NIGERIA’s INFLATION IS NOT COMING DOWN TO SINGLE DIGITS ANYTIME SOON

Limited Access to Local Finance?

Recently, the Central Bank of Nigeria (CBN) once again increased national interest rates to counter inflation. However, I believe these rate hikes make inflation more persistent. Local manufacturers struggle to access the necessary finance to invest and reinvest in their operations. Consequently, these suppliers cannot expand their output and, in many cases, may close down their businesses, leading to demand-pull inflation where too few goods are pursued by too many consumers. Even though some scholars argue that unemployment from company shutdowns reduces the number of people able to buy goods, let us not forget that labor remains highly mobile and workers can always change jobs. ?

Rising Insecurity Disrupts Local Supply Chains?

Internal security in Nigeria has significantly deteriorated over the last three decades. The rise of Boko Haram and bandits in the north, separatists in the southeast, and militants in the oil-rich South-South has hindered the movement of consumables across the country, leading to increased prices. Insecurity on the highways raises the cost for producers to transport essential goods such as petrol, food, and medical supplies throughout Nigeria, resulting in cost-push inflation. As long as Nigeria’s inter-state roads remain unsafe and alternative transportation modes are underdeveloped, inflation will persist.?

Unbalanced National Growth and Its Impact on Urban Real Estate Prices?

Prior to 2014, Nigeria experienced significant economic growth due to favorable international oil prices, resulting in excessive liquidity across the market. During this period, urban centers like Lagos and Abuja saw considerable infrastructure expansion and job creation. However, most other parts of the nation, especially rural areas, remained stagnant due to poor economic administration. State and local government administrators failed to provide sufficient economic opportunities for people outside Nigeria’s few major cities, leading to increased rural-urban migration over time.?

One particular area affected by this migration is housing. Real estate prices (both purchase and rent) have skyrocketed unreasonably in Lagos and Abuja in recent years due to the influx of people into these settlements. If Nigerians in smaller towns and villages cannot access basic amenities and opportunities, they naturally move to where such amenities and opportunities exist, causing overcrowding and undue infrastructural pressure in these few settlements.?

Several key local economic stakeholders claim that Nigeria has a housing deficit of more than 25 million. However, in smaller towns and villages, almost every Nigerian family still has a family home. If these areas of the country are properly developed, people will naturally want to move back home, leading to decentralized growth. This could address the demand-pull inflation affecting real estate in our major cities.?

Nigeria: Historically, Presently, and Forever Trade-Focused?

Nigeria, like most other sub-Saharan Africa (SSA) nations, has historically remained trade and services-driven due to its distance from key civilizations responsible for the world’s technological leaps at various points in time, such as China, India, Roman Empire, Ottoman Empire, Britain etc. Consequently, before the advent of colonialism and globalization, the inflow of foreign technology and transfer of external technical know-how to the area now called Nigeria was quite slow. This is partly why the country has lagged behind in terms of fabrication capabilities compared to other parts of the world.?

Trade and services, which require less capital, infrastructure, and effort to create value addition, are where Nigeria and many SSA countries are comfortable. Over 65% of the Nigerian economy, which is informal, largely provides services and does not manufacture any heavy or complex finished products. Hence, the significant attention given to low value-add sectors such as fashion, creatives, and tech-software industries. Ultimately, Nigeria’s lack of a significant industrialization base perpetually keeps the market open to imported inflation from developed economies that supply high value finished commodities.?

A Cocktail Leading to an Eternal Inflationary Hangover ?

The factors mentioned above will keep Nigeria under an almost never-ending cycle of inflationary pressure. These underlying issues must be addressed before inflation can be reduced to the single-digit rates that the CBN desires. Until that happens, we will not escape this predicament.?

NOTE: This opinion editorial reflects my personal views and does not represent the position of any organization with which I am affiliated.