black market

What You Do Not Know About Black Market in Nigeria

by Maryann Opatola

The first thing that comes to the minds of most Nigerians when the term ‘Black Market’ is mentioned is an exchange of foreign currency for a higher local currency. 

While this is what largely forms what the black market is, I’ll not want you to impede your idea of the black market on that alone. 

In this article, I’ll explain to you the hidden world of the black market in Nigeria, and some other related food for thought about the current black market exchange rate, and the effect of the black market in Nigeria.

Understanding the Black Market

To get started, the black market represents illegal trade. Black markets of any kind are illegal. 

Black markets can be in the form of human trafficking, wildlife trade, mining and logging, firearms, and currency exchange at black market prices. 

Services and goods at black market prices are often sold at a cheaper rate and sometimes at a more expensive rate according to the status one withholds in the market.

Black Market is rapid when that particular service or product is scarce in the legal market. However, one thing most people do not bother about is its effect on the economy. 

How Black Markets Work

Let’s take for instance a trader in Nigeria, named Ali, imports goods from the US, and sells them to Nigerians.

Ali gets paid in naira, but he cannot buy goods from the US with naira. So to get dollars, Ali has to go to the bank to change his money to dollar notes. 

But, because everyone in Nigeria is struggling and bustling to get the dollar presently, Ali meets a long queue.

Ali cannot wait in the queue because he is in a hurry to buy his goods from the US, Ali goes to the black market to get the dollar note, but at a higher exchange rate; which means Ali has to pay more naira to get the dollar note. 

And because Ali despises loss in marketing, he adds money on the goods to make the extra naira he gave for the dollar. On the other hand, those who want to exchange their dollar note for naira, gets more naira from the black market than the bank will give.

This is a common scenario of what goes on in the business cabin of black market.

Do you Know?

Black markets, also referred to as shadow markets, imply the exchange of goods or services that are restricted by governments. In black markets, transactions are unrecorded and it leads to the skew of economic data. 

Most people don’t realize they are aiding in the black market even by hiring a maid or domestic worker at home without paying employment taxes.

Do you know that selling or purchasing food or fast food is not illegal in any way. However, it becomes a black market once any fast-food restaurant or food trader does not remit to the state government the sales taxes required from its transaction? I’m glad you know now.

The black market can be advantageous to both buyer and seller, and at the same time, disadvantageous.

Read also: Network Marketing in Nigeria.

Advantages of the Black Market

The black market is advantageous in the following ways: 

  1. It serves as a source of employment

The shadow economy makes it possible for people to earn a living instead of being destitute or striving for welfare.

Black market trade has served as a means of daily income for black market traders in Nigeria who were formerly without jobs. They eventually started a black market business, and considered themselves lucky not just because they were able to become self-employed, but also, and importantly because of the next advantage; Fatter income.

  1. It provides a fatter income for some people 

People who would be perfectly employable, and would earn fatter income under less government regulation or in an economy with a higher employment rate.

  1. It is less expensive 

It is a cheaper market because it is not taxed, and is carried out outside the government radar.

  1. It preserves life

It is advantageous to buyers in terms of illegal sales of human kidneys, which can help in saving the lives of patients who can’t afford the legal price. 

Black markets can deliver legal requirements that are scarce.

  1. It promotes national growth

Proceeds from the black market are periodically used for the growth of the nation.

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Disadvantages of the Black Market 

It is disadvantageous because:

  1. High rate of scams and frauds

Scams and frauds are prominent in the black market, because sellers know that most people will choose the black market over the normal due to its price, they take advantage of it to scam buyers.

  1. Reduction in nation’s revenue

It is recorded that the black market sales of oil in south-south Nigeria negatively affected the national revenue.

  1. Sale of fake products

Buyers often end up buying fake products. This can be disastrous if they are medical products.

  1. It causes insecurity

Through black markets, national security information can be leaked to terrorists which can be dangerous for a nation. 

Nigerians’ Current Situation on Black Market Traders

In Nigeria presently, as cited by thisdaylive, the money changers in Lagos who were once the ‘reigning deal’ have started going underground. 

They are now the Nigerian authorities’ prey, who are determined to secure the value of the naira and crush the black market for foreign currency, which became a great deal during the crash in oil prices, which deteriorated the economy and the inflow of dollars. 

The Central Bank of Nigeria has capped the prices that BDC (Bureau De Change) can charge their customers for foreign exchange, and they have effectively set the black-market rate to be fixed. 

This declaration was accompanied by threats from the intelligence agents to imprison anyone who fails to adhere. 

It was also made known by some analysts in Lagos, that the security agents’ activities are generating parallel markets into the black market.

What traders in the black market do now is to sell, still at the old rate, with customers that they trust and refuse to sell to unknown buyers, as they might be spies. 

Nigeria’s interbank market imposes the naira’s authorized rate mainly to serve businesses. However, the shortage in foreign currency, especially dollars, has compelled lots of people to go to black markets, to be licensed for bureaux de change to enable them to sell dollars at a higher rate. 

Since the naira value dropped in 2014, alongside crude prices, the central bank has made numerous efforts to defend it. investors in the stock and bond market are backing off from Nigeria, due to the wide gap between the official exchange rate, which is N750, and the black-market one of about N470 to a dollar. 

Advanced prices of the naira suggest that it will further depreciate on the official market, with 12-month contracts of trade at 441 against the greenback.

Not long ago, the Department of State Services invaded the black market and bureaux de change and instructed the traders to cut their rates to N400 per dollar. 

According to a money changer in Lagos, this made people with hard currency hoard it, instead of selling it at an artificially low rate. 

The CBN Governor instructed consistently to check the activities of illicit foreign exchange. This, the CBN governor said, was to hinder lawlessness in the market.

Read also: How to Avoid Shege in Nigeria. 

Black Market Conditions

A lot of black market traders don’t wish to act illegally, but due to the process of obtaining permits, and licenses, and because of the higher income they will earn if they don’t pay taxes to the government. 

This same situation is related to people working in a job that isn’t of their age range or not obtaining a work visa to work within another country. 

Regulations-Driven Black Market Effect

Black markets occur when government regulations on the price of goods create a shortage. Let’s cite an example. 

If the government limits the price at which stores and clinics sell inhalers after the pandemic, the store will quickly run out of inhalers. 

As a result, vendors, and others who have extra inhalers will likely sell the inhalers at higher prices, and people would still be willing to pay. This secondary market is an illustration of the black market.

Another example is when government policies make it difficult to buy essential products such as food, or fuel. As a result, the black market will become rampant because of the scarcity of such products and the difficulty it takes to purchase them through the legal market. 

An example of where this took place was in Cuba, where ineffective central planning of communism made it difficult to purchase common commodities such as oil, which made the black market rampant.

Economy-Driven Black Market Conditions

High unemployment can lead to an increase in the black market. When workers can’t find jobs in the above-ground economy, finding jobs in the underground economy becomes the next option. 

Household jobs such as plumbing, hairdressing, and nanny jobs, can also be underground jobs because, in 95% of cases, these household workers do not report their income to the tax authorities, and this is because they are not being paid in cash.

Unemployment can also lead people to sell a product that is not only black-market because they don’t report tax to the authorities, but are also products prohibited in the country; e.g selling hard drugs.

It is also said that the black market exists in online marketing. For instance; buying an Alibaba and eBay account to obtain the best seller ratings or buying social media accounts for followers. 

Some black markets also find the cure for people with medical or psychological problems, who haven’t obtained their cures from legal clinics. 

For example, drug addicts who find it difficult to abstain from cocaine or marijuana can be able to buy from the Black Market to comfort themselves.

In general, the black market depends on one’s moral beliefs. If you think that drug use is not a crime, the black market for drugs might not be a crime to you. 

If you think tax rates are high, hiring domestic workers, whose incomes don’t need to be reported, might be something you enjoy.

The Exchange Rate of Dollar to Naira, as of 1st February recently reported that the official dollar to the naira exchange rate in Nigeria today constitutes the CBN rates, black market rates, and Bureau De Change (BDC) rate.

Dollar To Naira Exchange Rate Today black market (Aboki dollar rate):

According to Brand Spur Nigeria, the exchange rate for a dollar to naira at a Black market (Lagos Parallel Market), traders buy a dollar for N745 and sell it at N750. The local currency usually referred to as abokiFx resumed at N750 per $1 at the parallel market on Wednesday, 1st February 2023, after it shut down at the rate of N755.00 per $1 on Tuesday, 30th January 2023.

Read also: Nigerian women in politics: Marginalization and Representational problem. 

Factors Influencing Foreign Exchange Rates

Below are some of the factors behind the declining dollar to the naira exchange rate.

  1. Inflation rates

The most popular influence on the black market exchange rate is inflation. It is the unstable Nigerian economy that gives rise to people buying from the black market. This means, once the Nigerian economy becomes stabled and inflation is regulated, the naira will profit. 

And if the naira continues to fall, it suggests that foods and necessities will increase in price.

  1. Government debt

National debt can have an influence on investors’ confidence and yield funds inflow into the economy. Thus, the naira exchange rate will rise in favour of the naira, if influxes are high.

  1. Interest rates

What the Nigerian economy needs to consider is bank interest rates. If banks put high interest on their loans, it will negatively affect the economy, and lead to a record that will cause the value of the naira to decline.

  1. Conditions of trade

When trade terms are without difficulty, the value of the naira to the dollar will increase. Currently, Nigeria is facing an undersupply, and goods are coming in the majority from other countries; thus, we can say it affects the country’s current economy.

  1. Speculators

Speculators frequently influence the naira-to-dollar exchange rate. There is an expectation of a stockpile of money for profit; thus, causing the naira to plunge more than usual.

Cases Against Black Markets

The downside of black markets is numerous. Some of these are from a personal view, but a lot are problems that are glaring to the majority. These are:

  1. Insecurity and violence 

Insecurity is an eminent downside in the black market.

This is because, in shallow markets, entrepreneurs can’t report to the police or to security personnel about their stolen goods or about the violence that is occurring between rivals in the market. 

As a result of fighting back, killing and violence might take place.

  1. Tax burden falls on law-abiders

The most sympathetic downside of the black market is that, when the black market traders refuse to pay taxes, more weight of tax falls on law-abiding citizens and entrepreneurs. 

  1. Cases of stolen goods

Some black market goods are  Most black markets are markets obtained from stolen goods from legitimate markets. 

And most of the time, even while knowing this, consumers will still choose to buy from the black market because they feel the law-abiding traders’ prices of goods are expensive.

However, some do not know that they are in support of a crime. In Nigeria for example, if a phone is sold too cheap is it in either of two conditions; it is stolen or someone wants to sell it off because of an urgent need.

Both times the case is the former. And more beyond the resale of stolen goods, and beyond theft, these black-market activities can eventually pave the way for terrorism activities.

Final Words

One thing we should keep in the back of our minds is that as long as regulations and taxes exist, the black market will exist alongside.

People will always feel the right over the money they work for, and will therefore be sceptical about giving a percentage of it to the government. 

However, it is important to know that the black market can affect the country’s economic growth; more negatively than positively. 

The black market will exist, but in cases where need be, the black market should be discouraged to uplift the value of the naira.

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