We only need the basic knowledge of government 101 to know that a change in government policy will have an impact on business in certain sector of the economy. There is hardly any sector that is not influenced by major financial news. Ranging from the primary, manufacturing and service sector of the economy. The aviation and tourism industry which belong to the service sector of the economy is no exception, in fact, it is already feeling the heat. As we already know that concord.ng is a website that serves the travel concerns of Nigerians, it is imperative that we take a look at Naira Devaluation and its effect on International Travel.
For long, the naira has been pegged at $ 1 = ₦ 197. Recently, the Nigeria economy has been hit by unprecedented financial and political instability. First was the falling oil price which resulted in reduced government income. The situation was exacerbated by the emergence of different militant group in the Niger Delta region who continue to attack oil installations. I won’t like to delve into much political conversation but the bottom line is obvious, Nigeria can no longer maintain the long time rate of forex conversion. The most visible strategy, and the one most Nigerian and international community has proposed to ensure a relief in this economic strains is to devalue the naira. After about one week notification, The Central bank of Nigeria eventually did the inevitable, and approved a method of currency system known as floating currency. The naira-dollar has now been floated, and the trading rate will now be determined by demand and supply. In simple terms, the new exchange rate is now $1= ₦ 255 interbank rate, and the official rate which is based on demand-supply is presently set at ₦ 284/285. We may sugar coat it as much as we want but I will put it bluntly that our dear naira has been ‘technically’ devalued. The aftermath has been very unpleasant for people with ambitions to travel for either business or pleasure. Many areas of travel has been affected starting from the most obvious which is the astronomical increase in flight ticket to the extra difficulties added to visa approval by foreign embassies in Nigeria.
Now is the time for me to list the different areas of travel that is seriously suffering from this odious economic situation we helplessly find ourselves.
INCREASE IN AIRFARE
The airline fares are quoted in US dollars and Nigerians pay the equivalent naira at the previous exchange rate of 197. After the devaluation, the payment is now calculated at an exchange rate of 285. That is an enormous 45 percent increase and the consequence is a huge reduction in travelers as most people cannot afford the fare.
Before the devaluation, average price of economy flight ticket to the most visited foreign destinations by Nigerians were Dubai – ₦ 120,000, South Africa – ₦ 100,000, China – ₦ 160,000, New York – ₦ 210,000, and London – ₦ 170,000. Presently the cheapest economy ticket to these destinations are Dubai – ₦ 174,000, South Africa – ₦ 145,000, China – ₦ 265,000, New York – ₦ 392,000, and London – ₦ 320,000. When you look at the difference, you will agree with me that only a few people earning good salary can afford a luxurious trip on a decent airline while you need to be earning millions to churn out enough cash if you have a taste for flying business class.
As a travel consultant, some of my clients going for summer vacation have cancelled their trip due to the high cost of airfare. The most recent one was a family of 5 that I initially gave a price of ₦ 1,113,500 for an economic class booking on Turkish airline to New York. Immediately after the devaluation, as a matter of keeping up with good customer relation, I immediately notify them of the change in fare which was ₦ 1,525,763. That is a huge ₦ 412,263 increase and my client is now taking forever to reach a conclusion. That is the situation most travel consultant are now contending with.
The situation is really affecting travel business. In fact, I have lost count of many small travel agencies that has went into oblivion and cease to function due to the lack of patronage. Also big agencies are not feeling the storm and strategizing on improved ways to get clients. We might scream the situation is bad but do know that it could have been worse as most airlines were also lamenting before the devaluation. The airlines could not get their money out of Nigeria and Nigeria debt to International Air Transport Association (IATA) was above ₦ 113.3 billion. Some of the airlines started pulling out and eventually stop coming to Nigeria. First was Iberia airline, followed by united airline. Emirates Airline stopped one of their flight from coming to Nigeria. The trend would have continued until no single international airline fly to Nigeria and we will be left with our airlines such as Arik and Medview that plies limited international routes. To comfort ourselves, I still think the devaluation is like a blessing in disguise. Although, air fares may be expensive but at least we can still fly and I still get to be recognized as a professional travel consultant.
Increased difficulties in getting travel Visa
If there is only one important factor that embassies and consulates of foreign countries in Nigeria look into before making a visa decision, it is the economic factor of the applicant. Economic factor includes available cash in bank and assets such as cars, houses, shares etcetera. Nigerians are very popular with fake documentation. Countries like Schengen countries, United Kingdom, Canada and Australia, are mostly interested in the only economic variable that is easy to verify and that is the statement of account. In the pre-devaluation era, when embassies evaluate your statement of account, they calculate your worth based on the exchange rate of 197. Now, you will be evaluated based on 285. It means that if you worth a million naira before your new worth is 45 percent less. The consequence is that many people that will slightly pass the evaluation will now fail and will eventually be denied the visa. I will write more post on how evaluation process work so you can evaluate yourself before submitting your document for any visa application. Bottom line is that, now more than ever, we are faced by difficult and more stringent visa evaluation process by embassies as more people will be presumed to be an intending immigrant as a result of the increased economic hardship.
High cost of importation
Nigeria economy is an import dependent economy. This has made the travel business in Nigeria a very lucrative and appealing business in the past. Many Nigerians go to Dubai, China, and Turkey to import goods. The recent devaluation implies that importers will need more capital to bring in reasonable amount of goods for sale. This has resulted in a drop of travelers to the aforementioned countries due the obvious reason that Nigerian mainly visit those countries for business.
High cost of Vacation
By CBN rules, every traveler is entitled to a maximum of $4000 from any commercial bank that sell Personal travel allowance (PTA) and $5000 for Basic travel allowance (BTA) when travelling for business at the rate of 197. The recent devaluation implies that PTA and BTA sales will be sold at any rate convenient for the selling commercial bank. Everyone is in business to make money and so is Nigerian commercial banks. Therefore, do not expect to get dollars at the rate of 197. In fact, some commercial banks sell as high as 295. The obvious consequences is that vacation now cost at least 50 per cent more than it used to.
It is a somewhat unfortunate situation we have found ourselves. We can only pray for the situation to get better. From time to time, I will continue to post information that will help us travel without leaving our pocket in the red zone. All you have to do is to visit concord.ng regularly. You can also subscribe to our newsletter to get immediate update on any deal or travel tips.