Why Nigerian economy is in crises, stagflation —Economists

Economists have identified reasons why the Nigerian economy is in not only “stagflation,” but also  deeper economic crisis.

Stagflation, according to Economists, is a condition in which slow economic growth (stagnation), rising prices (inflation), and rising unemployment all happen at the same time.

Analysts have earlier highlighted challenges that are deterring the economy from leapfrogging out of crisis. According to them, in most areas, state productive capacity is low, service delivery is limited, insecurity and violence are widespread.

Wide infrastructure gaps constrain access to electricity and hinder the domestic economic integration that would allow the country to leverage its large market size.

The Former Commissioner for Agriculture in Ekiti State, Dr Olabode Adetoyi believes that the neglect of local production and importation of cheap products from overseas is putting the economy in crisis.

In an interview with the Nigerian Tribune on Sunday in Lagos, Adetoyi, who is the Chief Executive Officer, Value Ingredients Limited, explained that consumption economy was embraced against production.

Dr Olabode lamented that Farmers are suffering even as they cannot go to farms to produce foods because of insecurity, lack of financing,poor infrastructure that made local production expensive.

“Nigeria’s economy is in the crisis because we abandoned local production and rely on imported cheap products from oversea. Instead of production, we embraced consumption economy.

“Farmers are suffering, they cannot go to farms to produce foods because of insecurity, lack of financing, poor infrastructure that made local production expensive.” He said.

An Economist, Professor Akpan Hogan Ekpo, the former Director General of the West African Institute for Financial and Economic Management (WAIFEM) said the Nigerian economy is at its lowest since Independence, and that macroeconomic fundamentals have been moving in the wrong direction; even the performance of various sectors is nothing to write about.

According to him, the economy has been in a stagflation phase since 2010 and the economy is in crisis because major economic fundamentals such as unemployment, inflation, lending rates, deficits, debt/GDP among others have been moving in the wrong direction over the years.

“Nigerians have been told to tighten their belts, to be patient and that soon the economy will recover. The ‘reforms’ are not in the interest of the working people and other vulnerable groups. Trickle-down economics is inappropriate in an economy at the primary development stage. How long is the long-run – in the long-run, we are all dead, “Ekpo wrote in a position paper over the weekend.

He said the economic crisis requires the Visible Hand of government to restore recovery.

“The economy is sinking and reliance on the private sector and market forces would further deepen the crisis. There are forces more powerful than the market, for example, the World Bank and the IMF with their one-size fits all approach. Sometimes, the market has to be created but for now it could be used as an instrument,” the Economist stated.

According to Ekpo, the eight years of President Mohammadu Buhari with the APC mantra of change was a disaster regarding economic performance. The unemployment rate averaged 40 percent from 2008-2022, with the inflation rate trending at double-digit and approaching run away level. Lending rates averaged 26 percent, with the misery index standing at 86 percent in 2022.

Today Ekpo said, the World Bank and the IMF have become too visible in Nigeria’s appetite for advice. Their one-size-fits-all policies must be rejected if Nigeria is to make progress.

“On May 29, 2023, it was wrong for the President to pronounce that “oil subsidy is gone”. It was unnecessary, for there was no oil subsidy (which was a scam) from June 2023.

“Economists call such a situation an “announcement effect”. That single error sent the entire economy into panic buying petrol, and all prices, as I predicted in 1996, went up by more than 400 percent, exhibiting structural inflation.

“The exchange rate regime is another area of concern in which the President was not properly briefed. Opening the foreign exchange market and merging the so-called I & E window with the street rate(s) was wrong. In the Nigerian context, the foreign exchange market is not a competitive market. “The supply of forex in US dollar, Euro and Pound sterling (including the market of access) is never enough to meet the demand.

The supply curve of forex is not a well-behaved one,” oil production of around 1.3 million barrels per day (excluding condensates) compared with historical levels of over 1.7 million barrels per day (mb/d), and, at times, surpassing 2mb/d.”

Similarly, the Managing Director, Financial Derivatives Company Limited, Mr. Bismarck Rewane, the economy is in crisis.

“The CBN Act of 2007 (as amended) envisages that the Monetary Policy Committee could meet more than the six times stipulated in the Act during a crisis. Nigeria is in a crisis: inflation is at 29 percent (20 percent higher than the upper band of the CBN’s inflation target of nine percent); The naira is ranked as one of the worst-performing currencies in the world in 2023, and macroeconomic instability is worsening with GDP growth averaging 1.5 percent, 1.8 times lower than Africa’s growth of 2.7 percent in the past nine years, “  FDC Think Tank led by Mr Bismarck Rewane stated in their latest edition of ‘Whispers, ’ an analysis of the recent economic shifts.

The apparent disharmony between the fiscal and monetary policy authorities according to the FDC analysts is also worrisome.

“While the CBN seems to be poised for high-interest rates, the Ministry of Finance seems to favour low-interest rates. For example, while the CBN-issued one-year OMO (open market operation) bill rose to 17.75 percent p.a. (just one percent shy of the MPR of 18.75 percent p.a.) in January 2024, the

DMO-issued one-year Treasury bill fell to 8.40 percent p.a. (10.35 percent lower than the MPR) within the same period.

“Although a low Treasury note rate will lower the cost of debt servicing, it shifts the burden of inflation to households and businesses,” the FDC experts stated.

The naira’s continued depreciation will intensify price pressures and depress consumers’ real income.

Meanwhile, the CBN›s ability to supply forex at the I & E window would be constrained as foreign reserves continue to deplete, further weakening the naira.

According to FDC, Nigeria is largely an import-dependent country, therefore, higher global commodity prices will fuel cost pressures in the country, shrinking disposable income and heightening operation costs further. This will be supported by domestic inflation-stoking factors such as money supply saturation (up 39 percent y-o-y), exchange rate depreciation (down 51 percent in the past year) and higher energy costs (diesel prices climbed 68.75 percent to N1,080/litre since May 2023).

Despite the procurement of the $2.2 billion loan from the Afrexim bank by the CBN, the naira has continued to depreciate, losing nine percent to a record low of N1,365/$ in the last month, with the trend expected to continue due to the lingering forex supply shortages.

However, Managing Partner, Bloomfield Law Practice, Barrister Ayodele Oni said a lot of reforms are ongoing.

Ayodele noted that reforms come with their pains and challenges, adding that successive governments should have implemented many of these.

He explained that there would be these issues if one government does all these at the same time.

“I think the point is that a lot of reforms are going on.

“Reforms come with their pains/ challenges.

“What makes it more difficult is that successive governments should have implemented many of these.

“There would be these issues if one government does all these at the same time.” He said.

“Good reforms but challenging for the reasons stated above.” He stated.

Also, in offering solutions, Ekpo advised that as a matter of urgency, the administration of President Bola Ahmed Tinubu should Fix power (electricity) as no economy develops with generators.

For now, the power supply remains epileptic for businesses and individual usage. The epileptic power supply affects micro, small and medium-scale enterprises – the engine for growing the economy. Let constant power supply be one of your legacy. It is not rocket science, he said.

No serious investor (foreign and domestic) would be attracted to the country given the present security challenge.

Nigeria is not the only destination for investment. Those foreigners with dual citizenship according to Ekpo, would come to the country, change their US dollar and/or pound sterling into millions of Naira and open fast-food businesses and supermarkets.

The economy needs factories that manufacture goods and employ thousands of Nigerians.

“Solving the security challenge would return and reinvigorate the dwindling agricultural situation; farmers could enhance production thus lowering food inflation.

“Fix the oil refineries. It remains shameful that an economy with three refineries imports finished petroleum products. The import of petroleum products gulps almost two-thirds of our foreign exchange reserves,” he advised.