Exchange Rate Makes for Friendly Skies : Nigerian Money Called Overvalued

Economists estimate that of the roughly $10 billion a year Nigeria earns from the sale of its oil, about $500 million is spent by Nigerians on travel abroad. The figure represents about 5% of Nigeria’s foreign exchange income and, analysts say, is disturbingly high, given the country’s precarious economic condition.

The primary reason for this, economists say, is the overvaluation of the Nigerian currency.

The Nigerian currency, the naira, is currently trading on the black market at four or five times its official value, which is roughly equal to the U.S. dollar.

Cheap Fares

Nigerian citizens or foreigners residing in Nigeria can buy air tickets in naira. This means that if the purchaser has dollars he can buy naira at the black market rate and pay for his ticket in black market naira at what amounts to an 80% discount. Figuring on a 4-to-1 black market exchange rate, the round-trip economy fare between Lagos and New Delhi is about $295; Lagos-New York, $280; Lagos-London, $238.

The six international air carriers--excluding the national airline, Nigeria Airways--are running in and out of Lagos filled to capacity. Passenger loads increased 35% in 1985, and the demand continues unabated.

Since the airlines are reimbursed in dollars or other convertible currency at the official rate, they are not losing money on the arrangement. In fact, for some airlines, such as British Caledonian, the London-Lagos route is a sort of cash cow. British Caledonian offers 10 jumbo-jet flights a week between London and Lagos.

The loser in this arrangement is the Nigerian government, which subsidizes international travel by maintaining an unrealistic exchange rate for its currency.

Friendly governments, including those of the United States and Britain, and a number of international lending agencies have urged the Nigerians to devalue the currency. But the Nigerians have resisted steadfastly, partly because of what some of them call “our national manhood” and partly, economists say, because it would threaten privileged Nigerian bureaucrats and businessmen who profit from the current arrangement.

Now, as the Nigerian economic slide gathers force, leaders have another reason to resist devaluation. As unpaid bills pile up in the central bank in Lagos, the country’s credit lines have been cut off and exporters are no longer shipping goods to Nigeria. With imports having virtually dried up, the contraband brought back to Lagos by petty traders going abroad at least relieves some of the pressure for imported consumer goods.

But the cost to Nigerian society in general is enormous, according to most economic analysts.

The traders who fly to Singapore to bring back suitcases full of baby clothing or wristwatches virtually never have to pay customs duties; they bribe their way through the Lagos airport. The goods they purchase overseas can be sold in Nigeria for five to 10 times their cost.

In addition, the arrangement in effect subsidizes the operations of drug smugglers, whose operations have been expanding steadily in recent years, according to international law enforcement authorities.

“The government’s over-regulation of the economy is creating these opportunities for private gain at the expense of society in general,” Ishrat Husain, the World Bank representative in Lagos, has said. “I call it private affluence, public squalor.”

And while the airlines are making money on traveling Nigerians, they are also beginning to see more and more rackets involving their tickets, which are often purchased with naira in Nigeria and converted to cash or coupons at hard-currency rates. A favorite practice, according to Doug Davison, the Pan American World Airways representative in Lagos, is to buy several tickets and then cash them abroad for other tickets.

“In order for them to do this,” Davison said, “they’ve got to have the help of an unscrupulous travel agent somewhere, because it is stamped clearly on the ticket that it can be redeemed only in Nigeria and only for Nigerian currency. What apparently happens is, the travel agent will pay about 40% of value for the tickets and then will resell them, also at a discount.”

Sometimes, in the rewriting of tickets, the notation that the ticket was purchased in naira gets “fuzzed over,” in the words of one travel agent, so that the tickets are effectively “laundered.” Usually, the airline that issued the ticket incurs the loss.

Airline officials in Nigeria decline to discuss their losses but acknowledge that the problem is growing more serious. A committee of the International Air Travel Assn. in Montreal is looking into the problem, they say.