• Wholesalers, importers hoard stocks 
• Nigeria risks social unrest, AfDB warns
• Uba: Create vehicles to attract diaspora remittances  
• Expect uptick in debt default, says Fitch
 
Falling naira, rising prices and poor local capacity utilisation are taking a serious toll on individuals and businesses and equally outstretching the survival of millions of households.
 
Whereas the consumer price index (CPI) reading of January puts the headline inflation at approximately 30 per cent, the price crisis appears to be much deeper.
 
On the street, there is a joke that one only knows the price of an item at the point of purchase. But beyond the joke, prices of essential consumption items are adjusted daily.  
  
Whereas it is not a widespread practice yet, The Guardian learnt at the weekend that wholesalers of essential commodities have started engaging in strategic hoarding and rationing of their stocks in expectation of a future rise in prices.
   
With manufacturers and importers reviewing prices almost daily, sources who are well-informed about the new practice informed our correspondent that hoarding is becoming more prevalent. Understandably, sellers are concerned about the possibility of the replacement costs of their wares.
  
“Sometimes, the importers will tell you beforehand that they are working on new prices. In recent months, the information comes almost every week. If you have the information and you are not sure of the percentage change, it is safer to hoard old stocks otherwise you would not be able to replace them when the new prices are released.  
  
“And it is not only wholesalers or retailers, manufacturers and importers do the same when they are not certain of percentage change. When you hear they are out of stock of certain items, they may stop selling pending when they make decisions on new prices,” a merchant explained.
  
Year-to-date, some essential commodities have seen over 50 per cent changes in their prices. For instance, cement, a major variable determining rent in major cities across the country, has recorded a nearly 100 per cent increase in some parts of the country. In some states, a 50 kilogramme (KG) sells for as much N11,000 as against the average retail price of N5000 it sold last year.
 
Most traders index their prices on the black-market foreign exchange (FX) rate, which stopped at about N1650/$ last week. Many Nigerians think it is immoral to set prices for locally-produced goods, including food items, on the value of dollars relative to naira.       
 
But the government may have also erred in its desperation to expand its revenue-generating capacity. This year alone, for instance, the import duty FX rate has been raised about six times, taking the exchange benchmark from N951/$ to about N1500/$. 
 
Whereas the Nigeria Customs Services (NCS) is constrained to adopt the single FX window for its duty assessment, using the extremely volatile spot rate as opposed to a monthly average, some experts have suggested, is an invitation to price crisis in a largely import-dependent county.  
  
But NCS, a supposed trade facilitating agency, is obviously under pressure to meet its N5.8 trillion revenue target. Hence, the failing naira offers an opportunity to increase its revenue drive. 
  
Failing naira leaves the ailing economy with multiple afflictions. Food prices have spiked with rice, the most common staple food, now selling for about N75,000 or 150 per cent above the country’s minimum wage.  
 
Sadly, there is no compensating variation from anywhere, with payment of the N35,000 wage bonus the organised labour secured last year said to have been stopped.
 
Last two weeks, pockets of demonstrations erupted in the country, reminiscent of the #EndSARS protest of 2020. The government spokespersons dismissed the protests, saying Nigeria is relatively cheap to live in.
 
Yet, public fora and social media are awash daily with tales of woe, pains and hardship. With prices of essential commodities doubling or tripling since President Bola Tinubu assumed the reins and the currency losing about 70 per cent of its value, some Nigerians are sarcastically asking for the return of ex-President Muhammadu Buhari, under whose watch the general price level rose by 220 per cent.         
 
Last week, the African Development Bank (AfDB), in its 2024 microeconomic outlook, cautioned that the price crisis could trigger social unrest in Nigeria as well as a few other African countries.
 
“Internal conflicts and violence could also result from rising prices for fuel and other commodities due to weaker domestic currencies and reforms… The removal of fuel subsidies in Angola, Ethiopia, Kenya and Nigeria and the resulting social costs has led to social unrest driven by opposition to government policy,” AfDB noted.  
  
A former vice president and a key opponent of Tinubu at last year’s election, Atiku Abubakar, also knocked the President for his hardline position on the citizens’ welfare yesterday, saying the administration has not demonstrated it can contain the crises at hand and offered new hope.  
 
“The wrong policies of the Tinubu administration continue to cause untold pain and distress on the economy and the rest of us cannot keep quiet when the government has demonstrated sufficient poverty of ideas to redeem the situation. If the government will not hold on to their usual hubris, there are ways that the country can walk out of the current crisis,” Atiku wrote in a statement posted on his X page.  
 
Atiku admitted that the country does not have the firepower to maintain a fixed FX regime and that his campaign blueprint kicked against it. But he argued that he would have encouraged a “gradualist” approach to de-pegging naira and liberalising the FX market given Nigeria’s peculiar situation.
 
“A managed-floating system would have been a preferred option. In simple terms, in such a system, the naira may fluctuate daily, but the CBN will step in to control and stabilise its value. Such control will be exercised judiciously and responsibly, especially to curb speculative activities,” Atiku.
 
Interestingly, Atiku’s policy advocacy is not different from the approach adopted by ex-CBN governor, Godwin Emefiele, in the nine years led the monetary policy authority. Occasionally, the International Monetary Policy (IMF), the World Bank and local laissez-faire economists advocated the pro-market approach that was adopted after Emefiele’s exit.  
 
The current market condition brings into fore the Structural Adjustment Programme (SAP), a failed policy prescription of the Bretton woods institution that marked the beginning of the debauchery of naira. What remains of the current reform is for the authority to begin a series of counter-policy options to savage the currency.     
  
“Nigeria has insufficient, unstable, and precarious foreign reserves to support a free-floating rate regime. Nigeria’s reserves did not have enough foreign exchange that can be sold freely at fair market prices during crises. Nigeria is not earning enough dollars from its sales of crude oil because its production of oil has been declining. Nigeria is not attracting foreign investment in appreciable quantities.
   
“These are enough reasons for Nigeria to seek to have greater control of the market, at least in the short to medium term when convergence is expected to be achieved. Tinubu’s new FX management policy was hurriedly put together without proper plans and consultations with stakeholders. The government failed to anticipate or downplay the potential and real negative consequences of its actions,” Atiku pointed out.
 
The currency crisis has enormous short-term risks including a potential uptick in the non-performing loan (NPL) ratio, Fitch Ratings warned at the weekend even though it admitted the near convergence between the official and unofficial rates would impact the economy positively.  
 
“The continued move away from a longstanding managed exchange rate regime is conducive to restoring capital inflows and reducing foreign-currency shortages that have weighed on economic activity in recent years.
  
“However, it creates short-term macroeconomic risks, such as accentuating already-high inflation that may weigh on economic growth, heightening loan quality and capital pressures already facing the banking sector,” the rating agency noted.
 
The prospect of agriculture, which offers a short-term solution assuming the government is ready to address the associated supply issues, Dr Chuwuike Uba, an economist regretted, is kneecapped by insecurity. And the government must, as the first port of call, address the insecurity. Otherwise, any resource thrown into it will be wasted. 
  
With Nigerians fleeing the country in droves, Uba noted, diaspora remittance also offers an opportunity to increase FX inflow. But the government, as a necessary condition, would need to create credible investment vehicles that would get the money to flow in.
  
As a sufficient condition to turn on the confidence, send a strong signal that whatever investments sent to the country are safe and secured, where lies the hard nut the government will need to crack.