Protests broke out in Nigeria, on Monday, over the high cost of living, food inflation and the current economic hardship being experienced in the country.
Some of the placards have inscriptions such as ‘End food hike and inflation’, ‘The poor is starving’, ‘Tinubu, don’t forget your promises’, amongst others.
Placard-carrying youths in their droves chanted various songs calling on the Federal Government to live up to its electoral promises and stop the suffering across Nigeria.
A herd of economic analysts have lent their voices to the situation. Some threw punches at the policies of the current administration while others offered useful recommendations.
However, there is no denying the fact that Africa’s biggest economy is grappling with a cost of living crisis, with the inflation rate hitting almost 30 percent in January – the highest in nearly three decades.
Nigeria’s currency, the naira, plummeted to N1,524 to $1 on Friday, at the official market, reflecting a 230 percent loss of value in the last year.
With a population of more than 210 million people, Nigeria is not just Africa’s most populous country but also the continent’s largest economy.
On Friday, February 23rd, 2024 Proshare, a specialized financial market intelligence hub, hosted an Economists’ conference themed “Policy Crossroads: The Choice Between Strangulation and Expansion.”
Among the speakers include Dr Ayo Teriba, CEO of Economic Associates; Mr. Bismarck Rewane, CEO of Financial Derivatives Company; and Dr. Biodun Adedipe, Chief Consultant, B.A.A Consult.
Others are Dr Tilewa Adebajo, CEO of CFG Advisory; Mr Tope Fasua, Special Adviser on Economic Matters to the President (Office of the Vice President); Dr Ogho Okiti, CEO of Think Business Africa; Dr Yemi Kale, Group Chief Economist & Managing Director (Research & International Cooperation) Afrexim Bank and Mr Teslim Shitta-Bey Chief Economist; Proshare Limited.
The experts in their submissions agreed that Nigeria is not only at cross roads, but we are at the point where the country is doomed if the right things are not done now.
“ So there are no guarantees that any particular set or cocktail of options will take us out. But one thing is sure that if you do nothing, are bound to crash, “ Reward stated.
They believed that leaders should start with problem identification, adding that Nigeria’s economic problems are well documented, well known. And actually, the situation has deteriorated over the past 30 to 40 years and the structural part of it is due to management.
According to them, the major problems are long term, but the ones that are obvious in the last few months is the depreciation of the naira.
And this cannot be divorced from the country’s long term problems.
“And what is our long-term problem? We have just not been able to organize our fiscal policy and expenditure. If you look at the data very well, since the 1970s, we’ve probably only had a fiscal surplus in probably one or two years. “So whether there’s high prices or low prices, we just keep incurring and keep expanding deficits and debts.
“So we are not able to put a lead or some kind of control on our fiscal policy, “ Fasua said.
To Dr. Yemi Kale, there are very significant challenges in the Nigerian economy and tackling one on its own in isolation is going to hit the other one.
He said lack of coordination and harmonization is another major problem as every different policymaker is just taking a decision without proper impact analysis on how it affects the other.
“So, what we need to say is a combination of harmonized, well thought out, well-researched policies, understanding the implication on other parts of the economy and preparing for those impacts. I don’t think we have been doing that, “ he stated.
In the same way, some analysts believe that the recent measures rolled out by Lagos State government to support residents mirrors the level of hardship across Nigeria. Nigerian households and businesses have continued to navigate the socio-economic challenges of high inflation, foreign exchange illiquidity and the effect of removing the fuel subsidy,
Governor Babajide Sanwo-Olu in a media chat on Thursday outlined steps his government will take to address economic issues at the sub-national issues.
According to him, The Lagos State Government has approved a 3-day work week for Levels 1-13 civil servants; this measure is aimed at providing relief and flexibility, reflecting our commitment to the workforce’s well-being.
For Transportation, the Governor said a 25 percent reduction in transport services for the State Public Transport system (BRT, Train, Ferry) has been implemented, putting back over N500million monthly into the pockets of Lagosians.
Speaking on the rising food prices in the country, he announced the Sunday Markets across 42 identified markets across the state to sell food items at affordable rates. Lagosians will be able to buy commodities that are not above the N25,000 threshold. The plan, according to the Governor, is to serve over 500,000 Lagosians with essential food items at rates that defy inflation.
He noted that four more food hubs are under construction, and seven other locations in other Local Government Areas, LGAs, have also been identified for more food hubs to be developed among others.
In its recent assessment report on Nigeria, the International Monetary Fund (IMF) depicted a picture that is more dire than Nigeria’s actual situation for the remainder of 2024 if elements like appropriate monetary measures intended to revive the nation’s economy are not put into practice.
The IMF warns that if the naira continues to experience grave pressures without the government addressing the key issues that threaten the stability of the country’s economy, prices of goods and services will soar, thereby causing the situation to get uglier than it already is.
There is a consensus among some analysts that the inflation targeting approach adopted by the CBN might be an illusion as moves by the Cardoso school of thought at the CBN are yet to yield counter-inflationary results for now.
The foreign exchange burden continues to hit hard on the economy. Insecurity, energy, and low productivity concerns also remain key risks driving inflation, implying that inflation is not merely driven by high economic liquidity that needs to be mopped up. Some analysts have mooted that policy rate hikes may remain counterproductive and inadequate in stabilizing the economy.
Available data show that food accounts for about 51 percent of Nigeria’s inflation basket and has been the primary driver of the headline rate and if farmers are prevented from going to farm, the situation will only get worse.
In the selected food price watch report for December, a separate report by the NBS, we see that all 43 food items surveyed reported y/y price increases.
“Structural supply-side constraints, a combination of insecurity and conflict, and distribution challenges continue to exert upward pressure on food inflation.
“Fx liquidity constraints, which have resulted in limited Fx availability for food importation, have also contributed to rising food prices. For instance, imported food inflation has remained elevated, steadily rising since September ‘19, “ analysts from FBNQuest, the investment banking arm of FIrst Bank Holdings stated.
The situation in the country is not also smiling at investment, wealth creation and economic growth.
Similarly, though stocks closed positive on Wednesday as the on the All-Share Index rose 0.3 percent to 101,362.38 points, it had began the week on a negative note as investors digested a hotter-than-expected January inflation report that showed the Consumer Price Index hitting 29.90 percent in January from 28.92 percent in December 2023.
The Nigerian equity market lost N730billion on Tuesday. Dangote Cement, MTN Nigeria had dragged the market to a N1.82 trillion loss on Monday.
The bleeding continued on Tuesday as the benchmark index, the All-Share Index and the market cap declined by 1.30 percent to 101,060.67 points and N55.298tn, respectively.
The market’s year-to-date return also slipped further to 35.16 percent from 36.94 percent in the previous day.
As companies in the Fast Moving Consumer goods sector fear reduced patronage, analysts said some may be downsizing as a result of the harsh business operating environment.
In another development, available records from the National Pension Commission (PenCom) show that in the last one year, 482,857 disengaged workers, mainly from the private sector, are now finding succour in their pension contributions, withdrawing N217.4 billion from the pension fund assets.
However, naira devaluation is already eating into the future as CBN and PenCom data show that approximately $1 billion has been eroded in the 3 months when the value today is compared with the naira value as of October 2023.
Pension Asset Value (Net) as of October 2023 stood at N17.66 trillion and N18.36 trillion as of December 2023.
Denominated in US dollars, the funds amounted to $21.40 billion ($1 was N8824.99 in Oct 2023) as at October 2023 and $20.41 billion ($1 was $899.39 in Dec 2023) as of December 2023. Comparing the exchange rate between the two months and that of Monday, February 2024 at N1,606.32/$1 shows the the real value of the funds is eroding with the depreciating local currency.
In a similar development, the value of pension fund assets is being eroded by weaker naira and rising inflation.
As of December 2023, the pension fund assets have risen to N18.3 trillion.
In the breakdown of the 3rd Quarter 2023 report of the pension industry released by the National Pension Commission (PenCom) at the weekend, further findings show that disengaged workers. have accessed N43.4 billion from their pension savings between Q3, 2022 and Q3, 2023 to sustain their livelihood pending when they will get another job.
Africa’s largest economy is battling a currency crisis and soaring inflation
With annual inflation nearing 30% and a currency in freefall, Nigeria is facing one of its worst economic crises in years, provoking nationwide outrage and protests.
The Nigerian naira hit a new all-time low against the U.S. dollar on both the official and parallel foreign exchange markets on Monday, sliding to almost 1,600 against the greenback on the official market from around 900 at the start of the year.
President Bola Tinubu announced Tuesday that the federal government plans to raise at least $10 billion to boost foreign exchange liquidity and stabilize the naira, according to multiple local media reports.
The currency is down around 70% since May 2023 when Tinubu took office, inheriting a struggling economy and promising a raft of reforms aimed at steadying the ship.
In a bid to fix the beleaguered economy and attract international investment, Tinubu unified Nigeria’s multiple exchange rates and enabled market forces to set the exchange rate, sending the currency plunging. In January, the market regulator also changed how it calculates the currency’s closing rate, resulting in another de facto devaluation.
Years of foreign exchange controls have also generated enormous pent-up demand for U.S. dollars at a time when overseas investment and crude oil exports have declined.
“The weakened exchange rate should increase imported inflation, which will exacerbate price pressures in Nigeria,” Pieter Scribante, senior political economist at Oxford Economics, said in a note Friday.
The country is Africa’s largest economy and has a population of more than 210 million people, but relies heavily on imports to meet the needs of its rapidly growing population.
“Shrinking disposable incomes and worsening cost-of-living pressures should remain concerns throughout 2024, further stifling consumer spending and private sector growth,” Scribante added.
Inflation, meanwhile, continues to soar, with the headline consumer price index hitting 29.9% year-on-year in January, its highest level since 1996. The increase is being driven by a persistent rise in food prices which jumped by 35.4% last month compared to the year before.
The surging cost of living and economic hardship prompted protests across the country over the weekend. The plummeting currency has added to the negative impact of government reforms such as the removal of gas subsidies, which tripled gas prices.
President Tinubu said in late July that the government had already saved more than 1 trillion naira ($666.4 million) from removing the subsidies, which it will redirect into infrastructure investment.
Alongside soaring inflation and a plunging currency, Nigeria is also battling record levels of government debt, high unemployment, power shortages and declining oil production — its main export. These economic pressures are compounded by violence and insecurity in many rural areas.
“Excess market liquidity, exchange rate pressures, and food and fuel shortages threaten price stability, while inflation risks rising out of the government’s control,” Oxford Economics’ Scribante added.
“Robust import demand could force the Central Bank of Nigeria (CBN) to reimpose import bans and FX restrictions to lessen the burden on the balance of payments. This could exacerbate domestic product shortages and increase inflation further.”
Inflation is expected to peak at nearly 33% year-on-year in the second quarter of 2024, according to Oxford Economics, and could stay higher for longer given the plethora of economic risks ahead.
“Furthermore, rising inflation and increased hawkishness by the CBN indicate that the policy rate could be raised this quarter,” Scribante said. The policy rate currently sits at 18.75%.
“We expect a combined 200 bps in rate hikes at the next two MPC meetings, scheduled for end-February and end-March this year; however, we think that more hikes are needed to stem rising inflation,” Scribante added.
Jason Tuvey, deputy chief emerging markets economist at Capital Economics, sees the CBN opting for a bigger interest rate bazooka when policymakers meet on Feb. 26 and 27.
“The meeting will be a key test of whether the policy shift under President Tinubu is truly regaining some momentum,” Tuvey said in a note Thursday.
“We expect that the MPC will try to restore some of its inflation-fighting credibility by delivering a large interest rate of 400bp, to 22.75%.”
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