Solutions to Rising Prices in Nigeria
Chairman, Nigerian Economic Summit Group (NESG) and Managing Partner of Verraki Partners, Mr. Olaniyi Yusuf, is worried just like every other Nigerian about the rising prices of goods and services in Nigeria and has proffered some solutions, writes
Inflation in Nigeria has increased unabatedly from 12.13 per cent in January 2020 to 24.08 per cent as of July 2023, which is 85 per cent increase in the Nigerian Composite Consumer Price Index from 310.2 points to 575.3 over the same period. In theory, inflation erodes purchasing power of consumers, creates economic uncertainties, impacts real return on investments, and induces wealth redistribution in favour of debtors. In Africa and other less developed countries, high inflationary trends have been linked to poverty, currency depreciation, social unrests, food crisis and many other negative outcomes. According to the National Bureau of Statistics (NBS), headline inflation rose by 24.08 per cent in July 2023 making it the highest rate in decades. World Bank also said high inflation pushed an additional four million Nigerians into poverty in the first five months of 2023.
Amidst soaring prices, Nigeria’s economic growth rate slowed to 2.51 per cent yearon-year (y/y) in Q2 2023 compared to 3.54 per cent in Q2 2022. The agricultural and industry sectors contributed less (23.0 per cent and 18.6 per cent) to the aggregate Gross Domestic Product (GDP) in Q2 2023 relative to Q2 2022 (23.2 per cent and 19.4 per cent respectively).
Disturbed by the inflation figures and the continuous rise in the prices of commodities, the Chairman, Nigerian Economic Summit Group (NESG) and Managing Partner of Verraki Partners, Mr. Olaniyi Yusuf, said the persistent rise in price of goods and services in Nigeria would continue to hurt consumers and businesses if immediate policy actions are not put in place to reverse the trend.
According to him, “Higher-than-expected inflation and slow growth may weaken the country’s macroeconomic fundamentals further, hence the need for urgent policy action to calm inflationary pressures and drive more inclusive entire agricultural value chain. He said whilst the menace of armed banditry, kidnapping and farmland destructions remained widespread; the northern Nigeria where the bulk of food production occurs has been significantly impacted. In addition to insecurity which has been an issue for over a decade, Yusuf said the currency swap policy of the Central Bank of Nigeria (CBN) in Q1 pushed many farmers to miss the opportunity to buy inputs and to plant, which is now leading to low harvests in Q3 and high prices.
He said between January 2022 and August 2023, the Naira had depreciated by over 90 per cent (to an all-time high of N784.9/US$) at the official (I&E) window. “Nigeria’s average monthly import bill is estimated at $2.8 billion, as the country remains largely import dependent for food, petrol, raw materials, and industrial equipment. Currency depreciation causes the prices of imported goods to become more expensive, thereby inducing inflationary pressures. According to the NBS, imported food inflation in Nigeria rose to a six-year high of 19.94 per cent in July 2023 largely due to the currency depreciation,” Yusuf said.
Another driver of inflation, Yusuf said, was in the area of high energy costs, insisting that energy prices are a major driver of inflation globally.
“The price of petrol in Nigeria has increased from an average of N176 in June 2022 to over N600 as of July 2023. Similarly, a 40 per cent increase in electricity tariff is likely to take effect in 2023, following the adjustment of electricity pricing model by the Nigerian Electricity Regulatory Commission (NERC). These events mount significant pressure on inflation in Nigeria, as the cost of manufacturing and distribution of goods and services becomes exorbitant. More recently, the government’s announcement of subsidy removal from petroleum products is bound to be inflationary, “Yusuf said.
IMPLICATIONS FOR BUSINESSES
Speaking on the implications of rising prices on business in Nigeria, Yusuf said not all inflation is bad, but stressed that when price increase is out of control, it affects just about every area of a business, including the ability of managers to plan.
“In simple terms, inflation translates to higher utility costs, higher energy (diesel, petrol, etc.) cost, higher equipment cost, rent or lease increases, greater transportation costs, and lesser quality of life for the employees as their purchasing power reduces. It also does force customers to curtail their planned spending, which could imply loss of business opportunities. The recent inflation trend in Nigeria is clearly not healthy and hurts businesses, “Yusuf added.
He listed some of the ways inflation hurts businesses to include: Operating expenses; Cost of goods and services; Profit margins; Borrowing costs; Contractual agreements; Competitiveness and Supply chain disruptions. In the area of operating expenses, Yusuf said increase in the operating expenses had become inevitable.
“This is driven by the jump in energy costs (particularly diesel and petrol), rent and employee wages. Businesses would have to adjust their budget to accommodate these increases, “he said.
In the area of Cost of goods and services, he said businesses are experiencing an increase in the cost of raw materials and other inputs needed in the production process. Consequently, operating margins will come under intense pressure as it becomes more difficult to transfer these cost increases to the consumers through higher product prices.