The World Economic Situation and Prospect report of 2019 released recently by the United Nation’s Conference on Trade and Development (UNCTAD) says economic diversification is key to controlling spiralling inflation.
The report says Nigeria has since 2016 experienced double-digit consumer price inflation, which has encouraged headline inflation over the last three years.
The increase in consumer price inflation has caused a decline in the purchasing power of consumers, which in turn affects manufactured products, according to the report.
It says in 2018 the consumer price index (CPI) was 16.2, but posits that this should reduce by 12.5 percent to 14.1 percent in 2019.
From the perspective of fast-moving consumer goods, Adesola Sotande-Peters, vice president of finance at Unilever Nigeria, says as Nigeria experienced recession in 2016, consumers’ sensitivity to product prices has increased, causing a decline in patronage as purchasing power dwindles.
Doyin Salami, economist and CEO of Kainos Edge Consulting, speaking recently, notes that the Nigerian economy is going through its recovery mode from recession, although at a snail pace. He advises that government has to source for revenue aggressively and reduce dependence on oil as a major source of revenue.
He says following the economic diversification policy, adequate attention has to be given to other sectors of the economy, especially manufacturing and agriculture sectors because Nigeria needs international capital to survive.
For manufacturers, the purchasing managers index (PMI) is an indicator of how the sector fares in a month. The PMI above 50 percent signifies faster growth.
Nigeria’s PMI stood at 58.5 and 57.1 points in January and February, respectively, from the 61.1 percent recorded in December 2018. Growth in December was attributed to increased activities in the festive season.
Sotande-Peters of Unilever says there is a need to increase the local sourcing of raw materials as well as establish more warehouses in a bid to reduce dependence on the foreign exchange and also cut cost of production.
Manufacturers say policies that support local input sourcing such as backward integration can raise the levels of PMI. Manufacturers source 57 percent of inputs locally and import 43 percent, according to data from the Manufacturers Association of Nigeria (MAN).
Analysts say economic diversification is important to achieving prosperity. They add that whatever happens to crude oil prices shapes the direction of the domestic Nigerian economy and the country is not in a position to determine oil prices coupled with OPEC’s policy on output.
