More than 11 million Nigerians are projected by the World Bank to fall into poverty in the next year, largely due to the country’s high inflation rate that has reached new records in 2021, a wake-up call for Africa’s largest economy to take urgent actions.
About 7 million Nigerians have already been pushed into poverty by the rapid acceleration in inflation rate. According to the World Bank’s latest Nigeria Development Update report, before inflation started rising steadily, there were 82.9 million poor Nigerians but the number has risen to 90.1 million as a result of the price shock.
The high cost of goods and services in Nigeria has been accelerating since September 2019.
Although Nigeria’s inflation rate slowed for the second consecutive month to 17.93 percent in May 2021 from 18.12 percent in April, the slowdown, however, doesn’t provide much relief to Nigerians whose purchasing power has been eroded.
The incomes of many Nigerians can only buy less of their usual consumption basket, a situation of the poor getting poorer in real terms, and the middle class getting thin out.
“High inflation is reducing Nigerians’ purchasing power,” Marco Hernandez, World Bank Lead Economist for Nigeria, said, adding that, “in the last one year, food inflation has accounted for about 70 percent of the inflation rate.”
While 1 in every 3 Nigerians is unemployed, those that have been able to pin a job spend about 65 percent of their income on food, the main driver of the country’s inflation rate. Food inflation moderated to 22.28 percent in May after hitting the highest level in 15 years at 22.95 percent in March. It was 22.78 percent in April.
“This is the reality,” Ayodeji Ebo, Head, Retail Investment, Chapel Hill Denham, said.
With the high cost of living in Africa’s top crude producing nation and a declining per capita income that has been trending downwards since 2015, Nigerians are three times more miserable than they were some five years ago. Nigeria’s misery index, an indicator that is used to determine how economically well off the citizens of a country are, jumped to 50.48 percent in March 2021 from 14.75 percent in 2015.
While Nigeria is not the only country in the world with a high inflation rate, its slow economic growth that has remained lower than population growth in the last five years has made it difficult for the largest economy in Africa to create sufficient opportunities for its rapidly rising population.
Since 2017 when oil-dependent Nigeria emerged from its economic recession, not only has the country’s economic growth been sluggish but only a few sectors triggered the expansion, further undermining Nigeria’s ability to provide job for its youthful population.
A high unemployment rate in a country like Nigeria whose economy is described as one that is stagflated (a blend of the high inflation rate and slow economic growth) means poor Nigerians will become poorer in real terms, and the middle class will get thinned out. Nigeria’s unemployment rate rose to 33.3 percent in the fourth quarter of 2020, translating to some 23.2 million unemployed people.
To reduce inflation and consequently prevent over 11 million Nigerians from falling into poverty, the World Bank pointed policy direction Nigeria should consider in the next three to six months.
Full Border reopening
The World Bank said Africa’s largest economy should fully reopen its land borders to trade to help slow Nigeria’s accelerating inflation rate.
Although the land borders have been opened, Nigeria in August 2019 closed its land borders with neighbouring West African countries to stem the smuggling of goods – rice in particular, and encourage local agricultural production.
As a result, food prices climbed rapidly–a signal that Nigeria has not yet attained a good level of food sufficiency.
Finance small businesses/job creation
Identifying criteria for enabling MSMEs to access appropriate forms of equity financing was another policy the Washington-based lender recommended to Nigeria.
“Launch a scoping exercise to enrol and screen eligible MSMEs, develop parameters for debt restructuring, and create performance indicators for viable delinquent MSMEs,” it said
Exchange rate flexibility
It also recommended that Nigeria should communicate an exchange rate management strategy that makes the NAFEX rate (now the anchor) more flexible as it would boost Nigeria’s competitiveness while helping to reduce inflation.
“Enhance the FX auction process, for instance by using pre-defined exchange rate bands to control possible immediate overshooting,” World Bank said.
The CBN recently adopted the NAFEX exchange rate, months after the market government and market players started using the rate.
“Further clarity and predictability in exchange rate management and access to FX would boost investors’ confidence,” the World Bank said.
Facilitate imports of staple foods
Nigeria should facilitate imports of staple foods and medicine by removing them from the list of FX restrictions, the World Bank said.
Review FX restrictions
“Review FX restriction and import ban currently applied to non-food goods,” it said.
According to the lender, sustaining reform momentum is critical to ensure a robust recovery beyond 2021. Beyond the immediate need, World Bank said two policy areas are critical to ensure robust and sustained growth- Power and revenues.
