The Central Bank of Nigeria (CBN) has been instructed to float the Naira against international currencies. Since the announcement, the Naira has depreciated to ₦664/$ from ₦465.50/$, which was the official rate at the beginning of this week, June 12.
This decision, aimed at promoting a more flexible exchange rate regime, is expected to have a lasting impact on various sectors of the economy.
However, it also brings uncertainties regarding its effects on workers. Here are some potential opportunities and drawbacks that this new development can have on remote workers and companies that engage with foreign employees.
How can this affect remote workers?
Floating the Naira could have significant impacts on Nigerian remote workers earning in foreign currencies. However, the noticeable impact would only be seen in the long run, when market forces start influencing the value of the Naira.
A favourable exchange rate provides better earning opportunities, allowing these workers to get higher value for their earnings when converted to Naira. But, come to think of it, this has always been the case, even when the Naira was fixed.
Here's why. The exchange rate in the black market, where these currencies can easily be accessed, fluctuated and was often higher than the fixed rate. This means that workers would be particularly impacted if the Naira starts to appreciate, reducing the value of their salaries when converted to Naira.
I'll leave you to decide whether that's a drawback or something that could create an appeal for learning in the local currency.
Impact on Nigerian companies with employees outside the country
Nigerian organisations with employees based in other countries often face higher costs when paying salaries in foreign currencies. They have to pay more in Naira to meet their salary obligations, based on unofficial market rates. Floating the Naira could potentially reduce their operational costs and provide additional channels for these payments, but we can all agree that this is contingent on how much the market forces appreciate the Naira.
How can this affect the standard of living of salary earners?
Between 2015 and now, the Naira has depreciated massively against many international currencies. Based on the rate, against the dollar, it depreciated by 136%. And if we want to consider the unofficial rate, it's up to 285%.
At the initial stage, a floating Naira may negatively impact the spending power of Nigerian workers, until market forces begin to regulate its value. Currently, the Naira's exchange rate stands at ₦664 per dollar in the official market, compared to ₦465/$1 when it was fixed.
However, it's important to note that the unofficial market had the dollar trading at 757/$1 at the beginning of the week. In this context, the real value of wages and salaries may increase if these currencies become more accessible outside the black market, potentially improving the standard of living for workers.
Will Nigerian companies still outsource jobs to foreign workers?
For Nigerian companies outsourcing services to foreign companies and paying in foreign currencies, a freely floating Naira could decrease operational costs if the Naira appreciates. But then, if these companies were not previously discouraged and forced to reconsider domestic hiring due to dealing with black market rates, a floated Naira may not make any significant difference. On the other hand, a more flexible economy could attract foreign investments and create more job opportunities in the country.