Nigeria is a country with a large population of young people who aspire to study abroad for various reasons, such as quality education, exposure, and career opportunities. However, many of these students face a major obstacle in their pursuit of foreign education: the scarcity of foreign exchange (forex) in Nigeria.
Forex is the currency of another country that can be used for international trade or investment. In Nigeria, the most commonly used forex is the US dollar, which is also the main currency for paying tuition fees in many foreign universities. However, due to various economic and political factors, Nigeria has been experiencing a forex crisis that has made it difficult for Nigerians to access and afford foreign currency.
In this article, we will explore some of the causes, challenges and solutions of the forex scarcity in Nigeria, and how it affects Nigerian students who want to study abroad.
Causes of forex scarcity in Nigeria
One of the main causes of forex scarcity in Nigeria is the country’s heavy dependence on oil exports as its main source of foreign exchange earnings. According to a report by the International Monetary Fund (IMF), Nigeria’s economy has remained highly dependent on oil with limited diversification1. In 2020, the total number of export products from Nigeria was 205, compared with an average of 258 for Sub Saharan Africa.
This means that Nigeria’s forex supply is largely determined by the fluctuations in the global oil market, which is affected by factors such as demand and supply, geopolitics, and environmental issues. When oil prices are high, Nigeria earns more forex from its oil sales and can build up its foreign exchange reserves. However, when oil prices are low, Nigeria earns less forex and faces a shortage of foreign currency.
This was the case in 2020, when the COVID-19 pandemic caused a sharp decline in global oil demand and prices, leading to a significant drop in Nigeria’s forex earnings. According to FXC Intelligence, a data and intelligence provider for the cross-border payments industry, Nigeria’s oil export revenue fell by 42% from $54.5 billion in 2019 to $31.4 billion in 20202.
Another cause of forex scarcity in Nigeria is the inconsistent monetary policies and regulations by the Central Bank of Nigeria (CBN), which is the apex bank and regulator of the forex market in Nigeria. The CBN has the mandate to maintain the stability of the exchange rate and ensure adequate supply of forex to meet the legitimate needs of Nigerians.
However, over the years, the CBN has adopted various exchange rate regimes and interventions that have often been criticized as ineffective, inefficient or unsustainable. For instance, in 2016, the CBN introduced a flexible exchange rate system that allowed market forces to determine the value of the naira against other currencies. However, this system also created multiple exchange rates for different segments of the market, such as the official rate, the interbank rate, the investors and exporters (I&E) window rate, and the parallel or black market rate.
The existence of multiple exchange rates has created confusion, arbitrage and speculation in the forex market, as well as widened the gap between the official and parallel rates. For example, as of July 6th 2021, according to AbokiFX.com, a website that tracks forex rates in Nigeria, the official CBN rate was N410.16 per dollar, while the parallel market rate was N504 per dollar. This means that Nigerians who want to buy dollars from the parallel market have to pay almost 23% more than those who can access it from the official sources.
Another intervention by the CBN that has contributed to forex scarcity is the ban on certain items from accessing forex from the official sources. In 2015, the CBN released a list of 41 items that were ineligible for forex allocation from its sources, such as rice, cement, textiles, toothpicks and cosmetics. The list was later expanded to include 43 items in 2018. The rationale behind this policy was to reduce forex demand pressure and encourage local production of these items.
However, critics have argued that this policy has not achieved its intended objectives, but rather increased smuggling, inflation and corruption in the country. Moreover, some of these items are essential inputs for local manufacturers who need forex to import them and produce their goods. By restricting their access to forex from official sources, the CBN has forced them to resort to alternative sources such as the parallel market or peer-to-peer (P2P) platforms that offer higher rates.
Challenges of forex scarcity for Nigerian students
The forex scarcity in Nigeria has posed several challenges for Nigerian students who want to study abroad or are already enrolled in foreign universities. Some of these challenges are:
• Difficulty in accessing forex from official sources: The CBN has allocated a certain amount of forex for education-related purposes, such as tuition fees, books and living expenses. However, due to the limited supply of forex, many Nigerian students are unable to access this forex from the official sources, such as banks and bureaux de change. According to a report by TGM Education, a leading education consultancy firm in Nigeria, many Nigerian students have faced difficulties in processing Form A, which is the document required by the CBN to access forex for tuition payments. Some of the reasons for this include long queues, delays, bureaucracy and insufficient documentation.
• High cost of forex from alternative sources: As a result of the difficulty in accessing forex from official sources, many Nigerian students have turned to alternative sources such as the parallel market or P2P platforms to obtain forex for their education needs. However, these sources offer higher rates than the official sources, which means that Nigerian students have to pay more naira for the same amount of dollars. This increases the financial burden on the students and their families, especially in the face of rising inflation and economic hardship in Nigeria.
• Risk of losing admission or dropping out: The forex scarcity in Nigeria also poses a risk of losing admission or dropping out for Nigerian students who want to study abroad or are already enrolled in foreign universities. This is because many foreign universities have deadlines for tuition payments and may withdraw admission offers or expel students who fail to meet them. Moreover, some foreign universities may not accept payments from alternative sources such as P2P platforms due to regulatory or security reasons. Therefore, Nigerian students who cannot access or afford forex may lose their chances of studying abroad or completing their education.
Solutions to forex scarcity in Nigeria
The forex scarcity in Nigeria is a complex and multifaceted problem that requires holistic and long-term solutions. Some of the possible solutions are:
• Diversifying the economy and boosting non-oil exports: One of the key solutions to forex scarcity in Nigeria is to diversify the economy and boost non-oil exports that can generate more forex earnings for the country. This would reduce Nigeria’s dependence on oil and make it more resilient to external shocks such as oil price volatility. Some of the potential sectors that can enhance Nigeria’s non-oil exports include agriculture, manufacturing, services, mining and tourism.
• Harmonizing the exchange rate regimes and improving transparency: Another solution to forex scarcity in Nigeria is to harmonize the exchange rate regimes and improve transparency in the forex market. This would eliminate the multiple exchange rates and create a unified and market-driven exchange rate that reflects the true value of the naira. This would also reduce confusion, arbitrage and speculation in the forex market and narrow the gap between the official and parallel rates. Moreover, improving transparency in the forex market would enhance confidence and trust among stakeholders and ensure accountability and efficiency in forex allocation and management.
• Supporting local production and import substitution: A further solution to forex scarcity in Nigeria is to support local production and import substitution of goods and services that can meet the domestic demand and reduce forex outflows. This would involve providing incentives and infrastructure for local manufacturers and entrepreneurs who can produce quality and competitive products that can substitute imports or even export to other markets. This would also involve promoting a culture of patronizing locally made goods and services among Nigerians and creating awareness of their benefits.
Forex scarcity is a serious challenge that affects many Nigerians who want to study abroad or are already enrolled in foreign universities. It is caused by various factors such as Nigeria’s dependence on oil exports, inconsistent monetary policies and regulations, and high demand for foreign currency. It poses several challenges for Nigerian students such as difficulty in accessing forex from official sources, high cost of forex from alternative sources, and risk of losing admission or dropping out.
However, there are possible solutions to this problem that require collective efforts from the government, the private sector, civil society and individuals. These include diversifying the economy and boosting non-oil exports, harmonizing the exchange rate regimes and improving transparency, and supporting local production and import substitution.
By addressing these solutions, Nigeria can overcome its forex scarcity challenge and create a conducive environment for its citizens to pursue their educational dreams abroad.