Exchange Rate Fluctuation and the Value of the Nigerian Naira: The Mediating Effects on Pricing Strategies of Local Firms

Abstract

This study investigated the effect of U.S dollar exchange rate fluctuations on the purchasing power of Naira and the pricing strategies of local traders in Nigeria. The study adopted a mixed research design (descriptive and ex-post facto). For the descriptive survey, the study population covers all the local sellers in all the main markets across Nigeria’s six (6) geopolitical zones. The sampled size covered 1440 local traders in the markets across the geopolitical zones using a multi-stage sampling process urea. Also, six (6) local traders were selected from the largest market in each of the six (6) geopolitical zones to conduct an intensive interview as per their pricing strategies. For the secondary approach, the study used a time series data spanning from 1990 to 2023 sourced from the CBN Statistical Bulletin and World Bank Database to obtain historical data on exchange rate. Several estimation techniques were adopted for the data analysis, including descriptive statistics, Pearson Correlation matrix, ARDL estimations, hierarchical regression and thematic analysis. From the analysis conducted it was evidenced that exchange rate fluctuation negatively and insignificantly affected the purchasing power of the Nigerian Naira. From the thematic analysis, it was revealed that fluctuations in the exchange rate significantly increased the prices of both foreign and locally produced commodities in Nigeria. Finally, the hierarchical regression result indicated that all the pricing strategies under consideration were positive and significantly influenced the purchasing power of Naira. Hence, it was concluded that dollar exchange rate fluctuations have a statistically negative impact on the purchasing power of Naira while the pricing strategies significantly boost the purchasing power of Naira. Corresponding to this conclusion, it was recommended that the Central Bank of Nigeria (CBN) should implement more robust exchange rate management policies, such as better control of the foreign exchange market, to minimize volatility.