Ebenezer Odunbaku, a 48-year-old man and master baker of ‘Ase-Oluwa’ bread along the Akute-Ajuwon route in Ogun State, expressed, “The economy is now taking away what the business once provided.”
“I was born into the bakery business, and by 2001, I had achieved freedom, got married, built a house, and owned cars and a jeep through this business. However, the exchange and inflation rates are impacting us severely, with the price of flour now at N48,000.”
He added, “I’ve been facing challenges for over 10 months now; almost everything the business gave me is diminishing rapidly, and I cannot just stand by and watch. To avoid being set back, I am actively seeking a plan B.”
He continued, “If you have 1 million naira now, within a few weeks, you will find yourself asking for a loan from colleagues because operational costs are too high and are showing no signs of reducing anytime soon.”
A family of three broke into a woman’s house to finish her pot of food on January 21, 2024. The incident was reported by a Vigilante Security Officer (VSO) at Mogaji Avenue in Ilogbo, Ogun state.
According to the VSO, the family committed the act while the woman, known as Iya-Ibo, had gone to church on a Sunday morning. Upon being apprehended, the family claimed they had not eaten for almost two days and couldn’t endure the hunger any longer, leading them to break into Iya-Ibo’s house.
BusinessDay’s investigation revealed that this was the third consecutive occurrence, as reported by Iya-Ibo. In response to the repeated break-ins, she complained to the VSO, who advised her to clear all bushes around her house for better monitoring. Unfortunately for the culprits, they were caught in the act.
While the family claimed it was their first time, Iya-Ibo insisted it was the third time such an incident had happened.
Further inquiry into the motives behind their actions revealed that the father, who headed the family, stated, ‘My wife and daughter were hungry and had nothing to provide. With the high cost of living and no one willing to help, we resorted to breaking into someone’s house for food.’
In this context, the domino effect is how a single economic shift triggers a series of repercussions that reach into the heart of society, vis-a-vis Nigeria.
He added, ‘I work as a cleaner and gardener, but the houses where I work have stopped requiring my services, citing financial difficulties. They claim transport fare and cost of feeding has hit deeply into their salary, so instead of owing me, they have discontinued my services.’
Regrettably, the Naira experiences a continuous decline, initiating a series of reactions, akin to the falling dominoes, affecting the lives of millions of Nigerians.
Beyond the fluctuations in exchange rates lies a story of inflation’s surge, a ripple effect in the economy that touches every part of Nigerian society, reshaping the essence of daily life- “domino effect.”
In this context, the domino effect is how a single economic shift triggers a series of repercussions that reach into the heart of society, vis-a-vis Nigeria.”
President Bola Tinubu, who took office in May 2023, pledged to overhaul the currency regime with a view to attracting more investment, by revising the methodology used to set the exchange rate, in effect the second devaluation of the currency in seven months.
The economic implication of this ‘renewed hope monetary policy’ to revitalize the economy has made the naira value plummet, impacting negatively on economic agents specifically on households and firms (businesses).
According to the NAFEX report, the local unit stood at N1,421.70/$1 at the closure of the market on the 5th of February 2024 in the so-called NAFEX fixing, the official foreign exchange window, according to data published by FMDQ, which calculates the exchange rate for the West African nation. The move came after the Central Bank of Nigeria accused traders of manipulating the exchange rate by under-reporting transaction rates.
Earlier reports by BusinessDay indicate that the policy’s domino effects can be traced to the exit of major players like P&G and GlaxoSmithKline from the country, resulting in over 10,000 Nigerians being retrenched and adding to the already high unemployment numbers.
Additionally, other multinational companies, including Unilever and SPDC (Shell), are undergoing restructuring. Unilever’s withdrawal from the home care and skin cleansing markets in Nigeria reflects a strategic move to find a more sustainable and profitable business model. Similarly, after 88 years of operation, Shell sells its Nigerian onshore oil and gas subsidiary.
Critics have pointed out that while President Tinubu actively pursued Foreign Direct Investments (FDIs) during his extensive travels to over 10 countries within 2-3 months of taking office, existing multinational companies are leaving. This development raises questions about the attractiveness of the Nigerian business environment for potential investors.
A reliable source shared with BusinessDay that the Federal Inland Revenue Service (FIRS), a federal government revenue agency, might struggle to meet its revenue targets this year. Many large firms are anticipated to declare exchange rate losses in their financial statements, although these accounts are yet to be published.
The economic implication is a potential fall in tax revenue, impacting the 2024 budget, aptly named the ‘renewed hope budget,’ and contributing to the ongoing financial crisis.
In a bid to stem the relentless decline of the Naira and stabilize the foreign exchange market, the Central Bank of Nigeria (CBN), under the leadership of Yemi Cardoso, has introduced new guidelines.
These guidelines, outlined in the document titled “Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks,” carry significant implications for how banks handle foreign currency net open positions (NOP).
The primary goal of these guidelines is to enhance stability in the foreign exchange market. The CBN, through this directive, places limits on the total foreign currency assets and liabilities of banks.
It encourages practices like natural hedging and mandates the availability of high-quality liquid foreign assets. The overarching aim is to create a more balanced and secure environment, allowing banks to effectively manage their exposure to foreign exchange fluctuations.
Despite these efforts, concerns persist about the efficacy of these measures in halting the Naira’s decline. The guidelines, while representing a crucial step, underscore the complex challenges faced in achieving stability in the country’s foreign exchange dynamics.
In the ongoing, the implications of the Naira’s depreciation extend beyond the foreign exchange market, casting a profound impact on the domestic business sector. The depreciation, serving as a catalyst, has set in motion a chain reaction, notably contributing to what economists term “cost-push inflation.”
Against the backdrop of a weakened Naira and subsidy removal, businesses across Nigeria grapple with intensified production costs, a direct consequence of their reliance on imported raw materials and goods. BusinessDay earlier report
The inherent challenge is further exacerbated by the recent removal of subsidies, amplifying the financial burden on enterprises. The removal of subsidies has, in particular, reverberated through the fuel sector, witnessing a staggering 235 percent surge in pump prices – catapulting from N185 to N620, BusinessDay earlier reported.
This domino effect unfolds as increased production costs become an inescapable reality for businesses. Faced with the imperative of maintaining operational continuity, many enterprises find themselves compelled to pass on these augmented costs to consumers. The result is palpable – a discernible upswing in the prices of finished goods and services.
Read also: CBN FX directive seen boosting naira value
The chart below further reveals the soaring inflation and food inflation rates.
The monthly inflation figures for the past seven months reveal a persistent upward trend, echoing the challenges faced by consumers and businesses alike. The general inflation rate, representing the broader cost of living, has witnessed a gradual ascent from 22.79 percent in June to 28.92 percent in December.
Notably, the food inflation rate, a critical component reflecting the affordability of essential commodities, has mirrored this trajectory. Starting at 25.25 percent in June, it surged to 33.93 percent by December. This consistent acceleration in food prices underscores the growing financial strain on households, with the cost of necessities experiencing a marked and sustained surge.
These inflationary indicators paint a stark picture of the economic landscape, signaling the need for comprehensive strategies to address the underlying factors contributing to the rising cost of living.
As consumers grapple with the consequences of these inflationary pressures, policymakers and businesses alike face the imperative of adapting to this evolving economic scenario.