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How inflation, FX waged war against businesses in 2023

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The surge in Nigeria’s inflation rate, which increased to 28.9 percent in November, and high energy costs are the major economic headwinds that negatively affected Nigeria’s passenger transport and haulage business in 2023.

Energy costs started soaring in early June following the fuel subsidy removal announcement by President Bola Tinubu during his inaugural speech on May 29, 2023. This led to an increase in the petrol pump price from N195 per litre during the subsidy era to N565 and to as much as N637 in some parts of the country.

Transport business hit hard

With the increase in pump prices, interstate transportation fares jumped by over 100 percent to between N26,000 and N33,500 in June.

Meanwhile, interstate transport fares further soared higher in December, which was the peak season for Christmas holiday travellers. With the fare rise, Christmas travellers paid between N32,000 and N40,000 and more for a bus ticket to embark on an interstate trip.

This development prompted the Federal Government to intervene by slashing interstate transport fares by 50 percent and announcing free train rides for Nigerians from December 21, 2023, to January 4, 2024.

“The transport fare is on the high side, but it is expected because, with the removal of the petrol subsidy in May 2023, the interstate transport fare moved from an average of N11,000 per seat to as much as N26,000 per seat. So, it is not surprising that a bus ticket to the East or Abuja from Lagos will be over N40,000 this Christmas,” Chijioke Osondu, a Lagos-based businessman, told BusinessDay earlier in December.

The cost of transportation has a huge impact on the prices of commodities because market dealers will always factor in the cost of transportation before setting the prices of commodities.

Aside from passenger transport, importers were also affected as they paid a premium to move their laden containers from the seaports in Apapa to warehouses across the country due to the price of diesel.

BusinessDay findings show that the cost of moving containers from Lagos port to importers’ warehouses in Lagos increased by an average of 100 percent in 2023.

According to truckers, buying diesel for N1,300/litre made it difficult for them to break even.

In the year under review, the cost of transporting a 40-foot container from Apapa to Mushin doubled to N800,000 while that for a 20-foot container from Apapa to a warehouse in Lagos hit N350,000-N400,000 from about N200,000.

Also, transporting a 40-foot container from Lagos to Onitsha or Nnewi in the East soared to N1.8 million while a 20-foot container from Lagos to a warehouse in Onitsha or Nnewi was moved for N800,000.

Meanwhile, the cost of taking a 40-foot container from Lagos to Abuja grew to N1.6 million; a 20-foot container from Lagos to a warehouse in the north hit N800,000; a 40-foot container from Lagos to Kano costs went up to N2.4 million, while a 20-foot container from Lagos to Kano cost as much as N1 million.

“The soaring price of diesel is seriously affecting our business and it is no longer easy for one to embark on a trip without making sure that the payment will cover the money spent on fueling the truck,” said Bello Yusuf, a truck operator.

Another factor that dealt a blow to the transport business in Nigeria within the period under review was the hikes in the prices of spare parts and the cost of vehicle maintenance for transporters and car owners.

“Vehicle spare parts are very expensive. One China tyre sells between N170,000 and N180,000 each while tokunbo tyre sells for between N100,000 and N110,000 each. Imagine how much a trucker will spend to change the tyres of a truck that goes with 18 to 22 tyres,” Yusuf said.

Car spare parts were not left out as car owners also took their share of the cake.

Stephen Udochukwu, who drives a 2008 model Toyota Camry, said he spent over N800,000 to put his car in order in preparation for the Christmas trip.

“I spent N150,000 alone to change the four-shock absolvers, which was formerly sold for N90,000 in 2022; N45,000 to change the radiator that was formerly sold for N25,000; N45,000 to buy gear oil that was formerly sold for N25,000; two shafts that used to go for N25,000 for N75,000; engine oil that was N15,000 is now N25,000; engine seat that was N10,000 before now sells for N20,000; ball joint N15,000; tie rod N10,000 and steering rubber that was N5,000 before now goes for N10,000.

“There were other little parts that I changed, and the mechanic collected a service charge of N30,000 that was formerly charged N15,000. In addition to the mechanical work, I spent over N350,000 to do the bodywork alone, fix some bad parts and repaint my vehicle. I was forced to repaint my vehicle because the last time I did that was five years ago,” Udochukwu said.

Real estate sector’s woes deepen

Contrary to experts’ predictions that 2023 would see sustained growth in the real estate sector, many operators in the sector have told tales of woes as adverse economic conditions took a toll on their operations.

Real estate services contributed 4.46 percent to the nominal GDP in the first quarter of 2023, compared to 4.92 percent recorded in the same period of 2022 and 5.62 percent in Q4 2022.

Soaring inflation, naira scarcity and fuel subsidy removal created an economic environment never seen before in the country, impacting negatively on project delivery and making it increasingly difficult for many Nigerians to buy or rent homes.

Inflation, high interest rate and volatile foreign exchange rates reduced household income while poor monetary policies coming from the Central Bank of Nigeria discouraged developments.

NBS figures show that Nigeria’s headline inflation rate surged consistently all through the year, rising to 28.20 percent in November, up from 21.82 percent in January 2023. This impacted heavily on prices of building materials, house prices and rents.

Prices of building materials like reinforcement, cement, sand, paints and sanitary wares rose by over 50 per cent, while the cost of buying new homes and rent went up by over 100 percent in some locations. Many housing construction sites across the country were slowed or abandoned in most cases due to construction cost which rose to an estimated 40 percent.

Attempt by BUA Cement, one of Nigeria’s leading manufacturers of the product, to crash the price of cement which rose to N5,600 per 50kg bag, up from between N3,000 and N3, 500 depending on brand and location, did not succeed for reasons that included cost of transportation.

Consequently, new buildings were few, access to land was difficult, a good number of buildings collapsed due to poor construction while flooding rendered many people homeless. Property worth billions of naira were demolished for reasons ranging from lack of building approvals to illegally acquired land, and defective construction considered unsafe for human habitation.

“Indeed, the outgoing year means different things to different players in the sector. In every year, there are high and low points in the performance of this sector, but I think it could have done better,” Chudi Ubosi, Principal Partner, Ubosi Eleh + Co, said in a telephone interview.

Ubosi noted l that politics with its uncertainties, currency instability and inflation, which led to a very opaque investment climate, did not help the sector. He, however, hoped that 2024 would be better, more so with the various economic policies of the Tinubu administration which, he said, were attempting to stabilize the economy.

Olufemi Babalola, CEO, Gravitas Investments Limited, developers of Gracefield Island, said real estate sector at once reflects the tumultuous changes in the national economy and the inherent resilience of the sector, particularly in Lagos and Abuja, the two cities that underpin more than 80 percent of documented real estate transactions in Nigeria.

Babalola noted that Port Harcourt has lagged behind disappointingly as the famed projects of the immediate past governor of Rivers State do not shift the needle positively on the Human Development Index and so, there is no vibrant real estate market in Port Harcourt.

“In Lagos, Abuja and to a limited extent border towns between Nasarawa and Abuja, Kaduna, and Kano, real estate has proven resilient. Inflation at over 28 percent as at November, sudden and rapid depreciation of the Naira have combined to increase construction cost. Price has consequently increased, particularly for residential houses,” he said.

According to him, aside economic issues, misguided policies by state governments in search of revenue and imposition of unreasonable regulations in a bid to deflect attention from the corruption and incompetence of their officials, of which collapsed buildings are symptoms, posed more hurdles for the sector. “But the market is remarkably resilient,” he posited.

Alderton Ewa, President, Nigerian Institute of Building, said 2023 was a year when the ambition to improve the production of affordable housing was thwarted as most of the stakeholders embarking on such projects abandoned construction sites because of escalating cost of building materials and high exchange rate.

On his part, MKO Balogun, Group CEO, Global PFI, noted that there were series of activities towards the end of the year, especially on the affordable housing side, but commercial and retail segments of the sector lagged due to poor economic situation as shown in high inflation, low disposable income, foreign exchange volatility, and general low private sector-driven economic activities.