Recession erases N5, N10 values in market

• Incomes stagnant amid rising unemployment
• Experts proffer drop in cost of goods as leeway

Some of the nation’s currencies may soon be out of circulation if economic managers fail in their efforts to tame rising inflation, as increasing price of goods occasioned by higher production costs have taken its toll on the value of some legal tenders.

Already, an investigation across several markets has shown that besides peasant farmers in the rural area who give away their produce at lesser prices, it is difficult to get any item that can be bought at N5, while only few are bought at a few pieces for N20.

The development is now calling to question the rationale for continued printing of the denominations, which is currently assessed as excess in circulation, when there is none or few items available that they can buy, as well as the need for commodity price control and management.

Government’s inability to address these concerns portends danger for consumers as the cost of living continues to rise amidst high inflation, even when salaries remain stagnant with many Nigerians already jobless due to a prolonged recession that has left many operators in the real and services sectors in a limbo.

Like the antecedents— N1 and N2, the low denominations now like N5, N10 and N20 notes are gradually losing their value, as consumers can no longer tender them for an exchange in the market. Indeed, Nigeria has been saddled with a financial crisis in the last one year following the drop in oil prices, monetary policy reforms and uncertainty, which decimated foreign exchange inflows and further plunged the nation into recession.

Executive Director, Union Capital Markets Limited, EgieAkpata, said that from the point of cost, the development portends waste of resources to print denominations that can hardly buy anything in the economy.

“For example, the four polymer notes- N5, N10, N20 and N50 are in the same line of cost in printing. And to discourage counterfeiting, the intrinsic value of a note must be higher than its face value. This means that it costs more to print N5 and N10 than N20 and N50.

“In this situation, the best is to look at other alternatives, if the denominations must be printed. But I see no rationale again, except for legal tender reasons, to print a note that cannot buy item,” he said.

Expressing worry about the trend, the Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf said the relevance of a currency depends on what it can buy.

According to him, if nothing tangible can be bought with the currency, it becomes useless, as the value currencies command depends on the value of goods and services.

Yusuf explained that the real income of the average Nigerian has dropped while many are presently jobless.“Currency drop is a function of inflationary trend in the system.

Inflation has rendered some of the currencies useless. The value a currency commands depends on what it can buy in the system. Some of the currencies may just go the way the coins have gone.

“The only way out is to reduce the cost of goods and services as they have gone up significantly. I don’t know how feasible that is under the current dispensation. Unfortunately, the real income of a lot of people has continued to drop and that is if they even have an income”, he added.

For the Manufacturers Association of Nigeria (MAN), there seems to be no leeway at the moment as inflation is a reflection of the operating environment.

The association President, Dr. Frank Jacobs lamented that many operators in the real sector have had to contend with the rising cost of operations through energy costs, especially the pricing of gas, which is in dollars, as well as dollarisation of raw materials.

The Sub-Saharan Africa Economist at RenCap, Yvonne Mhango, said there is need for policy adjustment to realign the economy, given the foreign exchange crisis, spiraling inflation and subsisting interest rate.

According to her, the economy may grow by less than one per cent in anticipation that the capital expenditure plans will pick up, but warned that higher fuel prices imply a return to subsidy issues, with attendant upside risk to the budget deficit and continued challenge on standard of living.

“Making the interbank foreign exchange market work is key for the Central Bank. Improved liquidity, a smaller premium between the parallel and interbank rate, price discovery, and transparency would signal success.

“Over 50 per cent of foreign exchange transactions take place in the parallel market, by one estimate. This implies that inflation is already reflecting a large part of the 90 per cent depreciation of the naira on the parallel market in 2016.

“Households are adjusting their spending patterns, by buying fewer imported items. We think plans to further adjust forex policy imply rate hikes are likely. However, they will probably be moderate. Fifty-to-sixty percent of Nigeria’s economy is directly impacted by oil. This explains the depth of the downturn in the economy,” she said.