Low productivity, higher food inflation to persist as unrest prevails
The possibility of witnessing an increase in manufacturing activities or reduction in inflation rate, especially food inflation, is very weak as analysts note that civil unrest, looting and curfew occasioned by the #EndSARS protests have stalled productive activities in the best part of October.
According to them, the front wheels of economic activities have been deflated in the last three weeks due to the protests across the country against police brutality and the excesses of the Special Anti-Robbery Squad (SARS).
With movement and transportation of goods restricted by different roadblocks, local producers are pessimistic about the manufacturing sector’s Purchasing Managers’ Index (PMI) reading for October.
With many warehouses looted, the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA), also called for dialogue in the wake of the orgy of violence and destruction of businesses being witnessed across the country.
A statement signed by the National President of NACCIMA, Saratu Aliyu, said the focus now should be to de-escalate the crisis that started with the #EndSARS protests.
In September, the PMI stood at 46.9 index points, indicating contraction in the sector for the fifth time.
According to the Central Bank of Nigeria (CBN), manufacturing PMI for September slipped from August 48.5 points, while the non-Manufacturing PMI stood at 41.9 points from 44.7 points. Supplier delivery time grew faster (53.5 vs. 53.0 points in August), production level lower (47.3 vs. 49.2 points in August), new orders also slowed down (46.4 vs. 49.2 points in August), employment level dropped (44.1 vs. 44.6 points in August), and raw materials inventories (43.0 vs. 46.1 in August) continued to contract.
The weak PMI indicates a slowing in the pace of economic recovery even as the rate of COVID-19 infections decline and restrictions are eased.
To analysts at Cordros Securities, the reported cases of the protests being hijacked by the hoodlums have forced some state governments to impose curfew to douse the tension and restore law and order.
“Destruction of public properties that ensued during the curfews has raised concerns about the possibility of prolonged curfews to return normalcy in the country. This has added pressure to the slow recovery process predicated on the persistent FX liquidity constraints, improved compliance with OPEC oil production cuts, and general low level of business activities,” they added.
To private sector operators, the rise in food inflation has been partly attributed to Nigeria’s poor seed yields, border closure, poor storages, insecurities, and flooding in some parts of the country.
The President, Lagos Chamber of Commerce and Industry ( LCCI), Toki Mabogunje, said the rising inflation trajectory has serious implications for businesses regarding production cost, investment real return rate, and overall economic performance, maintaining that the Chamber expects inflation to sustain its upward trajectory for the rest of the year.
“The major drivers of inflation are structural factors, which are beyond the purview and control of monetary authorities,” she said. She said the combination of food supply shocks, foreign exchange restrictions on food and fertilizer imports, higher energy costs electricity and petrol, exchange rate adjustment, poor infrastructure, and insecurity in major food-producing states would pressurize domestic price level in the near term.
“We note the adverse implications of rising inflation for households, businesses, investors, and the economy at large. The Lagos Chamber calls on the fiscal and monetary authorities on the need to synergize to moderate domestic prices to a level conducive for sustainable and inclusive economic growth. The Federal Government might need to reopen the land borders to give succour to food prices in the light of lower domestic food supply amid huge demand for food,” she advised.
Mabogunje also urged the fiscal authorities to work towards developing a multi-modal transport system to reduce logistics costs and improve efficiency in conveyance of food commodities from farms to markets while also mobilizing efforts towards strengthening the country’s security architecture to stem the escalated level of insurgency largely in the Northern parts of the country.
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