FG in deregulation dilemma as 24% inflation worsens poverty
• Stakeholders insist figures are under-reported
•‘Nigerian manufacturers have become endangered species
• Palliatives will not have any effect this year – AFAN
• Expert foresees higher interest rate at next MPC meeting
• We need to look beyond monetary policy for a solution, ICSAN warns
As inflation bites further, mostly from the effects of subsidy removal on the economy, there are concerns about the Federal Government’s ability to sustain its deregulation stance, especially as it considers maintaining a threshold for fuel price in order to check public outcry.
Although President Bola Tinubu yesterday declared that he is not contemplating a reversal of the decision which removed petrol subsidy in the country, insiders note that public outcry and protests by Labour Unions may force the government to reconsider its decision.
There were mixed feelings of worry, frustration and even disbelief yesterday when the National Bureau of Statistics (NBS) released the July inflation data, which pegged the headline inflation at 24.08 per cent, the highest in about two decades.
The disbelief is far from whether the over 100 basis point rise is real. Rather, it points to the opposite – that the sharp speed is slower than what Nigerians expected to see and lags behind market reality.
From May 29 when the age-long fuel subsidy was removed, the cost of transportation has risen by over 200 per cent in some states.
The Guardian reported that transportation increased by an average of 120.6 per cent year on year as at June.
Staple food items also increased sharply in the past three months. For instance, rice has increased by approximately 27 per cent compared to the pre-subsidy removal era.
Bread, another staple food, had also seen an increase of over 20 per cent while beans, tomatoes and other items have varied degrees of upward shift in prices.
Experts, including a former statistician general of the country and head of NBS, Yemi Kale, had predicted at least 30 per cent headline inflation on account of subsidy removal.
When data were better than expected in June with composite inflation stopping at 22.8 per cent, NBS took to X, formerly known as Twitter, to explain that the subsidy impact was not fully captured as data collation ended mid-month – an explanation that raised more eyebrows on the validity of the Bureau’s methodology.
The latest report shows a seven-month consecutive rise in the nation’s inflation rate, defying efforts by the Central Bank of Nigeria (CBN) to keep it down with its various monetary policy measures.
According to NBS the headline inflation rate for July 2023 increased to 24.08 per cent compared to 22.79 per cent recorded in June 2023.
NBS said the rise represented an increase of 1.29 per cent points from the June 2023 headline inflation.
The report said the increase in the headline index for July 2023 was attributed to an increase in contributions of some items in the basket of goods and services at the divisional level particularly the food and non-alcoholic beverages, which contribute 12.47 per cent weighted average.
Other contributors it said include housing, water, electricity, gas and other fuel with 4.03 per cent, clothing and footwear at 1.84 per cent.
To cushion the effects of the subsidy removal, the Federal Government rolled out some palliative measures, including a directive that fertilizers should be made available to farmers and grains should be released from the strategic grains reserve to reduce the prices of the grains in the market.
However, the impacts of the policy statements have not been reflected in the prices of the commodities, which suggests low confidence in the government. Elsewhere, the statements would have triggered instantaneous panic sales and crashed prices.
The CBN, on its part, also raised the Monetary Policy Rate from 18.5 per cent to 18.75 per cent to rein in inflation. But with low financial inclusion and formal credit penetration, the restrictive monetary policy option has also not moved a needle.
Recently, the Institute of Chartered Secretaries and Administrators of Nigeria (ICSAN) advised the Federal Government and the CBN to find other means to rein in inflation beyond raising the MPR.
Speaking at a media interactive session, the President/Chairman of Council, ICSAN, Mrs Funmi Ekundayo, noted that CBN has increased MPR about four times by a total of about 225 basis points this year with little or no impact on inflation.
She said: “This year alone CBN has increased MPR about four times by a total of about 225 basis points. That is huge. But what do we see? Has it had any impact on inflation? I will say no.
“So, I think it is important the CBN looks beyond the orthodox method because it does not look like it is working for us. I believe that the government should look beyond the management of interest rates to curb inflation.
“There are so many areas the government can look into to make the economy more efficient.
“There is a need to increase real investment in infrastructure, for instance. I think for CBN as well, economic policies should be made, taking cognizance of our peculiarities and what would work for us.
“The government should also try to reduce leakages in the system because at the end of the day, when you look at the cost of governance all of these have a direct impact on growth and the ability of the government to invest,” she said.
The Chief Executive Officer of Dairy Hills Limited, Kelvin Emmanuel, admitted that headline inflation numbers for July at 24.08 per cent and food inflation at 26.98 per cent, are still not an accurate representation of the hike in energy and food prices the country has experienced from the deregulation of petrol pricing and devaluation of the naira, it is an indication that at the Monetary Policy Committee has to hike MPR by at least 100 basis points at the next MPC meeting.
He argued that deposit money banks embarking on fundraising exercises to not only shore up their total capital as a tool to maintain their capital adequacy ratio on rising non-performing loan books is also an indication that the apex bank might soon call for capital revaluation exercise of gearing ratio.
He added: “Nigerians will have to brace up for higher commercial lending rates, higher bond yields as the government experiences higher premiums to borrow from the markets, less access to commercial loans, as the banks weigh the ability of customers to pay back interest and principal in this very tough economic environment.”
The Lead Director Centre for Social Justice (CSJ), Eze Onyekpere, in his reaction to the figures released by the NBS, said the figures do not reflect the true state of inflation in Nigeria.
According to him: “That figure cannot possibly be true as everyone knows that the prices of goods and services have more than doubled. So, on what basis are they giving us the figures they have?
“We had thought that maybe in June the increases in the cost of energy had not reflected but that excuse is no longer tenable today. They need to explain to Nigerians how they arrived at the rate they are presenting.”
He said the prices of goods and services in the market are far higher than this.
“It appears they have started politicising the work of the Bureau and that is unfortunate. It looks like everything is now propaganda,” he said.
Also reacting, the CEO of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf said the NBS has its methodology, but unfortunately most times its methodology does not reflect the experience of the ordinary people.
He said: “The ordinary people will be looking at the things that they buy daily, they look at food, they look at transportation, they look at energy and pharmaceuticals and if you look at the way the prices of these things have jumped, it is much more than what NBS is reporting.”
He said NBS methodology doesn’t reflect how people feel about prices. He added that inflation will continue to go up unless the government responds in the right way.
“I heard the Managing Director of the Nigerian National Petroleum Company Limited (NNPCL) assuring that despite the rise in forex, there would be no increase in fuel price. At least, that one can help to keep the rate down, but if not, we are in for further rise and that will worsen the already-harsh economic situation.”
He said as regards the forex issue, “There is a need for us to carry out research to determine how deep the parallel market is to enable us to know the kind of weight we can attach to it because what makes headlines is the rate at the parallel market; nobody talks about the official rates. So, it is good for us to know what percentage of our transactions is in the parallel market and what percentage is from the official market.”
In his reaction, the National President of the All Farmers Association of Nigeria (AFAN), Kabir Ibrahim, said what is happening, in reality, is much more than what NBS reports.
“I am sure NBS is trying to moderate the figures, but I won’t blame them because they have their parameters, but as a layman, what I am seeing is much more than their figures,” he said.
“I know the number of requests I am getting even from people I thought should be better off. Things are really tough,” Ibrahim said.
He added: “Unfortunately we cannot feel the effect of the palliatives now, we cannot get the result this year because the fertilizer they say they are giving to farmers, cannot produce any result until the harvest season, which means it is going to get worse, it is only from next year that we will feel the positive effect, but that is if we can get it right.
“These people said they are experts in financial matters, but we have not seen it, even though we were saying that Buhari was under some sort of spell, what we are seeing today is even worse than Buhari’s administration.”
Immediate past chairperson, the Manufacturers Association of Nigeria (MAN) Apapa branch, Frank Ike Onyebu, regretted that local manufacturers have become endangered species and would be forced to close shop, sooner rather than later.
Speaking with The Guardian, Onyebu said the recent increase in diesel prices is almost the final nail in the coffin, adding that the challenges in the sector are too many. “Many manufacturers would be forced to move to other climes. The situation was tough before but it’s getting tougher now. Everything is weighing against us. The other pre-existing problems were already raising our prices but this increase is going to worsen the already bad situation. Energy cost is high, cost of transportation is high, cost of doing business is high. As I am speaking to you right now, I am running on a generator as electricity is almost non-existent; we wonder if we can continue.”
He added that most of his colleagues couldn’t even increase prices as demand and purchasing power is low.
“Manufacturing is dying in Nigeria, we are not being appreciated enough for our contributions to the economy. Government does not realise that in addition to the taxes we pay, we employ a lot of people, which helps to stem insecurity. If the sector is doing well, we would be able to employ more but as it is now, we have to let people go because we are struggling to survive.”
He urged the federal government to wake up to its responsibility and stop suffocating the sector with hardship. He added that many countries are not blessed with a tenth of the resources Nigeria is blessed with but are doing way better because of a strong manufacturing sector. Predicting that a lot of companies will go under soon due to unbearable energy costs and epileptic power supply.
“Many are barely hanging on and this increase in diesel would send them over. Workers are asking for a salary increase but where are we going to get it from?” he queried.
Onyebu asked the government to deflate the economy urgently, lamenting that FX, a core need for manufacturing, is very scarce and galloping through the roof.
“The economy has never been this bad as it is now. We cannot plan, we cannot remain in manufacturing. If things do not change for the better quickly, I fear the number of people that would be left. We are already battling sky-high inflation in addition to our very numerous problems but if this increase is allowed to stand, the level of inflation would be indescribable as most of us would drop out totally,” he said.
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