• Energy poverty, low wages push inflation to 26.72 %
• Nigeria may suffer stagflation, CPPE warns
• Deal with oil thieves to boost earnings, Utomi
• Give incentives to diasporans to bring in forex, Uba tells govt
• Experts insist inflation is still too high
• Oil production hits 20-month high to 1.57 million per day
Rising food prices remain a source of concern for Nigerians, as the inflationary trend is not just spiking poverty levels but also increasing the number of people who cannot afford a healthy diet.
Prices of food produce continue to inch higher than historical average, driven by incidence of flooding in food-producing states, effects of below-average planting season on primary harvests, lingering security challenges in the country’s northern region, rising energy costs (diesel for transportation) and unstable foreign exchange rate.
The National Bureau of Statistics (NBS), yesterday stated that headline inflation rose to 26.7% in September as against 25.8% in August, while food inflation maintained its uptrend rising to 30.64% in September.
Though the Central Bank of Nigeria (CBN) has lifted the ban on 43 items from accessing foreign exchange at the official window to reduce pressure in the parallel market, analysts are concerned that the pressure may remain without significant increase in FX supplies.
The rising food prices from these supply chain disruptions have resulted in double-digit food inflation in Nigeria, which means that more people are likely to be unable to afford healthy diets.
According to the UN Food and Agriculture Organization (FAO), more than three billion people could not afford a healthy diet in 2020, an additional 112 million more people than in 2019. The increase was partly because of rising food prices, with the average cost of a healthy diet rising by 3.3% from 2019 levels.
As of August 2022, the FAO food price index was up 40.6% from average 2020 levels. Unless income levels increased by a similar magnitude, the healthy diet crisis is likely to have worsened, especially in low-income countries experiencing rampant food inflation. During the period, more Nigerians became multidimensionally poor.
According to the FAO, a healthy diet is one that meets daily energy needs as well as requirements within the food and dietary guidelines created by the country.
The (un)affordability is measured by comparing the cost of a healthy diet to income levels in the country. If the cost exceeds 52% of an average household’s income, the diet is deemed unaffordable. With food prices skyrocketing without commensurate increase in income, there are concerns of sustainability of government policies before a push back.
A development economist, Dr Chiwuike Uba, a professor of development economics, Pat Utomi, Chief Executive Officer, Dairy Hills Limited, Kelvin Emmanuel all said they were not surprised by the worrying figures churned out by the NBS.
“I am not surprised by the latest figures. The inflation figures are driven mainly by food and energy. The government removed subsidies on Premium Motor Spirit (PMS) which led to high prices of diesel and petrol,” Dr Uba stated.
He equally stressed that unbanning 43 items from the forex ban list will not assuage the situation, saying, “we are having supply challenges with our forex and not naira. What I think we ought to have done is to see how our remittances can come to our rescue. The amount that remittances bring into the economy is huge. If the Federal Government gives Nigerians abroad a guarantee through the official window to repatriate their funds, that will lessen the pressure on our forex. The high inflation we are having also ties to this same issue of forex challenge.”
The Director/CEO of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, also warned that the Nigerian economy may suffer stagflation if the persistent inflationary pressures in the Nigerian economy are not tackled.
Yusuf, who stated this while reacting to the latest inflation figures, said the rising inflation is fast becoming a major cause for concern, especially because of the acceleration effect on poverty. Purchasing power had continued to slump over the past few months.
“Economic growth may remain subdued while the risk of stagflation heightens. Key inflation drivers are not receding, if anything, they have become even more intense. These factors include the depreciating exchange rate, surging transportation costs, logistics challenges, forex market illiquidity, astronomical hike in diesel cost, climate change, insecurity in farming communities and structural bottlenecks to production. These are largely supply-side issues,” he explained.
Dr Muda added that elevated inflationary pressures also aggravate pressure on production costs, weaken profitability, erode shareholders value and dampen investors’ confidence.
He disclosed that not many producers or service providers can transfer cost increases to their consumers, adding that the implication is that manufacturers and other investors are taking a big hit.
He said: “Products with high demand elasticity are more vulnerable. Tackling inflation requires urgent government intervention to address the challenges bedevilling production, productivity and insecurity in the economy. The real sector of the economy needs to be incentivized to ensure moderation of production costs.”
He noted that the government could tweak the tariff policies by granting concessionary import duty on intermediate products for industrialists and investors in the logistics sector.
He also agreed that the effects of high energy costs are devastating, saying, “We need a declaration of state of emergency in the energy and power sectors. It will be very difficult to tame inflation if we do not fix power, logistics and forex. Regrettably, there are no quick fixes in these areas. But it is important to prioritize these issues and drive accelerated progress with the right strategies.”
Also, some experts said the time for the economy to decelerate is not now. They argued that any hope of a rebound is out of place for now.
Professor Godwin Oyedokun of Lead City University, Ibadan said an inflation rate of 26.72 per cent is still too high which the government should see as a crisis.
According to him, the inflation is still high, adding that whether it is slowing or not, is not the issue.
“Yes, there are some policy measures the new government has taken, but they are not enough to affect the inflation rate yet. However, we need to watch and see what happens in subsequent months to know if it will be consistent. It is only then we can say yes what is happening is because of the new policies.”
On his part, Lead Director of the Centre for Social Justice (CSJ), Eze Onyekpere, said Nigeria has not reached the point where inflation will start coming down.
His words: “We have not reached that point where the inflation will start coming down because we have nothing from the fiscal and monetary authorities for us to ensure that the inflation starts going backwards. Remember we are still dealing with the exchange rate component of inflation and we have not increased our inflow of dollar supply or anything that will help us stabilise the value of the naira and we are still borrowing.
“Nothing has changed, it is either CBN is printing money by Ways and Means or they are using money they got from the Cash Reserve Ratio (CRR) of banks to put back into the economy, otherwise I haven’t seen anything new.”
He added there is no way inflation can come down when the naira is losing value every day and the country has not increased its agricultural production because of insecurity.
On his part, Kelvin Emmanuel held that though he expects inflation to peak in December of 2023 following the latest numbers from the NBS, the fiscal side of the government must pay attention to the supply chain for Energy and food.
He argued that energy poverty from the importation of Liquefied Petroleum Gas (cooking gas), petrol, and diesel, and lack of infrastructure for the distribution of methane gas for power generation, all play an important role in the mix for inflation in prices.
He stressed the urgent need for the government to review the minimum wage and institute an employee casualization bill, and a review of HR outsourcing limit to protect employees, especially in unorganized labour of the private sector, as a tool to enable them to weather the shocks from continuous rise in inflation.
He submitted that while the Central Bank must be shedding load from direct intervention through expansionary monetary policy to focus on its core mandate, it is important to also address the issue of the supply of forex required to clear outstanding on forwards to bring back the exchange rate to a fair value within the real effective exchange rate band, as shocks from a high black unofficial premium have contributed significantly to rising inflation.
He added: “The removal of the ban is a welcome development as it removes the incentive for those companies to source supply from the parallel markets. What the government needs to do to feel its impact, is ensure it reduces the black-market premium.”
Pat Utomi expressed dismay over the continuous slide of the naira which is responsible for low activities within the manufacturing space. Utomi said the present situation may not abate until the government takes bold steps to firm up the production of goods and services.
According to him, Nigeria still has a lot of foreign exchange windows to tap from provided the government is ready to deal decisively with crude oil thieves.
He explained: “Our oil production has slowed down because of the oil cabals that are stealing the crude by every means with their cronies. I must tell you that the authorities know them. Our economy will get back on track quickly if the government is ready to expose and shame the thieves whose only interest is to get the sector privatized for their selfish reasons. I am saying these people should be openly disgraced and shamed.”
On the immediate solution to curb the rising inflation, Utomi urged the government to fix the refineries, tackle insecurity and ensure farmers are back on the farm.
He added that the government needs to encourage modern farming techniques that will bring value addition and high quality that can compete globally.
On a positive note, cheery news comes from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) that Nigeria’s average oil production has hit a 20-month high of 1.57 million barrels per day.
The report indicated that crude oil output (including condensate) rose by 11.1 per cent from 1.43 million in August and surged by 25.6 per cent from the year-low of 1.23 million barrels in April 2023.
Cumulatively, these indicate that Nigeria produced 47.2 million barrels of crude oil and condensates in September, which is the highest since January 2022 and stood at 51.9 million barrels.
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