As Nigeria grapples with insecurity, the realities have taken a heavy toll on the economic fortunes with rising inflation in prices of goods and services now becoming a daily occurrence writes our Abuja Bureau Chief, CHIBISI OHAKA who raised fears that with disposable incomes dropping further, there are palpable fears about how much shock the real sector can actually absorb amidst fears that the Nigerian economy may eventually cave in.
At no time in history has Nigeria recorded unusually astronomical increases in the prices of products, goods and services in our economy than today. In a single day, for instance, the price of a particular size of a tuber of yam can change thrice in the same market.
In a reflective pattern, while the various key sectors of the economy, including manufacturing, agriculture, production, distribution and transportation are wobbling, hunger is squeezing the ordinary man.
In simple terms, inflation is measured by the Consumer Price Index (CPI), inflation indicates the broad-based level of prices of goods and services in an economy. Inflation figures are very crucial for both scholars and managers of the economy of any nation.
Inflation is not measured against the price increase of a particular product or commodity, mostly because prices of different commodities increase at different rates at different times, affecting different life in different parts of the country. The amalgamation of the differentiations over a period of time provides the data that can be used to determine a working inflation figure.
Causative factors of Nigeria’s rising inflation: Agencies react
Today in Nigeria, there is widespread skyrocketing of prices of commodities, with resultant hunger and hardship in the land. In the last six months, access to food and consumer items has become difficult for the common man. Experts have said that Nigeria’s inflationary trend is due to its structural deficiency, logistic problems, political instability, insecurity, herders/farmers clashes which has virtually shut down large scale farming activities, among others.
The Lagos Chamber of Commerce and Industry (LCCI) has also expressed concerns about persistent increase in domestic prices, noting that continued uptick in inflation has profound implications for all stakeholders in the economy including households, businesses, and investors.
According to the Chamber, spiralling inflation weakens purchasing power of consumers and consequently worsens the poverty conditions. The situation, the Chamber stated recently, equally escalates operating and production costs and erodes profit margins and ultimately undermines investors’ confidence.
Unfortunately, none of the factors, especially insecurity, that have fuelled skyrocketing prices of commodities, and the resulting rising inflation are showing any strong signs of receding.
When the Nigerian borders were opened last December after a long closure that affected importation of goods and services into the country, the assumption was that the step will bring down the rise in food inflation. But the reverse has been the case as inflation has sustained its upward trend for several months. Analysts project that the food inflation rate could surge further in months to come.
Again, the spike in food inflation has been severally linked to the unending insecurity in Nigeria, the trend on its own have become a thriving industry. When the administration of Muhammadu Buhari came on stream in 2015, among the promises it made to Nigerians was the vow to end Boko Haram and all forms of insecurity in the land viz; kidnapping of citizens, which was then at, more or less, introductory stage. But instead of abetting, insecurity has in different dimensions, and from all indications, enjoying federal protection.
In our nation today, the purchasing power of the Naira has fallen. For instance, the amount of money one could use to buy three bags of rice five years ago, can buy one bag today. Research shows that, following dwindling supplies from farmers, commodity wholesaler/dealers are now hoarding essential commodities like food grains, because not much is coming from farmers; themselves having been driven off farms by herdsmen and bandits. The herdsmen are either bringing in their animals to feed on the farmers’ crops, or the herdsmen are out-rightly killing ‘dissident’ farmers.
Rise in prices of goods elicits more fears, worries… More bodies raise alarm
Unfortunately, salary earners, otherwise known as fixed income groups, are still earning the same salaries. Governments at all level, are yet to fully implement the N18, 000 minimum wage. The situation is that there is less money to save now as people use a greater part of their disposable income to pay for daily-use commodities. On the other hand, luxury goods sellers and non-essential items retailers would begin to witness low sales as people prefer to not spend money on “luxury” items, sticking instead to the “necessities”.
The Nigeria Bureau of Statistics, (NBS) said that in April 2021, Nigeria recorded an inflation rate of 18.12% in April 2021, showing the first decline in headline inflation in about 20 months. But analysts have stated that the reduced inflation rate of April is still far from the healthy inflation rate needed to power the economy.
According to the NBS, in April, core inflation was up by 7bps to 12.74% y/y. At the time, pressures were most significant in the prices of pharmaceutical products, vehicle spare parts, hairdressing salons and personal grooming establishment, textiles, furniture and furnishing, medical services, foot wears, motor cars, major household appliances whether electric or not, dental services, hospital services, non-durable household goods, and fuel and lubricants for personal transport equipment.
Director-General of Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, confirms that the current inflationary condition in Nigeria adversely affects the profitability of manufacturing and is partly responsible for its poor competitiveness of companies in the sector. According to him, the manufacturing sector is still battling for survival as its growth rate is not impressive.
“Of course, the inflation rate of 18.12% is still not healthy for the well-being of the people and the growth aspiration of the economy and should therefore be properly managed before it spirals out of control,” Ajayi-Kadir said.
The MAN DG encouraged the federal government through the Central Bank of Nigeria (CBN) and the ministry of finance to work on more policies that affect the real sector to prevent a clash in policy implementation. “While CBN was creating funding windows at single digit interest rate to encourage production, the government increased VAT from five per cent to 7.5%. Similarly, the government increased the minimum wage and also allowed an increase in electricity tariff and so on.
“Government, in partnership with the manufacturers, should select strategic products, particularly those with high inter-industry linkage, for backward integration support and upscale the drive for the resource-based industrialisation agenda,” the MAN DG said
In a recent commentary, the President of Lagos Chamber of Commerce and Industry (LCCI), Mrs. Toki Mabogunje, said that the key inflationary drivers are basically supply-side issues, which are beyond monetary policy control. She equally identified security concerns in Northern and Middle-Belt region as key among factors affecting agricultural activities in those areas.
Others, according to her, include high cost of transportation of food commodities from rural areas to the urban centers and markets owed to bad roads, elevated prices of Premium Motor Spirit (Petrol) and Diesel. The LCCI boss noted that there had also been lingering productivity issues in the agricultural sector, leading to weak output outcomes and high cost of imported food items (as well as agricultural inputs) due to foreign exchange shortage, as major factors causing a spike in food prices.
Some experts have warned against CBN’s persistence that an inflation rate above 12% will retard economic growth. To analysts at Financial Derivatives, while the controversy rages on whether the current inflation is reflective of reality, the apex bank has also been resolute in its belief that a stable exchange rate is an antidote to rising inflation.
“Inflation has its seasonality features and core inflation, which discounts seasonal factors from headline inflation, is expected to be relatively mild this time. Whilst the planting season effect will take a toll on prices in the next quarter, one feature of the planting season this year is that farmers who normally consumed only grains are now consuming seeds and grains.
“Seed consumption reduces the planting stock and slashes the harvest of next season. Therefore, we should expect some shortages in food output next quarter in addition to higher logistics costs and ultimately higher food inflation in Q3”, they added.
In their report on 2021 Macroeconomic Outlook titled: “The Four Priorities for the Nigerian Economy in 2021 and Beyond,” the Nigerian Economic Summit Group (NESG), posited that federal government must focus on ensuring that the inflow of private investments into the manufacturing sector is a reality as Nigeria’s recent experiences have shown that significant investments in manufacturing sector were realized when there is an intersection of market opportunities and government support.
The economic group said the federal government should also demonstrate commitment in implementing existing plans, provide targeted infrastructure and address the serious challenge of insecurity in Nigeria
Nominal GDP from the National Bureau for Statistics (NBS) indicated a lowering form in the value of Nigeria’s manufacturing sector. The report said total value stood at N19.54 trillion in 2020 against N16.78 trillion it recorded in 2019. Similarly, the manufacturing sector’s share of nominal GDP was below 10% between 2015 and 2018 despite improving economic growth figures.
But its share of the GDP increased to 11.6% in 2019 and 12.8% in 2020. The increase in 2020 was attributed mainly to high inflationary rate and large decline in the output of critical sectors as a result of the restrictions placed to control the spread of COVID-19 pandemic disease.
The NESG said the Federal Government must note that opportunities are not enough to attract significant foreign investment into the Nigerian manufacturing sector, especially given Nigeria’s volatile economic environment and inconsistent policy regimes.
“To attract significant investments and narrow the gap between potential and actual investments, federal government support for the sector is of utmost importance. Drawing from the experience of the few sub-sectors in manufacturing that have attracted investments in the last few decades, government support in the form of developing sector plans and intervening to resolve specific challenges faced by investors in the sector have been instrumental in attracting investment,” the group said.