According to The Punch Newspaper, Monday’s stoppage of foreign exchange sales to Bureau De Change operators by the Central Bank of Nigeria failed to lift the Naira on Tuesday as the currency (Naira) exchanged for 300 against the United States dollar in Kano, 290 in Lagos and 292 in Abuja.
Mini Importation business owners went into a freeze and complete seizure when the breaking news hit the headlines of major news publication in Nigeria about the Central Bank’s plan to stop the usage of Nigerian issued Debit (ATM) cards abroad in 2016. Many people start preaching that everyone should stop importation business and switch over to exportation business because crude oil our only source of getting foreign exchange (FX) as a nation is dwindling.
According to NairaMetrics, The Central Bank of Nigeria explain here, why it’s healthy and safe to stop the usage of debit cards issued by Nigeria bank abroad. The NairaMetrics Blog also explained here and here, what the ban of selling FX to BDC means and why CBN need to prioritized these four needs above any other in 2016.
According to The Sydney Morning Herald (Business Day), RBS has advised its clients to SELL EVERYTHING because the global stock market could fall and crude oil price may go below $16 a barrel. The Royal Bank of Scotland (RBS) credit team said markets are flashing the same stress alerts as they did before the Lehman crisis in 2008.
“Sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small,” it said in a client note.
Now you understand why Nigeria 2016 Budget (The Budget of Change) went missing from the National Assembly because our crude oil revenue assumption in the budget of change was based on $38 a barrel with a daily production capacity of 2.2 million barrels per day.
SHOULD WE ALL START EXPORTATION BUSINESS
It is no longer news that Nigeria beloved local currency – Naira – has been on a continuous descending trend since mid-June 2014 when crude oil price embark on a shattering crash which effectively end a 4-year consecutive run of $100-plus oil price.
The Central Bank of Nigeria in Nov. 2014 devalued Naira from #155/$1 to #168/$1. According to CBN, the official devaluation of Naira became inevitable as a result of reduction in government revenue from oil production and sales. The development was expected to increase the volume of naira available in the Federation Account but sadly three (3) months after, the Central Bank of Nigeria devalued Naira again from #168 /$1 to #198 /$1 in Feb. 2015 and in July, 2015 Naira was trading at #243/$1.
So you get the gist, we can’t all abandon importation business for exportation because we can’t produce everything we need internally. Even the so called developed nations are into importation business and if you need to know, the most profitable company in the world, Apple, the maker or should I say seller of iPhone, iPad and Mac, is into importation business (Don’t worry, I will explain in the next post so you get the full picture).
IMPACT OF NAIRA CRASH ON IMPORTERS (MINI OR LARGE)
A friend who is also into ecommerce business recently update her BBM status message “Dear Buyer, please be reasonable when pricing our product.” I laughed and almost roll on the floor when I saw the update but she was absolutely right. If you are into direct face-to-face sale of your imported goods, you will understand and relate to her BBM status update.
We are all – Buyers and Sellers – affected in the free fall of our currency (Naira).
The effects of Naira free fall on Importers and Customers includes:
- Reduction of purchasing power for salary earners.
- Increases cost of living
- Worsening consumer spending power
- Increase shopping costs for mini importers.
- Increase the cost of goods.
- Increase in the cost of imported products.
- Increasing in the cost of shipping imported goods
- Major international airline increase their airfares.
- Increase in interest rates to fight off inflation
- Naira became weaker against other currency.
- People with huge sum of Naira saved in bank accounts loss value
The major implication of Naira free fall on mini importers and ecommerce business owners is that it erodes customers’ purchasing power because cost of living is increasing thereby worsening consumer spending power which hurt ecommerce business sales badly.
Our customers who earns salaries have lost more than 40% of their take home because of Naira crash. A customer who earns 100k a month can only buy 55k worth of goods with his/her monthly 100k salary, so you understand why they price like they do.
HOW CAN PEOPLE INTO IMPORTATION BUSINESS SURVIVE
The best way to survive and thrive during these period is to source your products smartly, cut cost of shipping, and start targeting customers with goods they can actually afford.
The moral of this post is that starting an ecommerce or importation business is not as valuable as having relevant information about your business, market and customers.
Join The ClassRoom Now! to discover the hidden fortune in importation business.