Cost of living to worsen on proposed 40% electricity hike

The cost of living in Africa’s biggest economy is expected to worsen as the country is proposing a 40 percent hike in electricity tariff from July 1.

The hike is expected to amplify the financial burden of struggling households.

This comes shortly after the removal of the petrol subsidy, which had already tormented Nigerians grappling with the rising cost of necessities, like transport and food.

According to data from the National Bureau of Statistics (NBS), Nigeria’s food inflation rate accelerated to its highest levels in 17 years in May amid a drop in global commodity prices.

The country’s food inflation rose to a staggering 24.82 percent year-on-year in May, marking the highest level since August 2005, the data show.

BusinessDay findings show that the cost of transport increased by 100 percent in most cases and 50 percent in a few cases depending on the distance.

“The situation described in Nigeria is indeed concerning, as the cost of living is expected to worsen due to an increase in electricity tariffs, alongside the removal of petrol subsidies and high food inflation rates,” said James Akwaji, an experienced professional in the oil, gas, and energy industries.

“These factors combine to create a significant financial burden for struggling households.”
This financial burden not only reduces disposable income for essential needs like food, healthcare, education, and transportation but also threatens to trigger higher prices for goods and services as businesses pass on their increased energy costs to consumers, he said.

Consequently, purchasing power erodes, making it increasingly challenging for Nigerians to afford essential items, he added.

Kelvin Emmanuel, energy sector expert and co-founder/CEO at Dairy Hills, said that the proposed hike in electricity tariffs, which may result in a 40 percent increase in the cost of living and a 12.47 percent drop in household consumer expenditure over the last quarter, underscores the pressure on Nigerians.

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The continuous rise in the prices of goods and services as well as the strenuous economic conditions have compelled households to reduce consumption expenditure to the lowest in six years, according to NBS data.

Nigeria recorded a negative real annual growth rate of household consumption expenditure of 4.07 percent in 2022, down from 25.65 percent in 2021, the data shows.

Speaking with BusinessDay, Emeka Obinna, a resident of Amuwo Odofin, Satellite Town Lagos said that the increase in petrol, goods and services, has cut his expenditure by half.

“To cope with the recent economic climate, I am mindful of the rate at which I eat, go out and use my petrol generator. I have cut my expenditure by half because most of my basic necessities have doubled,” he said.

On June 22, 2023, the Nigeria Labour Congress (NLC) asked the government to halt plans aimed at increasing electricity tariffs in the country.

Joe Ajaero, the president of NLC said in a statement said that the plan to increase the electricity tariff is insensitive and callous and reflects an organised indifference to the well-being of consumers, especially, the poor ones.

“The service providers despite sundry support have not been able to meet the threshold of 5000 megawatts,” Ajaero said.

“Coupled with this, there have been surreptitious increases without notice in violation of statutes. The inherent risk in the new regime of tariff is that there is no control, implying that by August, consumers will pay new rates,” he said.

“The other risk is that by the time other products or service-rendering entities come up with their new prices or rates, the ordinary person would have been compacted into dust.”

To cushion this crisis, Emmanuel said that the signing of the Nigeria Electricity Act of 2023 that moves generation, transmission and distribution to states will improve electricity to Nigerians and over time lead to higher productivity, and lower alternative power generation costs.

“Moving to cost-reflective tariff and adopting pre-paid meters is necessary to attract the institutional funding required to solve perennial power deficits in Nigeria,” he said.

Akwaji added that the Nigerian government must prioritise the well-being of its citizens and recognize the impact of these price increases on everyday life.

“The government should establish social welfare programs or strengthen existing ones to provide support to vulnerable households,” he said.

“This can include direct cash transfers or subsidies on essential goods, or targeted assistance programs aimed at low-income individuals and families.”

By doing so, Akwaji said the government can help alleviate some of the financial strain faced by the population.

Addressing the food inflation issue, Akwaji said urged the government should improve agricultural productivity by providing access to credit, modern farming techniques, and necessary infrastructure, such as irrigation systems and storage facilities.

“By supporting agricultural development, the government can increase domestic food production, reduce reliance on imports, and stabilise food prices,” he said.