MORE Nigerians are pushed into poverty as the latest figures from the National Bureau of Statistics (NBS) figures showed Consumer Price Index drove inflation to 16.82 per cent in April 2022.
The current figure is an appreciation on the 15.92 per cent figure of March. The development puts intense pressure on household consumables as prices of goods and services spiral.
Nigeria has surpassed double digit inflation, which depresses purchasing powers of the working class. This also means less lending by banks to the productive sector of the economy.
Further implication of this means is that every N100 earned in Nigeria is short of 16. 82 per cent in value.
“We are not surprised that inflation keeps going up. I expect food prices to keep accelerating and the inflation figure to probably reach 20 per cent within the next three months. As soon as we begin to see the high price of diesel and a possible removal of subsidy on petrol, the effect on food prices is only natural,” an economist and Chief Executive Officer of Dairy Hills, Kelvin Emmanuel, told the ICIR.
Emmanuel expected the inflation situation to have much impact on the monetary policy meeting next week “because there is going to be an alignment between inflation and interest yield curve and negative returns.”
The Dairy Hills chief, who is a strong player in the agricultural sector, said food prices would continue to surge as inflationary pressures take their effect on rising input cost.
According to Emmanuel, “For some of us in agriculture and farming generally, it is not easy because of the prices of diesel and fertiliser. Diesel price 12 months ago was N280 per litre, but today, you will get it at N700 per litre. It’s the same thing with the price of fertiliser. A bag of fertiliser a year ago was N14,000 per bag, now it’s N17,000.”
He expected the surge in fertiliser price to continue because phosphate and potash constitute 40 to 50 per cent of the blending of the fertiliser imported from Russia.
“Owing to the Russian invasion of Ukraine, you could see the effect, as the Nigerian government has shifted focus now to Canada for such imports.
“This is the reason you see the price of poultry feeds inputs going up because Russia contributes 44 per cent of global potash supply,” he stressed.
With the Nigerian economy remaining a consumption one and less productive, the Central Bank of Nigeria (CBN) has been making efforts to control inflation to a manageable level. To stem imports and conserve dollars, the CBN put some 42 items hitherto being imported on the banned list.
Furthermore, in controlling inflation, the CBN, in 2021, debited 10 banks a whopping N7.02 trillion over their failure to meet the 27.5 per cent Cash Reserve Requirement (CRR) threshold.
The CRR is the minimum amount banks and merchant banks are expected to retain with the CBN from customer deposits, carries no interest and is not available for use by the banks in their day-to-day operations.
Analysts, agreeing it is part of the process of solving the structural problems of inflation, stressed the strategy is not enough unless a productive and better management of the economy is encouraged.
Nigeria’s rising inflation has been occasioned by numerous concerns and poor policies of government, analysts say.
For instance, Nigeria has been witnessing rising oil theft, subsidy payment and multiple exchange rates.
Unhelpful to the inflation situation, particularly, is the continued slide of the value of the naira. With a dollar now exchanging for about N600 and the country so dependent on imports – from raw materials for virtually every production and agricultural equipment, to household products, vehicles and spare parts, home appliances, and electrical/electronics items – prices of goods cannot but go up.
Also, the dollarisation of the economy due to political activities has resulted in scarcity of dollars as real sector players lament their inability to get the dollar at a fairly competitive rate.
Analysts have also faulted the apex bank’s exchange rate regime, maintaining that it has created a huge enterprise around foreign exchange round-tripping, speculation, over-invoicing, and capital flights.
“What is happening in the foreign exchange market is a consequence of the CBN’s policy choice of a fixed exchange rate regime and administrative allocation of forex,” the Chief Executive Officer of the Centre for the Promotion of Private Enterprise (PPE), Muda Yusuf, said.
Yusuf, explaining that the action of the apex bank amounted to tackling the symptoms rather than dealing with the causative factors, said that the bank did not believe in the market mechanism.
As Nigeria prepares for the general elections, it is feared it would be a season of the “dollarisation” of the economy, when politicians would put more demand pressure on the dollar as they flex campaign muscles, a situation that would lead to further inflationary surge.
Some experts are already warning of the dire consequences of this development.
“Politicians, many of whom have not engaged in productive ventures, share dollars, yet manufacturers in the country can’t find the dollar to drive production and productivity. It diminishes our currency. Dollarisation of the economy depresses the naira,” a former governor of Anambra State and presidential aspirant on the platform of the Peoples Democratic Party (PDP), Peter Obi, said.
Experts pointed out that the CBN’s focus in the last six years has been directed at managing demand for foreign exchange, rather than seeking ways of increasing supply.
At the recent Nigeria Economic Summit (NES), a professor of Economics and Head of the Economic Advisory Council, Doyin Salami, advised the CBN to focus less on the demand management side of the foreign exchange market and more on supply management.
Analysts are also worried that despite the advice to maintain a single market, the apex bank has maintained multiple markets, thereby creating uncertainty while puncturing investor confidence.
A former Deputy Governor of the CBN, Kingsley Moghalu, said the apex bank must float the naira and stop subsidising imports.
“The government cannot continue to fix the price of the naira, which is what the Central Bank is doing. If you float the naira, you have to stop subsidising imports. Our country is structured in such a way that it is subsidising the country’s imports.This breeds arbitrage.
“When you float the naira, you create incentive for those who want to export and earn forex. That way, you structurally shift the economy to those who want to export, but must combine it with trade policy,” Moghalu said.
A professor of Economics at the Olabisi Onabanjo University, Ogun State, Sheriffdeen Tella, also accused politicians of stock-piling dollar for elections, while depriving the real sector he said was in dire need of the currency.
Tella said, “Since the beginning of the year, politicians have been doing that. Keeping and converting money so that by the time the elections start, they will start using money for campaign. Some are changing it for keeps, which is part of money laundering.
“Most of the exchange rate depreciation is caused by people changing money, not for production but for keeps. It can be injurious to the economy. The nation is highly indebted despite the fact that oil prices have gone up. The economic situation will worsen.”
He urged the apex bank to increase the money in the foreign exchange market or restrict what is churned out.
“The CBN has to project lots of money into the market. Since we don’t have, the problem may continue. It also has to find a way of stemming the exchange of naira into dollars by politicians,” he said.
Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.