• Friday, May 24, 2024
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Seven culprits behind Nigeria’s cost of living crisis

Nigerians caught in politics of naira redesign

For cash-strapped Nigerians living through the worst cost of living crises in recent memory, the year 2022 cannot end fast enough.

Following the Russia-Ukraine war, the prices of grain and fuel went through the roof but many are seeing an erosion of their purchasing power as inflation surged the most in 17 years.

According to data from the National Bureau of Statistics (NBS), the rate at which prices of goods and services rose slowed to 15.40 percent in November 2021 from 18.17 percent in March of the same year.

But in 2022, prices rose for the 10th straight month to a new 17-year high of 21.47 percent in November from 15.60 percent in January.

“The rate of price increase for certain categories has increased astronomically while for some, the frequency of price changes has been difficult for consumers to manage,” Uchenna Uzo, faculty director at Lagos Business School, said.

Temitope Omosuyi, investment strategy manager at Afrinvest Limited, said 2022 has been a hectic year for many consumers as their standard of living has deteriorated.

“And it is quite evident in the recent third-quarter Gross Domestic Product growth rate, which slowed to the lowest since Q2 2021,” he said.

The World Bank said recently that the country’s accelerated inflation growth had eroded the N30,000 minimum wage by 35 percent, widening the poverty net with an estimated five million people in 2022.

Here are some of the seven things that have taken a heavy toll on Nigerians’ cost of living in 2022:

Diesel

The price of diesel, a major source of energy for industries due to the creaking national grid, surged by 181 percent from about N288 per litre in January to over N809 in November, according to NBS data.
The spike in diesel prices affected businesses in terms of operations and sales, especially for manufacturers. Data from the Manufacturers Association of Nigeria showed that they spent N67.7 billion on alternative energy (diesel and gas) in the first half of 2022, up from N45.0 billion in the same period of last year.

Food prices

While global food prices declined to an eight-month low in November, Africa’s most populous nation recorded the opposite as food inflation accelerated for the ninth straight month to 24.13 percent from 23.72 percent in the previous month.

For example, the price of a 70g noodle rose to N120 from N60 last year; the price of a 500g sliced bread rose to N800 from N400; a 500g Golden Penny now costs N500, up from N320; and an egg now costs N100 as against N70.

A recent SBM Intelligence survey showed that consumers are struggling to survive with dwindling incomes and rising costs of food items.

One of the interviewees, a Port Harcourt-based 39-year-old, said all he could think about was how to leave the country, even to neighbouring African countries, because he could no longer cope with the rising cost of food.

Another interviewee from Lagos complained that she was running out of ideas to cope with the increasing food cost as she had to choose between travelling back to her town and struggling to make ends meet.

Petrol scarcity

Petrol scarcity, which has yet to be resolved, has compounded the woes of millions of Nigerians.
The scarcity, which started in the fourth quarter of the year, has seen the pump price of petrol increase to N230-N250 per litre from N170.

“We are experiencing scarcity because the product is not available. The price of a litre of petrol at private depots is currently between N205 and N210 as against N162.5,” Mike Osatuyi, operations controller of the Independent Petroleum Marketers Association of Nigeria, said.

He added that supply from the Nigerian National Petroleum Company, the sole importer of refined petroleum products, is not readily available to marketers.

Foreign exchange shortage

Apart from the COVID-19 pandemic, the Russia-Ukraine crisis intensified the country’s liquidity challenges in its FX market.

At the official market, the naira-dollar exchange rate closed at N381/$1 as at April 2021 compared to 327/$1 in March 2020.

While at the parallel market, it closed at N482/$1 compared to N368/$1 in March 2020.

In recent months, the naira has depreciated against the dollar, dropping to as high as 440/$1 and 745/$1 in the official and parallel markets respectively.

“The country has been particularly vulnerable to global shortages of supply and, subsequently the rising importation costs of vital commodities like fuel, wheat, and fertilisers,” said Christele Chokossa, consultant at Euromonitor International.

“The situation has been worsened by the steady depletion of the country’s foreign currency reserves, translating into persisting naira depreciation,” she said.

Interest rate hikes

The country’s Monetary Policy Rate (MPR), otherwise known as the benchmark interest rate, was raised four times in 2022 in a bid to rein in the surging inflation rate.

In November, the Central Bank of Nigeria’s Monetary Policy Committee increased the MPR to 16.5 percent from 15.5 percent. It was 11.5 percent in May, before it was raised to 13 percent. It was hiked to 14 percent in July and 15.5 percent in September.

Femi Egbesola, national president of the Association of Small Business Owners of Nigeria, said before the hikes, it was difficult for Micro, Small and Medium Enterprises (MSMEs) to get loans from banks and survive.

“With the recent hike in the interest rate, the situation will only worsen,” he said.

He said more businesses would shut down their operations amid the fresh cost-of-doing-business crisis in the country, coupled with the credit crunch and high borrowing costs.

Read also: Top issues that shaped Nigeria’s aviation sector in 2022

Floods

Towards the end of the third quarter, the country witnessed the worst flood incidents in a decade as 70,566 hectares of farmland were destroyed, 45,249 houses damaged and over 1.4 million Nigerians displaced, with about 600 persons reported dead.

The cause of the floods was attributed to the release of water from the Cameroonian Lagdo dam, which affected Nigeria because of its lack of a flood defence mechanism.

Data from the United Nations Office for the Coordination of Humanitarian Affairs, World Food Programme, and Telimer Research show that Nigeria has the largest number of people (3,480) hit by flooding among 19 African countries.

The impact of the floods led to a 53.6 percent surge in the price of a 50kg bag of locally parboiled rice to N43,000 from N28,000 in September. MSMEs like small-scale farmers, logistics businesses, processors and traders were also affected.

Insecurity

Nigeria’s internal security crises such as mass abductions, kidnappings and violent crimes have intensified, affecting several sectors, particularly the agricultural sector.

Between the period of July 2021 and June 2022, no fewer than 3,420 people were abducted across the country, with 564 others killed in violence associated with abductions, according to a report by SBM Intelligence.

The report also revealed that in the same period, N6.5 billion was demanded in exchange for the release of captives, while a fraction of that sum (N653.7 million) was paid as ransom.

“When insecurity is added to the natural disasters which dominated headlines in Nigeria in 2022, the country’s cadre of poor people has likely grown, food insecurity deepened, family budgets upended and disposable income whittled away,” said Ikemesit Effiong, head of research at SBM Intelligence.

The insecurity challenges in the country led to its ranking as 143rd out of 163 countries in the 2022 Global Peace Index.

Effiong added the combination of these headwinds listed above has eaten severely into the earning ability of consumers and means that Nigerians are overall in a poorer position than when they started the year.