There is the deliberate Devaluation of currencies by nations like Nigeria and China. In order to mitigate the effects of Trade tensions with the United States, China depreciated the yuan in 2019. As a result, exports to the United States decreased somewhat, but overall exports worldwide increased. China was charged by the US with manipulating its currency to gain unfair advantage. Nigeria devalued the Naira by 51% in 2023, following suit, but was unable to increase exports to the same extent because of fundamental economic issues such inadequate Infrastructure and a lack of industrial capacity.
This gives rise to the J-curve effect, in which a trade balance may initially deteriorate before improving due to devaluation; however, notable improvements were impeded by Nigeria’s feeble economy. As a counter example, consider Vietnam, which effectively attracted international Investment and developed into a Manufacturing hub through strategic growth, economic reforms, and industrial capability. In addition to broader structural reforms, Export diversification, and better business climate enhancements, there is emphasis that currency devaluation alone cannot provide a lasting answer. Unlike China and Vietnam, devaluation measures in Nigeria will not result in lasting Economic Growth unless these underlying issues are resolved.
Nigeria’s economy has to be more diversified than only oil exports.
In reaction to trade concerns with the United States, China strategically devalued the yuan in 2019. China was able to lessen the effects of US Tariffs by allowing the currency to decline by 4%. Between August and December 2019, China’s overall export increase averaged 2.62%, despite a 2% decline in exports to the United States. China’s capacity to produce goods effectively for international markets and its strong industrial base played a major role in this accomplishment. Conversely, the 51% devaluation of the Nigerian naira in June 2023 led to a meagre 1.88% increase in exports between July 2023 and June 2024.
Over-reliance on oil exports, low industrial capacity, and inadequate infrastructure all contribute to Nigeria’s lack of notable export expansion. Nigeria struggled to profit from the devaluation because it lacked China’s industrial capabilities and structural changes. Nigeria’s Economy has to be more diversified than only oil exports. By diversifying into the manufacturing, technological, and agricultural sectors, Nigeria could enhance its ability to take advantage of currency devaluation and achieve trade balance stability. Large-scale infrastructure spending, especially in the areas of energy, transportation, and technology, will lower operating costs and boost Nigeria’s competitiveness internationally.
Devaluation is inefficient without improvements in productivity.
Improving domestic production efficiency and luring foreign investment can be achieved through streamlining bureaucracy, reducing corruption, and streamlining regulatory procedures. Nigeria’s share of international commerce may increase with targeted policies to support non-oil exports, such as Tax reductions, export incentives, or subsidies. Nigeria ought to implement monetary policies that more skillfully control Inflation and fluctuations in currency rates. A more conducive climate for companies and Investors will result from currency stabilisation. Nigeria should prioritise several important reforms, including those in the energy sector, industrial and agricultural policies, Education and skill development, governance, and transparency.
China’s devaluation of its currency was a successful element of a larger, well-planned strategy that also included industrialisation, infrastructure development, and an emphasis on exports. China is a desirable market for International Trade because of its strong industrial policies and sizable manufacturing base. It also prioritised developing innovation, modernising its technological industry, and emerging as the global factory. On the other hand, Nigeria does not have the infrastructure or industrial base to fully benefit from devaluation. The efficacy of a devaluation is limited if it occurs without concurrent improvements in Productivity and structural deficiencies.
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Although Nigeria’s currency depreciation plan is in line with economic theory, ingrained structural problems have prevented it from producing the anticipated gains. Nigeria should prioritise developing an industrial foundation, enhancing infrastructure, and broadening its economy rather than depending exclusively on currency adjustments. By cutting red tape, enhancing governance, and combating inflation, the government should foster an atmosphere that is more business-friendly. Nigeria also requires a long-term plan with incentives for domestic industry, skill development, and education. Nigeria, taking a cue from China and Vietnam, ought to give top priority to reforms that boost output, draw long-term investments, and establish the country’s competitiveness in international markets.