Renaissance Capital went to a Shoprite supermarket in Nigeria, and trawled the online portals of two local supermarkets in South Africa and the United Kingdom, to check the prices for a basket of 31 food items and non-consumables, fuel and two services (a cinema ticket and cable TV). What we found is that with $100 we can buy almost 50 per cent more in SA than in Nigeria, and that Nigeria is as expensive as the UK.
$100 buys a much smaller basket in Nigeria becauseā¦
When we compare the prices of Nigerian goods and services with prices of similar goods in SA and the UK, we found SA to be cheap, and Nigeria to be as expensive as the UK (Figure 1). Part of the reason for this may be because Shoprite prices are premium prices charged to Nigeriaās middle class. As supermarkets in formalised retail establishments are few and far between in Nigeria, groceries sold in outlets such as Shoprite will tend to be expensive. We found the price of chicken and rice, for instance, to be double in Nigeria what it is in SA, and moderately more expensive than those in the UK. This may partly be because both the chicken and rice products we sampled were imported. That said, we do not see the recent de facto import ban on these goods translating into lower prices, for reasons outlined below.
ā¦the naira is expensiveā¦
Our crude cross-country price comparison, in part, reflects a currency (the naira) that has not sold off as much as other oil exportersā currencies, since the oil price fell from its June 2014 peak. The fact that $100 buys us fewer groceries in Nigeria, than it does in SA, implies the naira is more expensive than the rand. Commodity currencies tend to be the most overvalued. However, that was mostly the case until mid-2015, where after oil exportersā currencies, in particular, sold off. The fact that naira depreciation against the dollar has fallen short of that of other oil exportersā currencies (22% vs the Kazakh tengeās 50% depreciation), partly explains why the Nigerian currency is still expensive (Figure 2). The strong naira feeds the countryās high import dependency (25% of Nigeriaās food is imported, according to its CPI), which allows it to import cheaply. Nigeriaās implied exchange rate when SA is the benchmark (what Nigeriaās exchange rate needs to be for its prices to equal SAās, where we think the rand is undervalued) is NGN304/$1. And its implied exchange rate when the UK is the benchmark is NGN185/$1 ā which would make sense if pay in Lagos was the same as pay in the UK but in fact pay and per capita GDP is less than SA.
ā¦and poor infrastructure puts a premium on prices
Nigeriaās large infrastructure deficit inflates the cost of producing and transporting goods. The prohibitively high cost of accessing power, in particular, imposes high barriers to entry into Nigeriaās manufacturing industry. The number of procedures one needs to go through to get electricity in Nigeria is double that in SA, according to the World Bank (Figure 3). What the survey does not show is that even after being connected, power from the grid is only available for a few hours in a day, so an expensive back-up option is necessary. It is partly for this reason that we struggle to see how the de facto import ban will result in local producers meeting the gap in supply of affected items. And why we expect the impact of this policy, at least in the short term, to push up prices of affected items.