A Masterpiece on your Personal Finance: What You Must Do With Your Naira Now

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WHAT YOU MUST DO WITH YOUR NAIRA NOW

If you live in Nigeria and therefore spend naira or you have your currency denominated in naira, then you NEED to read this, and apply it urgently.

Need I tell you that the Nigerian naira today is on a free fall. Everyday you listen to news, it is tale of further decline in the value of the naira, and surprisingly most people are not even thinking about it. Most people, even the government think it is just okay for now. Actually it is not okay.

Let me drive this a little further down. If you earn N80,000 today, and presumably that’s the same amount you were earning some five-six months ago, you are really earning less today even at that amount. N80,000 some six months ago at N165 to $1, is worth about $485. At the current unstable rate of about N200 to $1, the same money is worth $400 which means you have a shortage of $85 dollars monthly. You have a shortage of N17,000 monthly, and that means your salary today is worth N63,000, even though you earn N80,000. That’s roughly 22% of your money. Your salary is worth 22% less.

This is not a political write-up, I am not holding brief for any politician but for you my friend. My concern is your personal finance.

Why is the Naira Falling?

There are quite a number of reasons for this, and the economic team of the government actually owe us more information than they are volunteering right now. Some of the reasons for the fall in the naira value are:

-         The global fall in oil price. One would wonder that since this is global, why should Nigeria’s share of the pain be so unbearable. It is simple. Nigeria depends almost solely on oil to survive as a nation. That means also that when and if anything happens to the global oil market, Nigeria will feel it on a personal level. From a high of $110/barrel, oil price now rallies at about $50/barrel. By implication, that is less than half of what comes into the coffers of Nigeria from the international oil market, and wishing that Nigeria continues to meet her obligation like always without a pinch of the pain is foolhardy.

-         The withdrawal of foreign investment. With the wave of insecurity all over the north east region of the country, and the instability that the current political maneuvering is bringing to the polity, foreign investors are fast losing confidence in the country especially in businesses that are well represented in the northern region, and this is what translates to the declining value of the stock trading at the Nigerian Stock market. When capital goes out like that, the multiplier effect is that, unemployment will be high, and companies will struggle a lot to survive.

-         The current political imbroglio. Just like the point I was trying to make above, politicians also constitute a major challenge in various ways. First, it is the season where they need to spend money, and spend big. Although we might not have the requisite statistic, it will not be out of place to say that, money hoarded by politicians through bonds purchase, assets, fixed deposits, etc, are now being released into the economy at the same time, thereby increasing partial liquidity (partial because it is not reflecting in every sector of the economy), and that in turn means that the beneficiaries of those monies have increased spending power, attracting partial inflation. Also, the political wave has destabilized a lot of businesses especially of those who move from one region of the country to another, and that weakens the SME and subsistence business sector.

Further, the threat and counter threat that attends Nigerian politics has encouraged frugality and low business spending, which ironically is one of the ways out of this economic quagmire.

Finally on this note, economic instability is almost always a regular attendant of political change. Whenever a new government is to be constituted, what you witness, especially in Nigeria, is a change in the economic landscape of the country.

-         Non-declining demand for foreign products. Although I might not be able to say that I have valid statistics to prove that the demand for imported goods by Nigerians is rising, but I have cause to believe that it is not declining. Nigerians, being who we are, want everything foreign even toothpick. We would rather buy counterfeit or fake foreign product than buy authentic locally manufactured product, and where does that leave us? With increased demand for foreign currency, and increase value of those currencies used in foreign trade. As far as we still maintain our consuming economy status, and not a producing economy, we will always need more of hard currency to buy those imported goods. And you don’t need a Nostradamus to know that the price will go up of whatever good whose demand is high. That continually weakens our naira against the dollar.

-         The devaluation of the naira by the CBN. In trying to stem the tide of the dwindling oil prices and fight its attendant impact on the Nigerian economy, the CBN devalued the naira, making it lower than it was against the dollar. And so from a high of about N165, the naira was to exchange for about N180 or more. And you know what comes with that? Panic. People are afraid what is coming next, especially that the international crude oil market is still very volatile. You know what else follows that? Wrong signal is sent to investors and potential investors. They are not sure in which direction the central bank is going anymore, and they want to be careful with their hard-earned money. Was the CBN wrong? I think they were hasty. Devaluation, in my reasoning, is a last option after all that could possibly be done has been done. They could at least have allowed the market forces to continue playing it out while supporting vigorously the non-oil sector and encouraging the now common mantra – diversification. The CBN should have worked more on creating and supporting policies that will redirect the focus of the economy and integrate the private sector especially the manufacturing and other products –inclined industries into the economic refocusing initiatives.

How Do These Affect You?

You as well as most other people around you might want to play the safe game – save the little you have, and spend carefully.

Actually, there is no worse time to save than now. Saving right now is a very dangerous and ludicrous activity. Do not save. The wisdom is this. Naira is not through falling. The economy is not stable yet, at least not until this annoying political wind subsides. So it you save, say N100,000 now that the rate is about N200 to $1, and the free fall continues to about N220 to $1 or more, how much would you have lost? How much will become the value of your money? And how much more will you lose in the succeeding months?

What If I Denominate My Money In Dollars?

For those who have already done that, I mean those who did save their money in dollars before this sickening economic situation became this dire, it was a smart move. You might still be able to salvage some of your stuff, or reduce your loss in a way, if you save in dollars and not naira, but you see, even that is short-term, very short-term indeed.

Dollars mean more in Nigeria right now than it does in the US.

This is what I mean. The economy of the US does not have a fire-proof immunity from the global crude crisis, although unlike us in Nigeria, their economic mainstay is not mono-cultural. It is neither oil nor agriculture alone, it is multifaceted.

In trying to save in any other nations currency, we must examine and define with certainty the extent of their exposure to global economic crisis such as the crude crisis, and since we cannot always say for certain, how fire-proof they are, we cannot bank on their currency to safeguard us.

What Should You Do?

Invest in assets. In other words, save your naira in assets. I mean assets not liabilities. Except you are a car dealer, I am not talking about buying cars as an investment. Assets are things that bring money in for you. Not your television, except you operate a football viewing centre or mini cinema. Not clothes, or any other liability.

Put your naira in things that will at least appreciate in value and you can eventually convert to cash gaining whatever increase there may have been at the time on the exchange of the currency. Let me give you an example. If you are into manufacturing, and you use raw materials, it will be an investment in assets if you can get abundant raw materials (granted that they are storable), than you need for your immediate production, such that no matter the increase in the exchange rate, your purchased assets are still there, and can fetch you equivalent sum at the current exchange rate when and if you decide to sell them off.

If you have cultivated the habit of saving generally, which I encourage a lot, and to tell you, you belong in the category of only about 30% who do that, you need to start putting a face to your savings. You need to put a name tag on it, and set a target to it. Make sure that you are saving now towards something, and that thing has a time when it must be done, more advisedly to purchase assets. You cannot afford arbitrary savings anymore, you must save to invest now. It is compulsory.

Let me round this up with a story I once read about a Zimbabwean or is it a German after the world war, I can’t really remember, but this is the story anyway.

The man had gone out to buy bread for his family, and it was in the heat and height of inflation that ravaged that country, I guess the type that economists call hyper-inflation. He loaded his wheel-barrow with cash pulling strenuously towards the seller of the bread. When he arrived there, he put the wheel-barrow loaded with cash outside and went inside to meet the bread seller. Upon his coming out from the bread seller’s closet, his wheel-barrow was gone. It had been stolen. But guess what? His cash was left intact, not a dime was taken from his money. Why you may ask? Because the wheelbarrow had more value than whatever cash was loaded in it. The wheelbarrow was an asset, the cash was obviously not.

There is only as much I can say about this. A word is enough for the wise.

This is only a prelude to other articles that will follow about what you must do with your naira now. I have promised to add value to you this year, and that, I will do by the grace of God. Feel free to interact with me, share your opinions and thoughts and leave comments on this article. I will get back to you. Meanwhile watch out for WHAT TO DO WITH YOUR NAIRA NOW II.

See you.