From cash scarcity to the removal of the petrol subsidy and naira devaluation, a series of things affected Nigerians this year.
According to Oluebube Nwosu, consumer goods analyst at Vetiva Capital, financial strain, rising inflation, currency devaluation, fuel subsidy removal, and a poor harvest have collectively contributed to a less favourable cost of living.
“Devaluation of naira and fuel subsidy removal have a lasting impact on the cost of things and in the near term, we don’t see it reduced. In 2024, Nigerians will still spend more on necessities,” Bolade Agboola, consumer goods analyst at ChapelHill Denham, said.
Naira scarcity
In the first three months of the year, the naira redesign policy of the Central Bank of Nigeria (CBN) led to a chronic shortage of cash that disrupted economic activities and the livelihoods of many people.
Data from the CBN show that the currency in circulation declined by 29.2 percent to N982.1 billion in February, the lowest since October 2008, from N1.39 trillion in the previous month.
In March, currency in circulation picked up by 71.4 percent to N1.68 trillion after the apex bank moved naira notes from its vault to deposit money banks in response to the Supreme Court order to extend the legal tender status of the old N200, N500, and N1, 000 notes to December 31, 2023.
Last month, CBN extended the validity of old naira notes indefinitely. But the naira crunch has resurfaced again with many Nigerians complaining that they can’t get cash as banks are rationing cash.
Higher prices
The country’s inflation rate, which has been in double digits since 2016, increased significantly this year. This has weakened the purchasing power of cash-strapped Nigerians, put a strain on disposable incomes among households and impacted the operations of many businesses.
Higher petrol prices and foreign exchange costs have continued to cause a spike in the country’s inflation rate. According to the National Bureau of Statistics, headline inflation rose to 28.2 percent in November, hitting a new 18-year high, from 27.33 percent in October.
High inflationary pressures has shrunk business activity four times so far in 2023.
Data from the latest monthly Purchasing Managers’ Index (PMI) by Stanbic IBTC Bank show that the headline index dropped to the lowest in eight months of 48.0 in November 2023 from 49.1 in the previous month, marking the second straight month of contraction.
“Companies in Nigeria continued to be negatively impacted by strong inflationary pressures in November, with new orders and output both falling as customers were either reluctant or unable to pay higher charges,” the PMI report said.
It said purchase prices rose at the fastest pace in almost two years amid exchange rate weakness and higher costs for fuel and materials.
Analysts at KPMG projected inflation to hit 30 percent by December 2023 as a result of the combined influence of fuel subsidy removal and foreign exchange liberalisation.
Inflation impacted the food, beverage and tobacco subsector of the manufacturing sector in the third quarter as its growth rate slowed to 0.92 percent from 4.33 percent in Q2.
“Consumers’ confidence has been affected by inflation. So, there is very little that people can buy. People are cutting down on components in the subsector,” Muda Yusuf, chief operating officer of the Centre for the Promotion of Private Enterprise, said.
Food prices, which constitute a major contributing factor to the surge in the inflation rate, are also at their highest in 18 years. According to the NBS, food inflation rose to 32.84 percent in November from 31.52 percent in October.
The rise in food inflation on a year-on-year basis was caused by increases in prices of oil and fat, bread and cereals, potatoes, yam and other tubers, fish, fruit, meat, vegetables, milk, cheese, and eggs.
In October, the price of frozen chicken rose to N3,394 from N2,601 in the corresponding period of 2022. Similarly, frozen titus fish experienced an increase during the same period, reaching N2,172 from N1,659, while the cost of one bottle of palm oil escalated to N1,323 from N969.
Analysts at SBM intelligence said in a recent report that Nigerians spend 97 percent of their monthly income on food.
“Removing subsidies has led to an increase in the prices of goods and services such as fuel and food. This has made it difficult for people to afford necessities such as food and transportation,” they said.
Scarcity of foreign exchange
Before the CBN collapsed all segments of the FX market into the Investors & Exporters window in June, the country’s dollar liquidity crisis had worsened on the back of the Russia-Ukraine crisis, which started in February last year.
The naira depreciated from 416.52/$1 as of February 28, 2022 to 854.61/$ as of Wednesday at the official market. At the parallel market, popularly called the black market, the dollar was quoted at N1,225 from N575.
The persisting scarcity of forex and further depreciation of the naira have caused manufacturing activities to continue to decline.
“Only 14.7 percent of manufacturers enumerated claimed that the rate at which forex was sourced improved in Q2; 66 percent disagreed while 19.3 percent were not sure if forex sourcing had improved in the quarter under review,” Manufacturers Association of Nigeria said in a recent report.
BusinessDay reported last month that six out of 10 fast-moving consumer goods firms posted losses in the first nine months of this year as their borrowing costs swelled on the back of rising interest rates and naira devaluation.
Nestle, Cadbury, Dangote Sugar Refinery, Nigerian Breweries, International Breweries and Champion Breweries suffered a combined loss of N166.3 billion.
Transport cost
The removal of the petrol subsidy tripled the pump price, forcing public transportation providers such as buses, tricycles and motorcycles to raise fares.
Data from the NBS shows that the average retail price paid by consumers for petrol jumped to N648.9 per litre in November from N238.1 in May. The average retail price of diesel also rose from N844.28 per litre to N1,055.6.
The increase in the cost of petrol led to the average fare paid by commuters for bus journeys within the city per drop to rise by 61.3 percent to N1,047.63 in November from N649.6 in May.
The average fare paid by commuters for bus journey intercity per drop increased to N6,206.5 from N4,002.2 in May.
With higher transportation fares, many Nigerians are forced to allocate a substantial portion of their salaries to cover commuting expenses, leaving little for other essential needs like food and rent.
Adeola Adenikinju, a professor of economics and president of Nigerian Economic Society, said the real income of consumers has gone down, causing the demand for transport services to reduce. “People are just managing the whole situation.”
The removal of the subsidy shrank the country’s transport and storage industry for the second time in Q3, entering a recession for the first time in 30 months. According to NBS, the sector contracted by 35.9 percent compared to a negative growth of 50.6 percent in the previous quarter.
More job losses
The tough business environment has forced many small businesses to close up shop, worsening the country’s unemployment situation.
According to the Association of Small Business Owners of Nigeria, about 25 percent of manufacturing businesses “have gone under” this year because of the multiple challenges facing Micro, Small and Medium Enterprises, particularly manufacturers.
MAN also reported that the number of jobs lost in the manufacturing sector rose to the highest in three years for the first half of 2023.
It increased by 108.7 percent to 3,567 in H1 from 1,709 in the same period of 2022. It also grew by 31.7 percent to 2,708 in H2 of last year.
The number of jobs created in the sector declined by 32.8 percent to 6,428 from 9,559 in H1 2022
“Some are operating on a sceptical basis, downsizing their staff or producing 30-40 percent of their capacities which is not sustainable. Inflation is increasing day by day and disposal income of consumers is being eroded,” Femi Egbesola, national president of ASBON, said.
Spike in drug prices
As the naira continues to lose value amid dollar scarcity, the pharmaceutical industry has continued to struggle to keep essential drugs affordable for the public.
A BusinessDay survey of some pharmaceutical stores across Lagos showed that the price of a Ventolin inhaler, used to treat asthma symptoms, ranged from N6,000 to N10,000, up from N1,200-N1,500 in January this year, while that of a 625g Augmentin – used for treating bacterial infections – has risen to N20,000-N25,000 from N5,000-N6,000.
The price of a sachet of Paracetamol has increased to N300-N200 from N150-N100 while that of Lonart DS 80mg/480mg, a malaria drug, jumped to N2,400-N2,600 from N1,200-N1,500.
The price of Seretide, a brand of medical inhalation powder, has skyrocketed from N5,000 in April to an average of N55,000 in November.
Itohan Oseghale, a Lagos-based banker, said his income has not increased, and he cannot afford to buy an inhaler, which he uses for at least two weeks, depending on the frequency of his attacks.
“I have resorted to taking herbs and eating lots of glove spices because it help clear the respiratory tract. I didn’t know the efficacy of gloves in the respiratory tract until the recent jump in inhaler prices that forced me to seek alternatives,” he said.
Data from the International Trade Centre, a multilateral agency, show that the importation of pharmaceutical products into Nigeria dropped for the second straight time to $1.05 billion in 2022 from $1.37 billion in 2021.
“The high cost of FX has limited the quantities that are needed on a normal day. For my company, it has reduced the quantity to half of what we would import on a normal day,” Tunde Akintoye, a pharmacist at Alpha Pharmacy, said.
In August, GSK, a British multinational pharmaceutical and biotechnology company, said it was halting manufacturing operations in Nigeria after 51 years.
Further rise in poverty
Rising inflation in Africa’s most populous nation has pushed an additional 14 million Nigerians into poverty in 2023, according to the latest Nigeria Development Update report by the World Bank.
This means that the number of poor people rose to 104 million from 89.8 million at the start of the year.
“The impact of this inflation is especially hard on the poor and vulnerable. The Government has initiated targeted cash transfers to mitigate some of the impact on the most vulnerable households. In addition, a holistic approach to reducing inflation, including through tighter fiscal and monetary policies, is also needed,” the report said.
