Nigeria is the world's 15th largest economy and one of the globe's largest oil exporters. Yet, about 70 percent of the people live in poverty. Nigeria's massive external debt, lack of transparency and corruption have stymied the growth of what could be Africa's industrial powerhouse. Foreign exchange is therefore enormously important to an economy in the midst of critical reforms to revamp the country's export economy and industrial sector.
Approximately 95 percent of Nigerian foreign exchange is derived from oil. In fact, most of Nigeria's economic growth is powered by petroleum exports. Unfortunately, the people of Nigeria have not benefited from this. Nigeria's owes the rest of the world about $37 billion and her Central Bank's reserves are falling at a rate that has worried the International Monetary Fund and related institutions. This means that the Nigerian currency, the Naria, is falling in value. In the summer of 2011, the Naria was trading at over 150 to the dollar.
The current governor of the Nigerian Central Bank, Sansui L. Sansui, places banking and foreign exchange at the heart of real economic growth. His view is that financial reform should precede all other reforms, since foreign exchange earnings are so central to Nigeria's economic position. The rapid drop in bank reserves in recent months mean that there are less funds available for local investment. The state, says Sansui, should target investment in specific areas such as infrastructure. He admits corruption is a serious problem. Nigeria's withdrawal from the IMF's reform program in 2007 destroyed the country's reputation in world markets, giving the impression that her corruption was so endemic as to be beyond reform.
Foreign exchange is central to Nigerian economic growth because without a regular influx of cash from outside, banks have less to lend and the state has less to use. An export-oriented economy like Nigeria is sensitive to foreign exchange issues because a drop in her currency value makes the Naria cheaper abroad, boosting exports while harming its value. To have substantial exchange reserves means that Nigerian exporters can use this money as a "cushion" in case of a drop in exports or recession in the economy as a whole. Nigeria's utter dependence on oil means that the nation's entire economic life depends on global oil prices. Nigeria's reputation for corruption, however, has led prospective buyers to look to Russia, Indonesia or Venezuela for their fuel needs.
Doing business in Nigeria usually involves the petroleum sector. As of 2011, the country's infrastructure is rotting, while much of the oil spills onto the ground before it reaches her southern ports. Substantial foreign aid and investment have not reversed this trend. This only makes matters worse in that Nigeria's exchange reserves are far lower than they could be, even under present conditions. Foreign reserves are essential for Nigeria because these are the funds banks draw from to finance investment, reform infrastructure maintenance and create local demand. As this financial cushion falls, less money is available for even basic infrastructural development.
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