Nigeria and Argentina provide us with real-life and real-time macroeconomic case studies. It's no secret that when prices soar, the value of our cash decreases. This time, we're seeing this play out in Nigeria and Argentina as their currencies experience drastic depreciation rates. Let’s evaluate what's happening, the economic implications, the impact on everyday folks, and the bold steps governments are taking to steer the economy back to safety.
Argentina's Roller Coaster Ride
As of December 2023, Argentina snagged the spotlight with an inflation rate of 250.6%, catapulting it into the league of the world's most inflation-stricken countries. The Argentine Peso is on a freefall, now exchanging hands at a meager $0.0012 USD. So, what's the scoop? Why is Argentina's economy in a tailspin?
Enter Javier Milei, Argentina's new president as of December 10, 2023. Milei hit the ground running with sweeping reforms, including a daring 50% devaluation of the Peso and axing price controls and subsidies on fuel and transport. The endgame? Achieving a 2% GDP budget surplus by the end of 2024. While these moves have stirred up a storm of protests due to rising consumer prices, the IMF is betting on Milei's playbook. The economy is expected to experience a contraction this year. This twist is impacting the people of Argentina in the short-run. The hope is that these short-run costs lead to long-run gains and sustainable long-run growth.
Nigeria's Economic Shuffle
Switching gears to Nigeria, the story takes a similar twist. Post-election, Nigeria welcomed reforms that saw the end of fuel subsidies and the adoption of a floating exchange rate, sending the Naira on a downward spiral against the dollar. The aftermath? A stubbornly high inflation rate of 28.9% and a consumer price index hitting the roof at 643.80. It's a tough pill to swallow for many Nigerians.
The Nira has experienced two large depreciation events, one on June 15th, 2023 and one on February 2nd, 2024. These drastic drops have made imports more expensive and life for Nigerian students studying in the U.S more complicated.
We talked to Michael Bewaji and Fawwaaz Abdulazeez to learn more about their personal experiences. Both Michael and Fawwaaz are NKU students from Nigeria. According to Michael, paying tuition has become difficult: “We used to pay $10,000 at that time and that was like 4 million Nira. But now, $10,000 is almost 15 million Nira. So that's four times the amount that we used to pay.” He also pointed out that while the exchange rate depreciated, their parents were also experiencing high inflation. “And then also our parents back home are also experiencing inflation over there. So, living expenses are going up and then they have to worry about their children that are here too,” said Michael.
Michael, Fawwaaz, and I talked about the personal implications of reforms and high inflation on their lives. You can hear more of our conversation on the podcast.
While the numbers might alarm you, it is also important to recognize that there are personal stories of struggle due to this new economic reality.
The Takeaway
Will the economic tango in Argentina and Nigeria lead to prosperity or peril? Policies to promote long-run economic growth usually come at the expense of short-run goals. Leading these changes requires tough decisions, but also communicating hope so that the people can see the light at the end of the tunnel.
In the spirit of Econ with Dr. A, we are shedding light on the economic stories you might not have heard but need to know about. Let’s see what happens in Nigeria and Argentina over the next year or two.
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Show Notes
Episode Overview:
In this episode of Econ with Dr. A, Dr. Abdullah Al Bahrani, an Associate Dean and Associate Professor of Economics at the Haile College of Business, dives deep into the personal impacts of macroeconomic changes, with a spotlight on the inflation crisis in Nigeria and its repercussions on students. Joined by students Michael, Fawwaaz, and Fred, the discussion unfolds the real-world implications of economic theories, focusing on the soaring inflation rates in Nigeria and their direct effect on the students' lives and education.
Featured Guests:
- Michael Bawaji: A sophomore studying engineering physics and mechatronics engineering technology at NKU, and the 2024 sophomore junior homecoming king.
- Fred Smal: Also a sophomore at NKU and a Haile Fellow under Dr. A, Fred brings a personal connection to South Africa and reflects on his observations of the economic challenges faced by his peers from Nigeria.
- Fawwaaz: A research assistant at Northern Kentucky University, Fawwaaz is deeply involved in research on economic issues, including the integration rates of immigrants in the USA. He brings to the table a firsthand perspective on the challenges international students face due to inflation in their home countries.
Key Discussion Points:
1. Personal Impacts of Inflation: The conversation begins with a focus on the personal experiences of students from Nigeria, detailing how the rampant inflation rate, hitting 28.9%, and the consequent rise in the cost of living and education affects them directly. Michael and Fawwaaz share their struggles with the depreciating value of the Nigerian Naira and the financial burdens it places on their families.
2. Economic Analysis: Dr. A analyzes the situation by discussing the causes behind the inflation in Nigeria, including government reforms and the removal of subsidies. The discussion delves into the broader implications of these economic policies, such as increased transportation and energy prices, and the attempts to balance the budget and reduce government debts.
3. Global Context: The conversation contextualizes the Nigerian situation within a global framework, drawing parallels with other countries facing similar economic challenges, such as Argentina. This global perspective underscores the universality of economic challenges and the importance of understanding macroeconomic principles.
4. Educational Impact: The dialogue also covers the significant impact of inflation on educational expenses for international students, with tuition rates effectively increasing by over 400% for Nigerian students due to currency depreciation. This part of the discussion highlights the additional hardships faced by students in accessing education abroad.
5. Policy Implications and Hope: The episode wraps up with a look at the potential policy measures to mitigate these economic challenges and the importance of hope and economic education in navigating through economic crises. The guests and Dr. A discuss the role of government communication in maintaining public trust during economic downturns.
The Takeaway
This episode of Econ with Dr. A not only sheds light on the statistics behind inflation but also humanizes the economic discussion by bringing forward the stories of those directly affected. It serves as a reminder of the real-world consequences of economic policies and the resilience of students facing these challenges head-on.