Inflation Plays Spoilsport As Festive Season Starts In Nigeria

In 2007, Goldman Sachs and other global financial services firms placed Nigeria as one of the top 20 economies in the world by 2020. Now, that has become history if the current higher inflation is anything to go by.

Inflation is playing spoilsport as the festive season started in Nigeria. For the hard-hit lower-income households, the choice is whether to celebrate Christmas or not and what they will put into their stomach.

Food prices have skyrocketed, fuel has become dearer and import costs have astronomically increased due to the depreciation of the naira.

Annual inflation in Africa's largest economy rose to 21.47 percent in November from October's rate of 21.09 percent.

"The rise in food inflation was caused by increases in prices of bread and cereals, oil and fat, potatoes, ... and fish," the National Bureau of Statistics (NBS) said in a report.

The lingering fuel scarcity in some parts of Africa's most populous nation has seen a liter of petrol in Lagos, the commercial capital, selling for as high as N250-N300 from N170 two months ago.

The fuel scarcity has hit logistics and transport costs, which, in turn, have increased food prices. Due to high inflation, household consumption expenditure increased 12 percent to N27.3 trillion in the first half of 2022, the highest in five years, from N24.3 trillion in the same period last year, according to the NBS.

This has taken a toll on consumers' purchasing power, making many poorer. Without enough jobs, 23 million more Nigerians will fall into hard times by 2030. According to official figures, 133 million people are already poor in health in the nation of 219 million people.

The surge in inflation has forced the Central Bank of Nigeria (CBN) to further hike the benchmark interest rate by 100 basis points last month to 16.5 percent.

The high inflation is caused by the recent flooding in the country, import and foreign currency restrictions as well as monetary policies, demonetization plans, and the ongoing war in Ukraine.

The government is working with a plan to put inflation in double digits, averaging 17.16 percent next year.

Nigeria has a say on the economy of the entire Africa as one in six sub-Saharan Africans is Nigerian. A strong Nigerian economy can fuel growth in its neighbors and a falling economy, however, at the same time, can seal their fate.

Unrest is widespread, and so also insecurity which puts spokes into Nigeria's growth. By June 2022, 6,000 Nigerians have been killed in the conflict and the Islamic State West Africa, a jihadist outfit, is finding more takers and is further spreading its wings to the capital Abuja. Local thugs, meanwhile, have increased their nefarious activities of kidnapping for ransom.

The Niger Delta militancy, known for its oil theft, a long-standing row between farmers and cattle herders in central Nigeria; and the fighting between security forces and separatists in the southeast further adds salt to the wound.

Till 2014, Nigeria was moving in tandem with Goldman Sachs's prediction. With GDP worth $510 billion, it edged out South Africa, which was worth $370 billion then.

From 2015 to 2020, the economy has been putting up a poor show to make average Nigerians poorer in real terms.

In 2019, the government of Muhammadu Buhari closed the West African nation's borders to dissuade smugglers from competing with local producers. The result was higher inflation, forcing the CBN to devalue the naira repeatedly. Then, the pandemic became a mot in the eye.

In 2021 growth improved, however, boosted by a post-pandemic rebound and stronger oil prices.

A hike in oil prices has not yielded little good for Nigeria as Africa's biggest oil producer subsidizes fuel. So, the proceeds from higher oil prices are eaten away by sops which have been a huge drain on the exchequer.

Economists and financial experts, who seek more structural reforms, are of the opinion that it is high time Nigeria parted with subsidies to free the proceeds from oil to spend on things with a better chance of boosting growth like infrastructure, health and education.

"Nigeria has a choice to implement critical macroeconomic and structural reforms that can reduce crisis vulnerabilities and increase growth....," Shubham Chaudhuri, World Bank's country director for Nigeria, said.

With easy oil cash at its disposal, the government is less bothered to seek new pastures of growth for the economy, they argue.

Currently, revenue, debt service and repayment are higher than the money the government earns.

The new leader, who assumes power in May 2023 in the resource-rich economy, will have to actually roll up his sleeves at least to give some solace to the prediction of Goldman Sachs.