• Monday, December 04, 2023
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Nigeria’s economy unravels at worst time ahead elections

Expect borrowing cost to remain high in Nigeria, businesses told

Aliko Dangote, chairman and chief executive of Dangote Group, Nigeria’s largest company, warned last week of an impending food scarcity by June as the adverse consequences of the Russian-Ukraine war shake Nigeria’s fragile economy.

But June is when Nigeria’s political parties will be concluding their primaries and submitting the names of their flag-bearers to the electoral commission ahead of elections in 2023.

What this means is that Nigeria’s leaders are more likely to mark June in their calendars for the conclusion of who represents their parties rather than the month earmarked for a likely food scarcity.

A looming food shortage is not the only problem facing Nigeria.

From manufacturers to airlines and bakers, several businesses are threatening shutdown over the ripple effect of the Russia-Ukraine war, which has led to soaring diesel, aviation fuel and petrol prices at a time public power supply is dwindling.

The internal crisis in the ruling political party is, however, arguably of more interest to President Muhammadu Buhari, who is receiving medical attention in London, than an economy bleeding on every side.

The most notable news to emerge from Buhari’s medical trip to London is that he has waded into the crisis in his party by backing embattled Mali Buni, the governor of Northeastern Nigerian state, Yobe, to continue as chairman of the party after meetings with some politicians.

Buhari may be distracted by politics at this time but so are several others in top leadership positions in Nigeria.

The Vice President, left in charge while Buhari, who is seeing out his second term as president, is away, is also said to be interested in contesting with veteran politician and one-time governor of Lagos state, Bola Tinubu, for the nod of the APC to run for President in 2023.

Godwin Emefiele, governor of the Central Bank of Nigeria, is also under pressure to run for President by supposed friends who have been vocal in asking him to throw his hat in the ring.

Various groups, no fewer than a dozen, have bought advert spaces in newspapers to make a case for Emefiele to succeed Buhari in 2023.

As the leaders of Nigeria are distracted by politics, Nigeria’s economic woes are deepening.

The impact of the Russia-Ukraine war, which began with the steep rise in wheat prices, may soon spread to other foods including maize and other components of input for industrial food production, triggering low production and low supply, according to Dangote.

Russia and Ukraine account for about 30 percent of the world’s urea production and 26 percent of the world’s potassium supply, and access to these input components will increasingly be stifled for as long as the war persists and could cripple the goal to fortify staples from source.

The impact is already being felt. Headline inflation in Nigeria accelerated in February to 15.7 percent, reflecting a 14bps jump in core inflation to 14.0 percent, the fastest jump since April 2017.

The core inflationary pressures mirrored the recent surge in the cost of energy-related products. Specifically, energy inflation touched a 56-month high of 13.1 percent, driven by a prolonged period of fuel scarcity and higher diesel and aviation fuel prices.

Read also: Power cuts exposes Nigeria’s diesel-dependent economy

Nigeria has faced petrol shortages since February following the importation of substandard fuel, resulting in weeks of severe scarcity and long queues at filling stations.

The shortage has seen transport cost rise and is slowingly affecting the prices of goods and commodities.

Prices are expected to rise further amid a global shortage made worse by the Russian invasion of Ukraine. Without functional refineries, Africa’s largest oil producer relies almost entirely on imported petroleum products.

The surge in energy prices is also fuelling rising operation costs for several businesses with some threatening a shutdown, which would lead to even higher unemployment rate in a country that has the second largest percentage of unemployed people globally and the world’s highest number of poor people.

Diesel prices have nearly tripled since the start of the year, with manufacturers facing higher operational costs.

Higher crude oil prices could be fingered for the surge but Nigeria would be less dependent on diesel if power supply was stable.

Nigeria’s installed power capacity (12,522 megawatts) is five times less than South Africa’s (58,095MW), the continent’s second largest economy and home to about a third of Nigeria’s population. That leaves large swaths of Nigeria reeling from under supply and with urgent need of generating independent power to keep the lights on through diesel or petrol generators.

For most businesses in Africa’s largest economy, stable power in smaller countries from Ghana to Rwanda is a luxury.

“We are not even asking for 24 hours power supply, we can make do with 20 hours,” said Frank Onyebu, chairman of the Manufacturers Association of Nigeria for Apapa branch.

“Manufacturers are closing shop on the back of the rising diesel prices which is biting really hard,” Onyebu said.

Local airlines in Nigeria also have concerns of their own. They say they may have to shut down operations this week over lack of aviation fuel which has nearly quadrupled to N670 from only N190 this year.

Speaking before the special House committee investigating the unavailability of the product with the aim of proffering solutions, the airlines, represented by Allen Onyema, chief executive officer of Airpeace, said they could not afford the fuel anymore.

Onyema said that if they were to continue flying, an average Nigerian would spend N120,000 for an economy ticket.

Meanwhile, banks are rationing dollars again. That’s in spite of higher oil prices.

From Zenith to Guaranty Trust Bank, Nigeria’s largest banks are reducing dollar spending limits on local currency cards to free more resources to fund imports after the central bank signalled it will stop foreign-exchange sales to banks.

The CBN said last month it would stop selling foreign currency to lenders by the end of the year to encourage them to source their own dollars and also support the government’s target to lure $200 billion of inflows yearly by 2025.

The regulator has struggled to fulfill its dollar obligations to portfolio investors since 2020 after oil prices collapsed.

The International Monetary Fund estimates that the central bank has a backlog of $1.7 billion in unmet demand to investors. That backlog has kept investors on the sidelines and unwilling to touch Nigeria with a ten-foot pole.

The rally in oil prices, which should trigger increased dollar inflows, is not having the desired impact due to low oil production.

“At a time that oil prices are going up, exports from the East, for all producers going into Bonny terminal, are grounded,” a source in the oil industry told BusinessDay.

“Since 2020, the level of crude oil loss has progressively risen to the point in February there was very limited inflow into the terminal from the (Trans Niger Pipeline) TNP. Shell was obliged to call force majeure. The hit on forex inflow will be felt in 30 days, It’s really pouring,” the source said.