has on the currency and economy as a whole.
Nigeria’s top exports are mostly unprocessed raw materials, while the top exports for both Afghanistan and Pakistan are locally produced commodities which speaks to manufacturing and industry.
The top imports are also indicative for understanding the strength of each country’s currency among other factors. While most of Nigeria’s highest imports are for consumption, like refined petroleum and cars, some of the highest imports of both Afghanistan and Pakistan are commodities that are used to produce /manufacture. For Nigeria, the paradox is ironic, the commodity that gulps the highest fx (Refined Petroleum) is also its highest export (crude petroleum)
Afghanistan’s population is put at 40 million persons while Nigeria’s population is estimated at 201.1 million persons. On the other hand, the population of Pakistan is higher than Nigeria’s, with an estimated 226 million persons living in Pakistan. Pakistan’s higher population imports far less than its Nigerian counterpart.
Are these countries’ economically better than Nigeria?
The unemployment rate, inflation and GDP are some of the indexes used in determining the health of an economy.
Of the three countries, Nigeria has the highest GDP per capita of the three countries. According to details by the world bank, the GDP per capita of Nigeria as of 2020 was $2,097, that of Pakistan stood at $1,193.73 while Afghanistan was $508.80. The Gross Domestic Product per capita is an important economic indicator especially in calculating the cross-country average standard of living and economic well being. Again the paradoxical nature of Nigeria comes to play, its high GDP per capita does not translate into a stronger currency.
The unemployment rate in Afghanistan in 2020 according to World Bank data is 11% and projected to reach 13% by the end of 2021. In Pakistan, the unemployment rate is 4.45% and is projected to reach 5% by the end of 20201. Nigeria’s unemployment rate stood at 27% in 2020 and is projected to reach 32.5% by the end of 2021 with data showing a constant rise in the unemployment rate.
Inflation is one of the factors that reduces the purchasing power of a currency, even in the international market. The Asian development bank put the inflation rate of Afghanistan at 5% and Pakistan’s inflation rate is 8.6%. The inflation rate of Nigeria is double digits at 16%.
How Can Nigeria Strengthen Its Currency?
Economic analyst, Ronke Onadeko, noted that the penchant for importation needs to stop if the Naira will be strengthened. She said that for every importation we do, dollars are being spent and as such, there is a need to descale the extent of importation.
While advocating for improvement in local production, Onadeko opined that if there would be such efforts to reduce the extent of importation, it would be inadequate for the government to just decide to ban certain products. The need to carry citizens along on why policies are made should be explained and citizens should be carried along.
She also lamented the importation of Refined Petroleum by the country. Onadeko advised that refineries in the country should be left to private individuals to run in collaboration with the government. This, according to her, will enable a reduction in the extent of dependence on foreign currency to ensure oil imports.
On the dilemma of foreign exchange, she stated that there is a need to have a single exchange rate for the country’s currency. There is no reason for multiple rates being used for exchange in the country, hereby enriching some persons in the process.
The economic expert also called for the leadership of the country to understand economic indexes. In her view, the leadership of the country has failed in implementing relevant policies that can strengthen the Naira because they lack understanding of economic metrics or how to go about such.
She tasked Nigerians with electing leaders who understand the economy and who can reflect them in their decisions, policies.