INFLATION IS NIGERIA’S ECONOMY NO.1 ENEMY

CONTINUING HIGH DOUBLE-DIGIT INFLATION IS NIGERIA’S ECONOMY NO.1 ENEMY

Nigeria’s economy grew 3.1% in the first quarter of 2022. The Gross Domestic Product expanded at a slower rate than the previous quarter (Q4/2021: +4%). The performance was, however, better than a year ago when the economy grew 0.5% in the first quarter of 2021.

On May 24th, the Central Bank of Nigeria raised interest rates from 11.5% to 13.0%, the first increase since September 2000. This was largely expected (especially after the United States took a similar decision days earlier) in a bid to tame double-digit rising consumer prices. On the other side, some analysts complaint that such increase may hurt the early signs of Nigerian economic growth, following the gradual recovery from the COVID crisis and the 2020 recession.

The growth recorded in the first three months of 2022 was the sixth consecutive economic expansion. The full-year GDP figure for 2021 (+3.4%) was the fastest growth since 2014. The non-oil sectors such as financials, communication, trade and healthcare were among those that recorded the fastest growth, while crude petroleum and natural gas, road transport, quarrying and other minerals lagged behind.

With oil price trading around $120/barrel, Nigeria remains uncapable of grabbing a substantial advantage. Nigeria has not been able to increase its production beyond 1.5m barrels per day (despite the “dream target” of 5m per day); on top of this, corruption, leakages and social unrest are completing the picture.

It may sound somehow unbelievable that in Nigeria, an oil producing country, people are experiencing fuel shortages. In fact, the country exports crude oil and imports refined fuels. Since last February, Nigerians have faced fuel shortages after importation of substandard fuel, resulting in weeks of severe scarcity and long queues at filling stations.

High prices and shortages of fuel not only anger voters, they feed into wider economic problems. Farmers can’t secure or afford enough diesel and can’t plant as many crops, further boosting food shortages and inflation. Higher ship-fuel prices raise logistics costs. And governments that sacrifice income to keep fuel taxes low (Nigerian petrol price is the 8th lowest in the world at around 170 Naira per litre, less than USD 30 cents at the black market rate) have less to spend on other areas of the?economy or have to increase borrowing just as interest rates are rising.

The?International Monetary Fund (IMF) has recently revised upward its growth forecast for the Nigerian economy in 2022 to 3.4% from its earlier projection of 2.7% announced in January. The IMF also projected the country’s economy to grow by 3.1% by 2023 from the 2.7% it earlier envisaged.

However, according to the IMF, emerging-market economies are now at greater risk than advanced economies for two reasons: a) their growth prospects are weaker relative to the pre-pandemic trend compared with advanced economies and governments have less fiscal firepower to support the economy; b) external financing costs have generally risen, so governments will have to pay more to borrow. Nigeria is not an exception to that.

In this magmatic economic situation, the main losers are the Nigerian consumers, pushed more and more under the poverty line. Most Nigerians are no longer able to afford major expenditure on discretionary or non-essential goods and services, as inflation continues to take its toll (urban inflation surpassed 17% in April) on their purchasing power.

Inflation is the no.1 enemy. Policymakers must address this issue with extreme urgency, however not only abusing subsides and debt, but investing in infrastructure, increase productivity and economic transparency.

Continued high double-digit inflation frustrates the country’s economic recovery and tragically erodes vulnerable households’ purchasing power. In the absence of measures to contain inflation, it could push 8 million more Nigerians into poverty, with the possible disruption of consumption, investment and saving decisions, among other consequences.