Nigeria is currently grappling with one of its severest economic crises in recent years, triggered by a surge in inflation. This inflationary pressure is a consequence of monetary policies that have driven the national currency to an all-time low against the U.S. dollar. The resulting economic turmoil has sparked widespread anger and protests throughout the country.
Recent government data, released on Thursday, revealed that the inflation rate in January reached 29.9%, marking its highest level since 1996. This increase is primarily attributed to the soaring prices of food and non-alcoholic beverages. The Nigerian currency, the naira, has further depreciated, reaching 1,524 to $1 on Friday—a staggering 230% loss in value over the past year.
The depreciating currency compounds the existing economic challenges, exacerbating the erosion of incomes and savings for millions of Nigerians. This situation is particularly challenging due to previous government reforms, such as the removal of gas subsidies, which led to a threefold increase in gas prices and added strain to the populace.
Nigeria, with a population exceeding 210 million, is not only Africa's most populous nation but also boasts the continent's largest economy. However, its economic structure heavily relies on imports to meet daily necessities, making it vulnerable to external shocks like fluctuations in the foreign exchange market.
The Nigerian economy heavily depends on crude oil, its primary foreign exchange earner. The 2014 plunge in crude oil prices prompted the government to utilize its foreign reserves to stabilize the naira, but this, coupled with border closures and other measures, inadvertently led to the flourishing of a parallel foreign exchange market.
President Bola Tinubu, who assumed office in May of the previous year, aimed to address economic challenges and attract investors through bold reforms. However, the removal of long-standing gas subsidies and unifying exchange rates without adequate measures to mitigate resulting shocks contributed to the current crisis.
In an attempt to alleviate the situation, Tinubu has released food items from government reserves and proposed the establishment of a commodity board to regulate soaring prices. Nonetheless, the economic challenges persist, with stores reportedly being sealed for hoarding and unfair pricing.
As of Monday, the Nigerian naira hit an unprecedented low against the U.S. dollar on both official and parallel foreign exchange markets. President Tinubu has announced plans to raise at least $10 billion to enhance foreign exchange liquidity and stabilize the naira.
Despite these efforts, the currency has experienced a 70% decline since May 2023, further intensifying the economic downturn. The country faces record levels of government debt, high unemployment, power shortages, declining oil production, and security issues in rural areas, exacerbating its economic woes.