On galloping inflation and Nigerians’ wellbeing
The painful rise in prices of virtually all commodities, including mainstays like food and oil, is both an economic and political problem. While the Nigerian monetary authority appears to have been overwhelmed by several interventions to the economy, the fact remains that the Muhammadu Buhari administration has done a poor job at managing inflation and everyone is paying the price.
In retrospect, the Bretton Woods institutions had recently warned about Nigeria’s inflation problem, citing it as a key driver for the rising number of poor people in the country. While many have blamed Russia-Ukraine crisis for the present inflation trigger, what has been equally ignored are the lingering structural and security challenges driving prices of food and basic services beyond the reach of the poor and the almost non-existent middle class.
Inflation rate in Nigeria rose to 15.92 per cent on a year-on-year basis in March, from 15.7 per cent recorded in February, according to the latest data by the National Bureau of Statistics (NBS). In its latest report on the Consumer Price Index (CPI) for March 2022, the NBS attributed the spike in inflation for the month under review, mostly to the composite food index, which rose to 17.20 per cent in March and a sharp increase in the price of cooking gas.
Painfully, many do not seem to agree with the position of NBS, which they said needed to do more to convince Nigerians, especially those who rely on their data for research and critical decision-making, that the figures are not doctored to achieve a predetermined objective. Contrary to the position of NBS, households across the country are trapped in a persistently rising cost of living. Prices of basic food items increase at a double-digit percentage every other week.
Even the World Bank at the beginning of the year, said Nigeria may have one of the highest inflation rates globally in 2022, with increasing prices diminishing the welfare of Nigerian households. “In 2022, Nigeria is expected to have one of the highest inflation rates in the world and the seventh highest in Sub-Saharan Africa,” it said.
On June 12, 2021, President Buhari, in his address to the nation, claimed that his government had lifted 10 million people out of poverty; and there is a record of that historic accomplishment. Seven months down the line, the World Bank, on February 4, 2022, in its National Development Update report 2021, stated that “Inflation shock alone pushed about eight million more Nigerians below the poverty line in 2020 and 2021”. According to the bank, “Double-digit inflation rates are depressing economic activities and exacerbating poverty. Rising food prices are eroding household purchasing power.”
While spending has been largely focused on food and essential commodities, food inflation has equally made it challenging for many households whose incomes have not witnessed any improvement. Indeed, the disparity between income and inflation has widened, mounting pressure on how much can be defined as disposable spending. Ideally, if salaries increased at the same rate as inflation, there would be no hardships. Unfortunately, inflation is not an across-the-board price increase. Prices of different commodities increase at different rates at different times, affecting different sections of the population. For many Nigerians in recent times, access to food and consumer items is getting difficult by the day.
Unlike in advanced nations like the U.S. and Japan where some level of inflation is tolerable to stimulate economic activities, Nigeria’s inflationary trend is detrimental to its growth due to its structural deficiency, logistics problems and insecurity, among others. Indeed, many of the factors that have fueled Nigeria’s high inflation are not showing any signs of receding. The most recent being higher energy prices, especially diesel, as a result of rise in oil prices.
Already, manufacturers, banks, logistics and services industry, including hotels, apartments and estates, are feeling the pressure from rising energy costs as they have to spend more on diesel to power their generators. While banks are beginning to stagger their operations in lieu of the present realities, real estate service providers are adjusting clauses relating to exclusivity on electricity provision. For the manufacturing sector, the burden of higher energy prices can only be passed onto consumers if they have to remain a going concern. Diesel costs should naturally not be a burden for many, except for those in the logistics sector. However, the nation remains underserved by the unstable and low capacity national grid. With less than 4,000MW from the national grid, Nigerians are left to generate their own energy.
While rejecting the continued Federal Government sole control of electricity matters under the Electricity Bill, the Nigerian Governors Forum (NGF), through its Chairman, Dr. Kayode Fayemi of Ekiti State, argued that: “After 71 years of sole and unchallenged central control of the electricity sector, we live with an electricity sector divided into two parts. One part is the Federal Government-controlled and regulated national electricity market that today is insolvent, bankrupt and delivers no more than approximately 4,000MW/96,000MWh daily to 220 million Nigerians, or an average of 18w/432watt-hours daily, barely enough to power two (2) 10-watt light bulbs a day.
“The other part of Nigeria’s electricity sector is the alternative/back-up market, whose estimated capacity is approximately 40,000MW so much so that Nigerian citizens are their own electricity providers in their homes, factories, schools, hospitals and places of worship. They calculate that if the 40,000MW of electrical back-up capacity owned and operated by Nigerians were to be delivered to them by licensed private IPPs and distribution companies through organised public electricity markets, Nigerian citizens and governments would have saved up to N17 trillion in 2021.” In essence, without adequate supply from the grid, Nigeria remains at the mercy of noise and carbon dioxide (CO2)-polluting generating sets; the cost of which has an impact on the country’s inflation, considering that its productive sector is dependent on expensive alternative power.
With the war in Ukraine, matters are going quickly from bad to horrid. For many households across the world, rising inflation poses a significant challenge. Higher prices are eroding the value of real wages and savings, leaving households poorer. But these effects are not felt equally: Low and middle-income households tend to be more vulnerable to high inflation than wealthier households. That reflects the composition of their income, assets, and consumption baskets. Inflation may affect the very poorest households living below the global poverty line less directly, however. Already, Nigerians are beginning to witness a trend where more people are borrowing to survive, with quick loan apps taking advantage of the circumstances.
Governments have been turning to subsidies to dampen the impact on households. In some cases, subsidies can be an effective transitional tool to ameliorate the impact of shocks. But they tend to be left in place for too long, leading invariably to adverse effects. Subsidies can quickly detract from spending in infrastructure, health, and education. Nigeria’s subsidy payment is estimated to cost the nation at least N4 trillion this year. For a poor nation, this is a costly price to pay for years of inefficiencies and corruption.
To address inflation, it is time to address structural issues and triggers. Notably is insecurity. The environment needs to be safe for any productive enterprise. Government is failing in its duty to protect lives and properties. It is high time farmers felt safe to go back to the farms. Also, trade policies should be aligned to encourage backward integration. No country produces all the food it consumes. The Buhari administration should understand that production will not happen by fiat or by closing the borders. The deregulated diesel market has shown what may become of petrol when subsidy is removed. Beyond the narrative of N5,000 to the vulnerable, it is important to note that calculating inflation indexes for different income groups provides better information on inflation actually experienced by the poor and should inform the design of social safety nets. Trust must be earned!
Besides, it is unlikely that the current inflationary surge will subside quickly; economic history suggests otherwise. With electioneering gaining momentum, it is time to see dirty money chasing the electorates, therefore worsening inflation. Bringing down the rate of inflation will have a significant political impact on the 2023 presidential election but the administration would have to get lucky to achieve this result in time for the campaigns, considering how hard it has become to sustain daily living in Nigeria, even though the NBS data downplay the magnitude.