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BusinessDay
Nigeria's leading finance and market intelligence news report.

Rising prices crush workers amid increase in government’s personnel costs

Rising prices are crushing workers of the Federal Government of Nigeria even as the personnel costs for federal civil servants have increased by 44.28 percent in the last four years.

This is according to data obtained from the budget implementation report of the Federal Government.

Personnel costs for ministries, departments, and agencies, as well as government-owned agencies, increased steadily from N2.29 trillion in 2019 to N3.05 trillion in 2020, N3.74 trillion in 2021, and N4.11 trillion as projected in the 2022 appropriation bill.

However, BusinessDay’s findings show that Nigeria’s inflation rate hit a four-year peak in March 2021, rising from 11.98 percent in December to17.38 percent in July 2021. This inflationary pressure pushed the total number of poor Nigerians to over 83 million (40% of the total population) in 2020, as over 7 million Nigerians lost their jobs in the period.

The high inflation has compounded the financial pressure on households already faced with a shrinking labour market, stagnant economic growth, and increasing levels of insecurity.

Nigeria is experiencing cost-push inflation, where prices of goods and services are driven up by the high price of inputs, wages, and production resources, most specifically, imports. Although Nigeria has experienced a downturn in its inflation in the past six months, the inflation rate could increase again due to the likely increase in energy costs (petrol price).

Read also: Buhari’s insatiable appetite for debt

Rising unemployment, in turn, will push more Nigerians into criminal activity to support their livelihood and make up for lost earnings. A surge in insecurity over the last few years has slowed economic growth further and left more people displaced and unemployed, leading to a vicious cycle of violence.

Halima Danjuma, a civil servant at a Nigerian parastatal (name not disclosed), stated that the current inflationary pressure had depleted her savings portfolio to almost zero territory.

“The inflationary pressures in the economy are devastating. School fees alone consume 90 percent of my two months’ salary combined. Inflation is the biggest driver of poverty because of its impact on households, businesses, and overall security. Rising prices erode our incomes and affect what we can afford per time,” she said.

It was similar for Bimbo Asuwa, another concerned civil servant who described her dilemma as being stuck between paying exorbitant fees and changing her children’s school.

According to her, the school has not only increased her three boys’ school fees by 20 percent but also raised the cost of other co-curricular activities, textbooks, exercise books, and uniforms by 25 percent each.

“The cost of quality education is gradually becoming unbearable for some of us. I understand it is not entirely the fault of the schools too, as the cost of everything has been on the increase for years but the management should consider the fact that our salaries have largely remained the same. To cut the expenses, I have suspended the school bus arrangement and made other plans to drop and pick my children. I have also fixed and cleaned their former school bags which we had abandoned.

“I would have changed their school to a cheaper one if the school authority had not agreed to let me defer payment of the tuition till the end of October 2021. Also, the total cost of securing a new school, which offers lower quality, is quite close to the fee I am expected to pay to the old school. Though, I understand the cost will reduce subsequently, if I have not secured a better job by the next session, I will change their school,” she said.

It was the same for Tobi Aboaba, an educationist, who explained that the impact of job losses/salary slashes due to COVID-19 lockdown last year would be felt harder this year as students resume fully, and next year as well, as many parents may be forced to reduce their standard in the choice of schools because of their financial situations.

“Financial hardships caused by the Covid-19 pandemic had hit parents with wards in private schools harder than public schools. I think you will see a decrease in enrolment in private schools in September 2021 and 2022 too,” he said.

The combination of rising inflation and unemployment rates creates a unique set of challenges for policymakers. Policies that boost economic output and reduce unemployment, such as a reduction in taxes and an increase in government spending, would worsen inflation because these policies tend to increase the supply of money in the economy.

Muda Yusuf, an economist and former Director-General of the Lagos Chamber of Commerce and Industry, LCCI stated that the current inflation situation in the country has compounded the issues of high poverty, high unemployment, and the weak purchasing power of the citizens.

“Inflation is the major accelerator of poverty in Nigeria because it reduces the purchasing power of the citizens. It also reduces real income and when we are faced with a situation that can be described as “Stagflation” it means nominal incomes are reducing,” he said.

Yusuf highlighted that supply chain disruptions; insecurity issues, Port Issues, Exclusion of some industries from FX access, Liquidity crisis in the FX market, Trade policy issues, and Weak productivity in the economy are the major drivers of inflation both nationally and globally.

“For Nigeria to achieve the lifting of over 100m people from poverty, the drivers of a high inflation rate must be addressed frontally,” Yusuf stated.

 

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