Stocks, naira down. What worsening economy means for Nigerians

Nigeria’s economic woes intensified on Monday, with both the naira and stock markets experiencing significant setbacks.

The naira hit record lows on both official and unofficial markets, and Nigerian stocks fell the most in a day in more than a year as jittery investors scrambled to sell off assets.

The local currency sank to 1,712 naira per dollar on the official market and hovered around the same level on the black market, extending its recent decline. The naira had earlier Monday recorded a new record low in intraday trading at 1650 to the dollar on the official market.

Adding to the gloom, the Nigerian stock market, which performed exceptionally well just months ago, witnessed its biggest one-day drop since October 2022. The All-Share Index plunged 3.15%, dragged down by losses in banking, consumer goods, and industrial sectors.

Heavyweight stocks like Dangote Cement and MTN suffered maximum allowable daily declines of 10%, contributing significantly to the index’s fall to 102,395.21 points.

“Without policy moves in sight to rein in inflation, the naira will continue to devalue simply on a purchasing power basis. There are also risks that it could further deter foreign investors, given the increasingly negative real yield found in Nigerian debt securities,” Kyle Chapman, FX markets analyst at London-based Ballinger & Co. told Reuters.

What this means for Nigerians

Overall, the current economic situation paints a bleak picture for ordinary Nigerians, already struggling with the worst economic hardship in a generation. Here’s a highlight of the potential impacts:

Rising Cost of Living:

• Weakened Naira: The naira’s continued devaluation directly translates to higher import costs for essential goods like food, fuel, and medicine. This will likely lead to further price hikes, exacerbating the existing inflation and making basic necessities even more unaffordable for ordinary citizens.
• Shrinking Purchasing Power: Even if salaries remain stagnant, the purchasing power of Nigerians will decrease significantly. This can lead to reduced consumption, impacting businesses and further slowing down economic activity.

Reduced Investment and Job Opportunities:

• Deterred Foreign Investors: The negative financial outlook could deter foreign investors, leading to fewer investments and, consequently, fewer job opportunities. This is particularly concerning for young Nigerians already facing high unemployment rates.
• Uncertainty for Businesses: The volatile economic climate creates uncertainty for businesses, potentially leading to hiring freezes, pay cuts, or even closures. This can worsen unemployment and deepen the economic hardship for families.

Erosion of Savings and Financial Security:

• Falling Stock Market: For Nigerians who invested in the stock market as a hedge against inflation, the recent crash signifies a loss of wealth and potential retirement savings. This can negatively impact financial security, especially for those nearing retirement.
• Depreciating Assets: The devaluation of the naira also erodes the value of savings held in local currency. This can lead to loss of purchasing power and difficulties in covering future expenses.