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Discover the truth behind Nigeria's economic woes and learn how Nigerians safeguard their wealth amidst inflation.
How do we begin to address the pressing issues in our country right now?
Many issues need to be discussed, and all of them require fixing before we spiral further downwards.
Should we start with the pervasive insecurity issues we face daily, where people are getting kidnapped and killed in some parts of the country?
Or perhaps address the illegal mining of our resources, oil theft, the relentless increase in prices of goods and services, and the continuous devaluation of our currency?
Every year, numerous students graduate, only to find insufficient job opportunities, forcing them into menial roles such as working as POS merchants, and tricycle drivers, and some even resorting to scams.
Considering that over 70% of Nigeria's population are youths, with a significant portion currently unemployed, there is a dire need for action.
i. Why is the Naira losing value daily?
ii. Why are there increments in the prices of goods and services?
iii. Who is most affected by these challenges?
iv. How can you safeguard your wealth?
As of January 2023, the monetary supply of Naira (M3) stood at N51.1 trillion, which soared to N79.2 trillion by December. This indicates that within 12 months, the Central Bank of Nigeria (CBN) printed over N28.1 trillion worth of new notes, approximately N2.3 trillion monthly on average.
Renowned Nigerian Financial Analyst, Kalu Aja, suggests that a substantial portion of this money, around N23 trillion, was allegedly allocated to the previous administration and no record was given on how the money was spent.
Recent news has highlighted the Nigerian government's scrutiny of Binance, accusing the platform of contributing to the Naira's devaluation through its peer-to-peer platform. While traders on the platform may inflate the exchange rate for personal profit, it's inaccurate to attribute the currency's devaluation solely to Binance, as it has been occurring before the platform's emergence.
The primary reason for the Naira's devaluation is the relentless printing of the Naira by the CBN and its distribution to the government for expenditure. With the circulating supply of Naira at N93.7 trillion, it's evident that the printing continues unabated, further making inflation unbearable, and diminishing the currency's value.
The rampant printing of Naira by the CBN, averaging N7.7 billion daily, has led to inflation, affecting every facet of life in Nigeria. This surplus of Naira in circulation has eroded trust in the currency and resulted in daily price hikes for goods and services.
For instance, sometime last month, I purchased evaporated milk for my coffee for N150, only to discover the next day that the price had surged to N250. Such fluctuations lay more emphasis on the economic instability in Nigeria.
Nigeria's inflation rate is currently at a staggering 31.7%, and it's the vulnerable segments of society that bear the brunt of this financial turmoil.
According to Kalu Aja “If an item cost N100 in 1960, it would cost N673,867.49 in 2023. That’s a 99.9995% decrease in value in 63 years. If an item cost N100 in 2015 it would cost N288 at the beginning of 2023. That’s a 70.83% decrease in value in 8 years”
Let's compare the price of a staple food item, like spaghetti, over the years to understand how the value of Naira has depreciated.
In 2015, a unit of Honeywell Spaghetti could be bought for as low as N150. Fast forward to 2024, and that same unit now costs N1000. This significant price increase illustrates how the value of the Naira has depreciated by approximately 566.67% in less than a decade. Essentially, what you could buy for N150 in 2015 now costs N1000, showcasing the weakening purchasing power of Naira.
The price of this bread has skyrocketed from N550 to N1,500 in just three years. This steep increase shows how much our money has lost its value. Back in 2021, when the exchange rate was N430/$, things were much cheaper compared to now, with the exchange rate at N1,396/$ at the time of writing, which is a 209% depreciation of Naira in less than three years.
Data from the National Bureau of Statistics reveals that in January, the annual food inflation rate was 35.41%, marking an increase of 11.9% compared to January 2023, when it stood at 24.32%. In February, the rate surged to 37.92% year-on-year, indicating a 13.57% point increase compared to February 2023 (24.35%).
The increment of goods and services is caused by the excess printing of Naira notes to debase the value of the existing fiat. In essence, the devaluation of the currency leads to inflationary pressures, forcing businesses to adjust their pricing strategies to remain economically viable.
Inflation unevenly affects low-income households, as they allocate more of their earnings to essential expenses such as food, transport, and rent, leaving little room for savings.
Amidst the soaring prices across all expenditures with no indication of a downturn, they find themselves living with stagnant salaries for years. This stagnation highlights disparities, as evidenced by the massive surge in food prices, which further strains their financial burdens.
Tosin Adeleke, a food vendor and a mother of three, portray the struggles faced by many Nigerians. Despite living with a stagnant income and high costs of living, Tosin finds it increasingly challenging to provide the basic needs for her children. She's dismayed by the soaring prices of foods like rice, yet remains hopeful for a brighter future, even though she feels powerless amidst the current circumstances. Tosin's plight mirrors that of countless families across Nigeria, who are forced to make do with less as they contend with rising inflation rates.
Additionally, civil servants are not immune to these challenges. A source within the Anambra State Judiciary, who prefers to remain anonymous, lamented how their stagnant salary fails to keep pace with inflation, resulting in dwindling purchasing power and diminished savings.
The people who are most affected by inflation are the people who are in the low-income bracket, they earn little money monthly only to spend more on expenses.
The declining value of the naira, coupled with soaring living expenses and inflation, has significantly diminished the purchasing power of most Nigerians. Consequently, many individuals have become hesitant to engage in investment activities, feeling discouraged by the challenging economic conditions.
There are different ways you can safeguard your wealth amidst the rising inflation which is not slowing down, these investment vehicles will help you hedge against inflation.
With various options available, investors must carefully consider avenues such as commercial papers, Nigerian Treasury Bills (NT-Bills), FGN Saving Bonds, money market mutual funds, equities, Forex trading, P2P lending, fixed deposit accounts, and exchange-traded funds (ETFs). Each option presents distinct advantages and risks, offering the potential for quick gains within a relatively brief period.
According to Coinglass since 2011, Bitcoin has shown extraordinary growth, surpassing traditional asset classes by a significant margin. Its cumulative growth has exceeded 20,000,000%, far outstripping the cumulative growth of 541% for the Nasdaq 100 Index and 282% for major US stock indices.
When you look at annualized returns, Bitcoin's rate of return stands at an impressive 230%, surpassing other asset classes by a wide margin. The Nasdaq 100 Index, the second-best performing asset class, pales in comparison with an annualized return of 23%.
Over the same period, large US stocks delivered an annualized return of 14%, high-yield bonds saw growth of 5.4%, and gold had a return rate of 1.5%. However, it's essential to note that while Bitcoin has shown remarkable growth, it also comes with higher volatility and risks compared to traditional assets.
The average value for the Nigeria Stock Exchange during 1999-2021 was 12.97 per cent with a minimum of -54.94 per cent in 2009 and a maximum of 72 per cent in 2007. The latest value from 2021 is 47.63 per cent.
I'll tell you for a fact that Bitcoin is the best investment vehicle to hedge against inflation, buying Bitcoin can be considered a potential hedge against inflation for several reasons:
1. Limited Supply: Bitcoin has a fixed supply cap of 21 million coins, which means its supply is limited. Unlike the Naira, which can be printed endlessly by CBN, this scarcity makes Bitcoin resistant to inflationary pressures.
2. Store of Value: Many investors view Bitcoin as a store of value similar to gold because of its finite supply. Its finite supply and increasing adoption as a digital asset makes it an attractive option for preserving wealth in times of inflation.
3. Global Accessibility: Bitcoin can be accessed and traded globally 24/7, providing investors with a hedge against inflation regardless of their geographic location or the state of their local economy. 1 Bitcoin in Nigeria is also 1 Bitcoin anywhere in the world, there's no disparity in its value. You can also buy small bits of Bitcoin, you mustn't wait till you have money to buy one Bitcoin, you can DCA into Bitcoin by buying small junk of it in intervals.
4. Historical Performance: Historically, Bitcoin has exhibited strong price appreciation during periods of inflation or economic uncertainty. This track record has led investors to view it as a reliable hedge against inflation.
5. Technological Advancements: Bitcoin's underlying technology, blockchain, offers transparency, security, and immutability. These technological advancements contribute to Bitcoin's attractiveness as a hedge against inflation in the digital age.
Nigeria is facing a multitude of pressing issues, from economic instability and currency devaluation to pervasive insecurity and unemployment, disproportionately affecting its population, particularly the youth and low-income earners. The relentless printing of Naira by the Central Bank, coupled with unchecked government spending, has fueled inflation, leading to daily increments in the prices of goods and services. Despite these challenges, there are avenues for safeguarding wealth, such as saving in Bitcoin for the long term. Ultimately, addressing Nigeria's complex challenges requires a concerted effort from both government and citizens to implement sustainable solutions that foster economic stability, job creation, and social welfare.
