In­fla­tion-slam creeps on Nige­ria ex­pos­ing fis­cal pol­icy naivetés


In­fla­tion­ary pres­sure driven by ris­ing food prices Con­sumers feel ghostly pinches in their pock­ets A Naira de­val­ued Early sting with VAT raise Elec­tric­ity tar­iffs up de­spite Covid-19 Stamp duty im­ple­men­ta­tion driven hard Good­bye neigh­bours, bor­ders re­main closed

A COCKTAIL OF FIS­CAL POL­ICY NAIVE TÉS demon­strated since 2015 by man­agers of the trea­sury when Nige­ria’s mon­e­tary pol­icy au­thor­i­ties took near to­tal charge of eco­nomic man­age­ment to avoid a vac­uum is be­gin­ning to creep in eerily in what an­a­lysts tell Busi­ness A.M. an in­fla­tion-slam has taken off and is headed in this di­rec­tion.

Last week in­fla­tion num­bers for Septem­ber shot up again, mim­ick­ing the rise that was pro­duced in Au­gust. Many eco­nomic an­a­lysts

say it is not sur­pris­ing the up­trend we are cur­rently wit­ness­ing, a num­ber of fac­tors had pre­pared climb­ing in­fla­tion to look Nige­ria’s way.

They cite a de­val­ued do­mes­tic cur­rency, the naira, for in­stance; they add that rise in the head­line in­fla­tion is the im­me­di­ate out­come of the dou­ble whammy in­crease in the pump price of fuel and the in­crease in elec­tric­ity tar­iff, for which the gov­ern­ment of­fered a tem­po­rary re­lief in just to avoid a planned show­down with labour.

Ear­lier in the year, in what ap­peared like the fis­cal au­thor­i­ties only know how to col­lect, the value added tax (VAT) had been raised be­cause gov­ern­ment said it was broke and Nige­ri­ans have to pay more to keep it go­ing. An­a­lysts say you can add to that the near ag­gres­sive im­ple­men­ta­tion of stamp duty col­lec­tion en­force­ment and the con­tin­u­ous clo­sure of the land bor­ders, and you have a cocktail of fis­cal and trea­sury man­agers show­ing that they have no hand on the han­dle, per­haps clutch­ing at straw, said one an­a­lyst who did not want to be named.

Some an­a­lysts who spoke to Busi­ness A.M. for this creep­ing in­fla­tion-slam story talked about not be­ing sur­prised that food in­fla­tion is ex­ert­ing the most pres­sure, ris­ing by as high as 16.6 per cent in Septem­ber, ow­ing to sup­ply short­ages from the lin­ger­ing ef­fects of COVID-19 and in­se­cu­rity chal­lenges in some food­pro­duc­ing ar­eas of the coun­try.

On the pos­i­tive an­gle, the rise of food prices, the an­a­lysts said, will at­tract more peo­ple and in­sti­tu­tional in­vestors who can in­tro­duce a mech­a­nised agri­cul­tural sys­tem which is be­lieved to boost pro­duc­tion with a lot of cap­i­tal and value be­ing added, es­pe­cially with the clo­sure of bor­ders that helped push Nige­ria as num­ber one in rice pro­duc­tion in Africa.

The re­cently re­leased in­fla­tion re­port from the na­tional bureau sta­tis­tics (NBS) shows that head­line in­fla­tion in Nige­ria rose by 1.48 per cent month on month to stand at 13.71 per cent in Septem­ber, the high­est rate recorded since March 2018. How­ever, it should be noted that the rate has main­tained an up­ward tra­jec­tory since Septem­ber 2019; and food in­fla­tion (16.66%) has been the pri­mary driver of the head­line rate ac­cel­er­a­tion while the sup­ply side con­straints have wors­ened due to the pan­demic and is partly to be blamed.

De­spite this up­trend in the in­fla­tion fig­ure cou­pled with other fac­tors that are mount­ing more pres­sure on in­fla­tion and also squeez­ing the pock­ets of con­sumers, it still re­mains that sup­ply dis­rup­tion due to the rain, lo­gis­tics is­sues, road­blocks, the de­te­ri­o­rat­ing state of the roads have sig­nif­i­cantly im­pacted on the in­fla­tion num­bers neg­a­tively. Sim­i­larly, COVID-19 pan­demic has played its role and it is still show­ing signs that it is here to stay with fresh cases aris­ing with an­nounce­ment of lock­downs around the world; thus, food prices have tripled more than what they were at the start of the year.

The char­tered ac­coun­tant, Ijezie Ok­wudili, founder and manag­ing di­rec­tor of Ok­wudili Ijezie & Co and I & I In­vest­ment Lim­ited, an in­vest­ment ad­vi­sory com­pany, in an in­ter­view with Busi­ness A.M., pre­dicted that in­fla­tion fig­ure will hit 20 per cent by the close of the year; though, the Abuja based sta­tis­tics bureau re­ports the in­di­ca­tor to av­er­age be­tween 12 and 13 per cent.

“Ear­lier, I pre­dicted that the in­fla­tion rate will hit 20 per cent by the end of the year 2020. Mean­while, I’m off the mark as some in­ter­na­tional agen­cies have pre­dicted just a few weeks back that Nige­ria’s in­fla­tion rate is 31.1 per cent. Mean­while, NBS said in­fla­tion is av­er­aged at 12 to 13 per cent. It is a lie. Our in­fla­tion rate is in ex­cess of 20 per cent.

“Even the pres­i­dent had com­plained about the ris­ing prices of food. It is un­for­tu­nate but ex­pected. In the north­east re­gion, no one farms there be­cause, peo­ple are in the IDP camps, and the Boko Haram mem­bers will have their day to burn the houses, farms and no­body dares go to the farm. The same story writes for the North West with ban­ditry. You get to the farm, ban­dits can come to kill or scare one away. So, no­body goes to the farm. No cul­ti­va­tion.

“In the north-cen­tral, the herds­men have their fame there es­pe­cially in the Plateau, Taraba and Benue and even Niger states. The herds­men raid there; they visit peo­ple in their farms, rape women and kill farm­ers there.

So, why would you go to the farm? So the food prices have sky­rock­eted and there is scarcity,” said Ok­wudili.

In a sim­i­lar de­vel­op­ment, the Fi­nan­cial Deriva­tive Com­pany (FDC) had also pro­jected head­line in­fla­tion to 13.56 per cent while food in­fla­tion to 16.45 per cent for Septem­ber, away from 13.22 recorded in Au­gust. Ac­cord­ing to the pro­jec­tion, the coro­n­avirus pan­demic has played its role and still show­ing signs that it is here to stay with fresh cases aris­ing and lock­downs around the world; this has shown a sig­nif­i­cant im­pact on prices. Fur­ther­more, the gov­ern­ment is in a bid to in­crease the money sup­ply to make sure they can al­le­vi­ate the prob­lems that were orig­i­nally there, and it is likely to have an im­pact on in­fla­tion num­bers.

How­ever, with the in­creased money sup­ply, we are likely to see an in­crease in con­sumer de­mand, and when con­sumer de­mand is in­creas­ing, when there is no sup­ply to com­ple­ment it, then you will ob­vi­ously see an in­crease in in­fla­tion and, par­tic­u­larly, the food com­modi­ties will get af­fected as we ap­proach the festive sea­son.

Mean­while, con­sid­er­ing the po­si­tion of the mon­e­tary pol­icy com­mit­tee (MPC) at its last meet­ing in Septem­ber where they posited that the rise in the in­fla­tion num­bers were not due to mon­e­tary fac­tors, Uche Uwaleke, a pro­fes­sor of the cap­i­tal mar­ket and pres­i­dent of the Cap­i­tal Mar­ket Aca­demics of Nige­ria (ACMAN), in a note to Busi­ness A.M. at­trib­uted the causal fac­tors of Nige­ria’s ris­ing in­fla­tion to the cur­rent eco­nomic re­al­i­ties which are nat­u­ral and also man-made as seen to cre­ate un­cer­tain­ties in the econ­omy.

“The up­trend in head­line in­fla­tion is ex­pected. It is the im­me­di­ate out­come of the in­crease in the pump price of fuel, the Value Added Tax, elec­tric­ity tar­iffs as well as the im­ple­men­ta­tion of stamp du­ties and the con­tin­u­ous bor­der clo­sure. All these fac­tors ag­gra­vated the legacy is­sues re­flected in in­fra­struc­ture deficit, es­pe­cially power and trans­port, as well as illiq­uid­ity in the forex mar­ket and in­se­cu­rity.

“It is also not a sur­prise that food in­fla­tion is ex­ert­ing the most pres­sure, ris­ing by as high as 16.6 per cent in Septem­ber, ow­ing to sup­ply short­ages from the lin­ger­ing ef­fects of COVID-19 and in­se­cu­rity chal­lenges in some food-pro­duc­ing ar­eas of the coun­try. As a mat­ter of fact, in­se­cu­rity sit­u­a­tion in states like Zam­fara and Katsina is con­tribut­ing to the in­fla­tion­ary pres­sure from re­duced food out­put.

“It is no sur­prise there­fore that Bauchi and Zam­fara recorded the high­est in­fla­tion rates while rel­a­tively safe ar­eas like La­gos and Abuja had the least num­bers. The har­vest sea­son may not sig­nif­i­cantly rein-in in­fla­tion ex­cept if is­sues of in­se­cu­rity and forex pres­sure is ad­dressed” the cap­i­tal mar­ket con­cludes.

Con­cur­ring to the views of Ay­o­deji Ebo, Head of Re­search at Green­wich Mer­chant Bank, look­ing at the

num­bers, we can at­tribute the ma­jor pres­sure on the food in­fla­tion to the flood­ing within the north­ern re­gion which af­fected lots of har­vests, de­pre­ci­a­tion of the naira at the par­al­lel mar­ket, and be­cause we are im­port­ing, most traders use the mar­ket to ac­cess funds. Also, the in­crease in the Septem­ber PMS Price, trans­port chal­lenges among other fac­tors.

“From the fore­go­ing, we see the out­look to be: there would be more in­fla­tion­ary pres­sure and also with the poor har­vest­ing and poor stor­age sys­tem of our agri­cul­tural prod­ucts in the value chain, it will also lead to price in­creases like we do see on a sea­sonal ba­sis. By and large, we ex­pect the pres­sure to come from the food in­fla­tion an­gle, based on the known fac­tors and the im­pact of COVID on the dis­tri­bu­tion chan­nels” Ay­o­deji told Busi­ness A.M.

Lend­ing his voice to MPC po­si­tion on in­fla­tion, Garba Kurfi, the manag­ing di­rec­tor of APT Se­cu­ri­ties and Funds Lim­ited, said the MPC’s re­duc­tion of the MPR by 100 ba­sis points as mon­e­tary eas­ing stance is a right step to re­duc­ing the cost of funds for the bor­rower of funds from bank and dis­cour­age sav­ing and push­ing in­vestors into look­ing for al­ter­na­tive ways to in­vest rather than keep­ing money in the bank, which pushes more funds into the cap­i­tal mar­ket.

“The Nigerian in­vestors are al­ready look­ing for al­ter­na­tive in­vest­ments such as cap­i­tal mar­ket; agri­cul­tural com­modi­ties, which are ben­e­fi­cial to the re­cent CBN pol­icy. How­ever, the #End­sars protests, if not put un­der con­trol, can af­fect the lit­tle hope of a bounce-back of the econ­omy,” he said.

A num­ber of ques­tions stare many in the face. For, in­stance, how can Nigerian busi­nesses scale on the back of ris­ing in­fla­tion, covid-19 pan­demic, fall­ing oil prices, dwin­dling rate of eco­nomic ac­tiv­i­ties as a re­sult of the #End­sars protest across the coun­try?

It’s re­ally a try­ing time for most busi­nesses in Nige­ria with the pan­demic ham­per­ing on ac­tiv­i­ties, in­fla­tion is af­fect­ing dis­pos­able in­come and it will even­tu­ally af­fect de­mand.

An­a­lysts are of the view that for most com­pa­nies, it’s a time for sur­vival by try­ing to see how they can ex­pand. On the other hand, the protest will also af­fect dis­tri­bu­tions of goods and ser­vices should it get pro­longed; move­ments of goods and ser­vices will be af­fected as other busi­nesses in­di­rectly will be­gin to also face the chal­lenge which will, in turn, af­fect prof­itabil­ity. For busi­nesses, it is time to see how to re­struc­ture loans in or­der to main­tain cash flow.

Mean­while, the fed­eral gov­ern­ment’s pro­jec­tion of in­fla­tion to 11.95 per cent for 2021 is wish­ful think­ing, say many an­a­lysts. They say while it is not bad to wish, this can only be achieved if all things be­ing equal yield to ex­pec­ta­tions. The pegged rate of the ex­change rate is to give con­fi­dence to for­eign in­vestors that there is not likely to be a de­val­u­a­tion of the naira again, which helps in plan­ning for the econ­omy. But this is de­pen­dant on the avail­abil­ity of FX and price of crude oil, which is a ma­jor source of FX.

Fun­da­men­tally, the har­vest sea­son may not sig­nif­i­cantly rein-in in­fla­tion ex­cept for is­sues of in­se­cu­rity and forex pres­sure is ad­dressed, Uwaleke had ear­lier told Busi­ness A.M. Also, the in­ter­ven­tions in the agri­cul­ture sec­tor by the CBN needs to be mon­i­tored to en­sure that the funds are used for the pur­poses meant. There is equally the need to speed up the im­ple­men­ta­tion of the mass agri­cul­ture pro­gramme in the gov­ern­ment’s Eco­nomic Sus­tain­abil­ity Plan.

Com­mis­sion (NCC); Olu­sola Te­niola, pres­i­dent, As­so­ci­a­tion of Telecom­mu­ni­ca­tions Com­pa­nies of Nige­ria (ATCON); Muyiwa Ogung­boye, 2nd vice pres­i­dent, ATCON; Adeleke Ade­wolu, ex­ec­u­tive com­mis­sioner, stake­holder man­age­ment, NCC, dur­ing the maiden edi­tion of the Na­tional Di­a­logue on Tele­coms and ICT Sec­tor in Nige­ria or­gan­ised by ATCON at the NAF Con­fer­ence Cen­tre & Suites, Kado, Abuja, re­cently

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