Nigerians pay more for insecurity as economic impact hits N50tr
• 5.1m Nigerians at high risk of critical food insecurity – ReliefWeb
• Reason capital importation dries up
• Access to local raw materials major challenge says Yusuf
Government’s inability to effectively and efficiently protect life and property is taking a toll on the cost of doing business in the country as well as on the disposable incomes of many Nigerians, pushing such costs to almost ten per cent, according to estimates and findings by The Guardian.
Available data on the economic impact of violence on countries’ Gross Domestic Product (GDP) according to the Institute of Economics and Peace (IEP) in its 2021 report on the economic value of peace, showed that as much as eight per cent of Nigeria’s GDP or $132.59 billion (N50.38 trillion at N380/$1) is being impacted economically by growing violence around the country.
According to IEP estimates, the economic impact of violence was calculated using a comprehensive aggregation of costs related to violence, conflict and violence containment spending. Eighteen variables across three domains of violence containment, armed conflict and interpersonal and self-inflicted violence were modelled to arrive at the cost of violence.
The variables include military expenditure, internal security expenditure, security agency, private security, small arms imports, conflict deaths, homicide, terrorism deaths and injuries, indirect costs of conflict (GDP losses due to conflict), losses from the status as refugees and IDPs; among others.
Nigeria has reportedly spent at least ₦6 trillion on security without making much headway in the last decade. In 2015, Nigeria’s gross military spending was $2.07 billion, which was a 12.39% decline from 2014. The defence budget saw a 16.57% decline in 2016 with an estimate of $1.72 billion. This is followed by a 5.92% decline in 2017 with a budget estimate of $1.62 billion. 2018 witnessed a 26.02% increase with an estimate of $2.04 billion. The defence budget in 2019, however, saw a significant -8.95% drop with an estimate of $1.8 billion and an estimate of $1.2 billion in 2020.
With an allocation of N31.97 billion, the Nigerian Air Force took the largest share of the Ministry of Defence’s total Capital Expenditure Ceiling of N120.04 billion for 2021. The Nigerian Army followed with N27.87 billion, while the Navy got N12.04 billion.
While the impact might seem exaggerated to the average Nigerian, the disruptions to the agriculture sector, currently accounting for 26.95 per cent of the GDP according to the latest NBS data, trade and manufacturing, provide a clearer picture of the ripple effects of insecurity is having on the economy and its recovery.
With food production very low due to climate change and insecurity caused by herders versus farmers violent conflicts, the cost of food has risen, driving food inflation to 21.79 per cent, while allied industries that depend on the agricultural sector for raw materials now look up to the Central Bank of Nigeria (CBN) for limited foreign exchange for importation.
Across different segments of the economy and individual households, the cost of insecurity is taking a toll on incomes, notwithstanding pressure from the rising core and food inflation.
Indeed, what used to be a trend in the oil and gas sector is fast becoming a threat to the growing agriculture sector as well as the logistics, transportation and services sectors.
With the minimum wage at N30, 000, an average household pays a minimum of N1000 monthly on neighbourhood security services, representing at least three per cent of the monthly income, while many firms have had to retain police escort services for the purpose of movement of goods and staff.
Specifically, the kidnapping of innocent students and other vulnerable citizens for ransom has become a lucrative business, following the lacklustre approach of the government to deal with culprits.
While the threat resulting from Boko Haram and other ‘bandits’ is still geographically contained around northern and central states, the country’s commercial capital and other regions that appear to have been spared, are undermined by the impact of threats in the area of access to food, communal crisis and rising cases of kidnapping.
The disruption to lives and livelihoods and the surge in the number of internally displaced people has triggered a humanitarian crisis. Many displaced people are being prevented from accessing vital services such as healthcare, and farmers are unable to plant or harvest crops.
In some cases, armed bandits insist on payments before farmers can have access to farmlands in the planting season, only to return during the harvest season and extort farmers for further payments before any access is granted. This has led to scarcity and a surge in the prices of certain food commodities.
According to ReliefWeb, as much as 5.1 million Nigerians are at high risk of being critically food insecure between June-August 2021.
While the country might have improved on its ease of doing business rankings, insecurity and rising incidents of kidnappings cast aspersions to the rankings as the failings of the government in recent times to secure life and property have led to many businesses and households bearing newer security costs to protect their assets and, in many cases, secure their safe passage while commuting from one destination to another.
With the rise in a number of kidnapped victims in the country, especially in the education sector, the cost of procuring private protection has increased.
Findings by The Guardian showed that in the real sector, communal clashes, as well as the farmers-herders crisis, has, among other reasons, been taking a toll on local access to raw materials for production, as many manufacturers now depend mostly on the importation, thus increasing demand for scarce foreign exchange.
Similarly, cases of kidnappings have also reduced the volume of investments in certain regions of the country.
Latest data from the Manufacturers Association of Nigeria (MAN) showed that the utilization of local raw-materials by manufacturers in the second half of 2020 declined to 56.5% as against 64% recorded in the corresponding half of 2019; thus, indicating 7.5 percentage point decline over the period.
One major problem discouraging foreign inflow into the economy is the high-risk business environment due to security challenges and the deplorable level of critical infrastructure.
Due to the level of insecurity across the country where business owners and farmers are not safe to go about their business, FDI has been discouraged from the economy.
Recent data on capital importation by NBS shows that Nigeria received $9.68 billion from capital inflows in 2020, as against $23.99 billion received in 2019.
According to the report, the inflows of $9.68 billion represent 59.6% decline when compared to $23.99 billion recorded in 2019 and 42.4% reduction compared to $16.81 billion recorded in 2018. The amount imported is Nigeria’s lowest capital inflows in the past four years in 2020, as the last time the country recorded inflows less than $9 billion was 2016 when it received $5.12 billion in foreign capital inflows.
Fitch Ratings while affirming Nigeria’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘B’ with a Stable Outlook at the weekend noted that investment inflow continues to be clouded by insecurity and governance challenges.
Former President Olusegun Obasanjo had in 2019, complained about the continued insecurity in the country, which he said was “eroding the root of our Nigerian community.”
“The issue I am addressing here is very serious; it is the issue of life and death for all of us and for our dear country, Nigeria,” Obasanjo said in the open letter addressed to President Muhammadu Buhari and signed by his spokesman Kehinde Akinyemi.
“This issue can no longer be ignored, treated with nonchalance, swept under the carpet or treated with cuddling glove,” Obasanjo added.
Frequent violent crimes have grown to form a major threat to Nigeria’s national security. These include instances of militancy, insurgency and banditry for ransom. In fact, Nigeria has one of the world’s highest rates of kidnap-for-ransom cases.
Similarly, Governor Kayode Fayemi of Ekiti and his colleague, Nasir El-Rufai of Kaduna had repeatedly advocated state police and devolution of powers between the Federal Government and states of the country in a bid to stem rising insecurity and provide more resources at the state level where activities take place.
The Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Dr. Muda Yusuf, noted that while the impact of insecurity varies across the sectors, one of the hardest hit is agriculture.
“One can estimate that the sector must have lost close to 10 per cent of its contributions to GDP. The value of the 10 per cent is a huge cost. The sector has lost 10 per cent of its output. For those in manufacturing, many producers are unable to distribute their products in many regions in the country,” he said.
For the allied sector, Yusuf noted that the inability to distribute goods across the nation is a concern as distribution goes beyond having security escorts, even when the environment is denying manufacturers access to markets.
He added that many producers are closing their sales outlets in troubled regions.
“Access to raw materials equally remains a challenge to manufacturers, especially grains and agro-allied products. Limited access is causing scarcity alongside the CBN forex policy. The poultry industry is also affected as the cost of feeds has gone up.
“Those in the business of logistics and transportation are equally affected as many are avoiding going to many zones due to insecurity. The risks are getting higher. People are also reducing their travels due to the challenge. Many sectors are suffering from the setback. The aviation sector appears to be the ultimate beneficiary of the insecurity challenge. A lot of people who should ordinarily travel by road are now travelling by air. Private investments in education in certain regions are going to be adversely affected due to rising incidents of kidnapping,” he said further.
On the flip side, he noted that investors in the security sector might be experiencing a boom, adding that Nigeria might probably have the highest number of security outfits in the country due to increased demand for security services.
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