The Imperative For Revaluation Of The Nigerian Naira Against Major Convertible Currencies (ANALYSIS) By Tony Ishiekwene

There is no basis- economic or otherwise- whatsoever for the poor or low rate of the Naira compared to the US Dollar or British Pounds Sterling.

In International Economics the price or rate of Exchange of one currency (say the Naira) against another currency (say the British Pounds or US Dollar) is determined by the “Purchasing Power Parity (PPP).

PPP works on the principle of “One price,” for  the two  countries whose exchange rate are being compared; in otherwords, a British consumer and say a Nigerian consumer will purchase a product or services in the country where the prize is cheaper. PPP works on relative price rises, known as Inflation, which is measured by Consumer Price Index ( CPI) for a given quantity of a basket of goods and services.

For the purpose of my analysis, or this write up, I shall assume that my basket of Goods and Services consists of a gallon of Gasoline (Petrol); 1 Litre of Pineapple Juice and a single man’s haircut at the Barber’s shop. I shall also make my Naira comparison against the UK pounds Sterling, rather than the Dollar, as I am more conversant with UK prizes than the US Dollar prizes.

A litre of Petrol costs N650 (50P or half a Pound sterling) in Nigeria currently; in UK a litre of petrol currently costs about £1.60, at current exchange rate that is about N2,000, over 3 times the cost in Nigeria. Therefore, according to the One prize rule Britons should buy their Petrol in Nigeria as are Nigetians.  A litre of Pineapple Juice (Exotic etc) cost just about N1,000 or less in Nigeria, less than a British Pound at current rate of exchange; on the other hand a litre of Pineaaple juice of less concentration and quality costs £2.50 in UK- that’s over N3,500. So the Juice should be bought in Nigeria, not UK, by UK citizens as well as Nigerians.

The case of the single person haircut at the Barber’s shop is even more poignant: A haircut in outer London costs £10.00 or more. In Lagos suburbs you can have a better haircut for N500. What that means is that you can have 30 haircuts in Lagos for the prize of one haircut in London suburbs.

So by Purchasing Power Parity, British consumers, as well as Nigerians should buy all products in my basket of goods and services in Nigeria. By doing so- Purchasing in Nigeria instead of UK- the demand for Nigerian Naira will be high and that of £ Sterling would be low, therefore Naira would appreciate against the fall of the £ sterling.

I have checked over a dozen goods and services and found the prices in Nigeria much cheaper in Nigeria than in UK and US, so why is the Naira so poorly or lowly rated against these major currencies. The answer I believe is the work of unpatriotic Currency Speculators and to some extent the higher level of import compared to our export- demand for foreign currencies exceeding supply of foreign exchange.

Finally, and all things considered, the Naira should be revalued to no more than N200 to the Dollar or N275 to the Pounds Sterling. I am ready to work with top Nigerian Monetary Economists and the Central Bank of Nigeria in revaluing the Naira to s more realistic value than the unnecessary battering it has gone through in recent past.

Chief Tony Ishiekwene,  BSc; MSc; ACMA; CGMA