Cameroon-Nigeria trade relations:

Cameroon’s economy threatened as Nigeria devalues the Naira

The ripple effects of the landmark decision by Nigeria to devalue her currency will be a hot-and-cold situation for Cameroon especially because Nigeria is Cameroon’s n° 1 trading partner in Africa

By Tanyi Kenneth Musa in Yaounde

MohammaduBuhari

Nigerians in Douala and elsewhere in Cameroon have been quick to re-echo the famous French language saying, “Les choses qui arrivent aux autrescommencent déjà à nous arriver.” This followed the announcement made by the Nigerian government recently that Monday, 20 June 2016 marked the introduction of a system that would lead to the devaluation of the Nigerian currency, the Naira. Thus 1 Naira that used to be worth 2.5 FCFA will henceforth cost 1.5 FCFA.

                According to financial experts, this is good news for Cameroonian economic operators in particular and Cameroon’s economy as a whole. This is especially so as Nigeria is one of Cameroon’s leading economic partners in the globe.

                These experts hold that Nigerian products will be more affordable here, for Cameroonian businessmen will buy goods in Nigeria at a low cost to sell in Cameroon. Says KamgaPaulin, a wholesaler in the Mbopi market in Douala:

                “Goods coming from Nigeria will be less expensive in our markets for the cost price will equally drop in the Nigerian market, on account of the fall of the value of the Naira.” Kamga further advised his Cameroonian colleagues to take advantage of the situation and increase their export to Nigeria.

                For his part, NgoupayouNdjoya, another Douala-based businessman, who deals in grocery products, does not see a very bright future for Cameroonian products in Nigerian markets. He explains: “Our products will be expensive in Nigeria, and this will make them less competitive in the Nigerian market. This will not be good for our economy; it is very likely to reduce the volume of our goods that they import. For some products that they are used to buying here, they would preferably buy them locally in order to reduce cost.”

Trade links

                It therefore goes without saying that the eventual devaluation of the Nigerian currency will greatly impact Cameroon, given the trade relations that the two countries share. Statistics show that in recent years, Nigeria, the economic giant of Africa, is Cameroon’s second biggest supplier and the country’s 14th client.

                In 2013, for instance, the volume of export from Nigeria to Cameroon was estimated at over 452 billion FCFA while the totality of export from Cameroon to Nigeria came up to 39 531 billion FCFA. During this period, in the meantime, the balance of trade between the two countries remained at a deficit for Cameroon. Similarly, the balance of payments with Nigeria was at a deficit, as it came up to 570 billion FCFA as against 414 billion FCFA.

                It is therefore clear, in the view of Cameroonian financial experts that the devaluation of the Naira will only help to further worsen Cameroon’s balance of trade deficit vis-avis Nigeria. Conversely, it will offer the latter country an opportunity to boost her economy in no small measure.

Why the devaluation?

                The decision of the Nigerian government to devalue the Naira came as a result of abundant pressure from the international monetary market. It is the result of the fall of the price of petrol in the world market, which accounts for about 70% of the state revenue and 90% of Nigeria’s foreign currency reserves.

                It should be recalled that Nigerian authorities had over the past years opposed such devaluation, saying it would be harmful to the Naira. For President MohammaduBuhari, the devaluation would simply kill the country’s currency.

                A currency is devalued when the monetary authorities decide to lower its exchange rate in relation to a currency of reference (such as the US dollar), or a number of currencies. According to experts, devaluation aims to boost economic competition by reestablishing a balance, through a correction of apparent imbalance (trade deficit). Therefore a country devalues its currency in order to re-launch its economy. This measure thus enables a country to become more competitive at the level of export.