The emergence of the COVID-19 pandemic has been disastrous for all economies around the world including Nigeria. The downturn in the Nigerian economy precedes the epidemic, however, as GDP per head has been on the descent since 2015. Presently, everything is now very expensive. Inflation is as high as 18%, while food is at 23%. This represents the highest in twenty years.

Oil contributes two-thirds of the earnings of the Nigerian government. In foreign exchange, it is 90%. Production of crude oil in the first quarter of 2021 ascended to 1.72 million barrels daily; 2021 has seen the price of oil increase further, yet the economy has worsened.

This has generated many questions. For instance, if oil prices are high, why is the Nigerian economy worsening and on a steady decline? This can be attributed to a number of reasons.

These include high demand, low supply, high debt, unsustainable borrowings, forthcoming elections, insecurity, a decrease in foreign investment inflows, and capital flight increase.

Firstly, the demand for foreign exchange is much higher than the supply. Nigeria’s dependence on imports is unsustainable. The outflow of dollars from the Nigerian economy has hurt the foreign exchange market. For example, the recent shortage of passports is linked to the inability of passport producers to get dollars from the CBN. Hence, the dearth of dollars has affected manufacturers that need foreign currency for their operations.


On the supply side, Nigeria is having problems selling its oil due to the COVD-19 situation in India, the country’s biggest partner, the slow recovery of European economies, and stiff competition from other producers. Although oil prices are high, figures show that Nigeria’s export is low. This is seen in the NNPC’s official sale rate for May 2021. It indicates that NNPC lowered its principal export streams (Brass River, Erha, Qua Iboe, Bonny Light) by almost 62 cents per barrel in April 2021.

In 2020, India was responsible for 17% of Nigeria’s petroleum exports. The epidemic will see those heights hard to reach again. Spain, which is the country’s second highest buyer, is still in the fight to push up its economy to the levels before the pandemic. Reports show that only a single ‘Escravos Suezmax’ cargo departed Nigeria for Spain, unlike the 9.2MMbbls that departed in January.

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One can also clearly see why Nigeria is struggling. In terms of competition, Nigeria has struggled with the United States, Spain, and other countries that produce oil. Due to China’s usual method of amassing stock from inventory, sellers, including Nigeria, are struggling for buyers.


With the elections approaching in 18 months’ time, politics has added to the strain on the liquidity crisis. Trends reveal that elections in Nigeria always impact on the forex market negatively. Before the elections of 2019, foreign investors withdrew, as they expected massive chaos during the elections. These withdrawals impacted negatively on the value of the naira; about 729 billion naira was reported to have been lost by investors during that time frame.


Popular news platform, The Guardian, reports that the Naira has been under extreme pressure due to the CBN use of the investors’ and exporters’ (I&E) window as the default official exchange rate. In Lagos and other prominent cities, local currency exceeded a six-month moving average (MA) at the unofficial market, trading as high as N503/$. As of the 7th of June at I&E, the dollar went for N421/$ before proceeding to move closer to N411.15/$.


A couple of weeks ago, the dollar traded at N410/$ before the introduction of the latest exchange rate was introduced. As at last year, the budget deficit stood at N6.6 trillion. Currently, debt stands at N33.1 trillion for the first quarter of the year. These numbers comprise the debt of every state and the Federal Government. Towards the end of 2020, where debt was estimated at 32.9 trillion, the numbers increased by 0.58 percent. Although the increase for last year is minimal, the calculation might have been done using the discounted N380/$ exchange rate model.

The budget implementation report published by the Ministry of Finance, Budget, and National Planning for 2020 indicates that last year, there was a significant budget deficit of N6.6 trillion, which represents 14.17 percent of the GDP of 2020; while N1.85 trillion represents the number for the last quarter of 2020. The budget deficit of N4.6 trillion estimated for that period was surpassed by N2 trillion. Budget deficit of 2020 also surpassed the N4.18 trillion deficit in 2019.

Domestic lending of N2.06 trillion played its part in financing the deficit. Furthermore, The Guardian states that CBN’s reserves have been on the decline for the past year, even with oil prices rising in the global market. There was a decline to 34.1 billion dollars in total reserves. On the other hand, liquid assets were at $33.9 billion. These numbers indicate the lowest it has been since the 6th of May 2020, when gross foreign reserves stood at 34.08 billion dollars. The decline of the reserves indicates great limitations of the CBN in ensuring that the naira remains competitive and stable to the dollar and similar marketable currencies.


Furthermore, the erstwhile CBN deputy director, Stan Ukeje, stated that the forex crisis was worsened because a majority of Nigeria’s products are not in demand by foreigners.

He reiterated that “the composition of Nigeria’s Gross Domestic Product (GDP) in 2019 was agricultural output, such as yam, cassava, millet, onions, ginger, livestock, and fish (21.91 percent); industrial output, such as manufacturing, processing, or transforming goods (27.38 percent); and services output, such as retail trade, financial services, public service, hotel and tourism, and ICT (49.37 percent).

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“At the border, it is the case that not much of the output of these sectors are demanded by non-Nigerian residents, while Nigerian residents demand several foods (wheat, meat, spices and fruits), industrial goods (motor vehicles, airplanes, computers, books, weapons, furniture and machinery) and service (travel and holidays, education, medical, software and finance) products from foreign residents. The terms of trade are not in Nigeria’s favour.”

To tackle this, the House of Representatives recently demanded the CBN to create policies to discourage further decline of the naira to the dollar and other international currencies. The Committee on Banking and Currency was also instructed by the House to ensure cooperation and communicate with the lawmakers in a fortnight, for possible additional legislative action.

Disturbingly, the Naira has reduced by 8 percent to N410.25/$1 due to the CBN approval of the Nigerian autonomous foreign exchange (NAFEX) rate, although this is an indication that the Central Bank of Nigeria is striving to be on the same page with the “market-determined” rate. There is still the plan for a loan from the World Bank. Borrowings or crude sales would help with the forex liquidity which Nigeria is in dire need of.

The Senate received a letter from President Buhari that the country intends to raise $6.183 billion through different methods, as it sought for acceptance for the debt raise. Also, Reuters reports that the Nigerian government intends to supply at least $3 billion worth of Eurobonds at the international capital markets. It is obvious that the forex market requires liquidity.

Notwithstanding, significant potential exists in non-oil ventures. In recent times, this sector has made great strides with a yearly increase of 1.7 percent since the fourth quarter of 2019. However, the export sector in the country has not offered great encouragement as it has been stagnant in recent times.

Growing the non-oil sector will create massive employment whilst improving the standard of living and production of goods and services that are export-worthy.