Can Nigeria’s supply chains survive the price storm? A path to resilience

Inflation in Nigeria has hit its highest level in 27 years, with the headline inflation rate for December 2023 rising by 0.72 percent to 28.92 percent year-on-year from 28.20 percent in November. This marks the twelfth consecutive increase in the inflation rate, and the situation has not been this challenging since mid-1996. The surge in food prices has intensified the cost-of-living crisis, adversely affecting both consumers and businesses. The pressure on the central bank to raise interest rates further reflects the urgency of addressing these economic challenges.

This persistent increase in the prices of goods and services poses a significant challenge to the supply chain web. As raw material costs continue to soar, businesses grapple with rising operational and production expenses, significantly impacting their bottom line.

Companies find themselves delicately balancing inventory management to prevent shortages while addressing surplus challenges. Inflation also reverberates through contractual agreements, necessitating the renegotiation of terms with suppliers and partners, thereby impacting long-term business relationships. The dynamics of supply chains are further complicated as inflation influences international trade, contributes to currency fluctuations, and challenges cross-border supply chain operations.

Nigeria’s transportation costs, a critical component of supply chain expenses, are heavily affected by inadequate capacity and fluctuating fuel prices, especially in road transport, which accounts for a significant portion of cargo movement. Rising transportation costs are often passed on to the end consumer, affecting demand patterns.

 The dynamics of supply chains are further complicated as inflation influences international trade, contributes to currency fluctuations, and challenges cross-border supply chain operations.

Additionally, Nigeria’s heavy dependence on imports for raw materials and machinery exacerbates price increases. The vulnerability to global supply chain disruptions and currency fluctuations becomes evident when global prices of raw materials rise, inflating operational costs for Nigerian businesses. The volatility of the Naira further compounds this issue.

In response to these challenges, companies may reduce production or seek cheaper alternatives, impacting product quality and leading to reduced business profit margins and an increased cost of living for consumers.

The logistical challenges in Nigeria’s transportation infrastructure, including inadequate road networks, port congestion, and underdeveloped rail and air freight capabilities, result in delays, increased operational costs, and difficulties maintaining just-in-time inventory systems. This situation is particularly problematic for perishable goods, leading to significant losses.

The economic crisis in Nigeria, characterised by persistent price increases, a falling currency in the FX market, and rising operational costs, has created a complex environment for supply chains. Increased costs, reduced efficiency, and potential delays are worsening the overall economic landscape.

To navigate these challenges, we believe that businesses in Nigeria must adopt a multifaceted approach. Diversifying suppliers and transportation methods can help mitigate risks associated with supply chain disruptions. Embracing technology for better management and forecasting, along with optimising inventory through just-in-time or lean strategies, can reduce costs and improve efficiency. Cost efficiency should be a primary focus, achievable through strategies like renegotiating contracts, optimising transportation routes, and investing in more efficient technologies.

For now, collaboration and partnership between private and public sectors are essential to address these challenges proactively. A strong emphasis on enhancing infrastructure and formulating supportive policies is crucial. Businesses should embrace innovation and adaptability to remain agile in changing market dynamics, promoting sustainable practices and local sourcing to reduce reliance on unstable international markets. This collaborative and adaptive approach is vital for strengthening Nigeria’s supply chain and ensuring economic stability and growth.