Nigeria’s unemployment rate faces an upward trend as firms’ cost of production rises. Thus, Nigeria faces the risk of a rising unemployment rate due to the increase in the cost of production experienced by firms in recent times.
Any profit-oriented firm or organisation will always look for means to reduce production cost by minimising cost and maximising profit. So, when production cost increases, employers will look for means to either choose between firing employees, cutting working hours, or combining them.
The rising cost of production can be linked to the Russia – Ukraine war. The implication of the Russia – Ukraine war is having a severe spill-over effect on other countries, including Nigeria, that relies solely on imports to augment the domestic demands for goods and services.
The high cost of diesel has caused some companies to re-strategise their operational dynamics. Some companies like banks and television stations have reduced their working hours to reduce the running cost of operation
This war poses a threat to the global economy, especially to African countries depending on the import of crude oil, which leads to a higher cost of production, which in turn poses a threat to the employment rate in the continent.
Russia has a significant influence on the global economy since the country is the 11th largest economy and the third oil-producing country globally.
The current invasion of Ukraine by Russia, being the second world’s most significant exporter of crude oil and also one of the largest producers of natural gas and renewable energy, is affecting the supply of crude oil and its prices to countries importing from her.
As a result of the various sanctions placed on Russia, the global oil prices surge, thereby adversely affecting the economies not directly involved in the war like Nigeria. This has significant consequences for Nigeria and Africa as well as the world’s largest economies.
The supply chain disruption resulting from the war negatively affects Nigeria. Though blessed with abundant natural resources, Nigeria, Africa’s largest oil producer, is not exempted from the shock and spill-over effect of the war.
The spill-over effect is felt in the higher cost of operating businesses, increase in the cost of raw materials, and inflationary pressure on prices of goods and services.
Nigeria, an importer of crude oil products, faces the brunt of the crude oil price surge, as the price of diesel, which is not subsidised in the country, has risen to over N600 per litre, with some fuel stations already selling for around N800 per litre.
The price of diesel has risen due to an increase in the landing cost of refined products and increasing demand for fuel in the local market prompted by the country’s recent epileptic power supply.
In addition, following a series of collapses of the national grid that left the country in darkness, businesses rely significantly on fossil fuel for operations due to the total blackout in the country.
The rise in diesel prices has become a massive headache for businesses within the country. Business running costs are rising daily because most enterprises rely on diesel generators as a source of energy for operation.
The high cost of diesel has caused some companies to re-strategise their operational dynamics. Some companies like banks and television stations have reduced their working hours to reduce the running cost of operation.
Most businesses have begun to look for possible ways to decrease the escalating cost of running the company, which is becoming unbearable.
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For instance, about two weeks ago, First Bank sent e-mails to customers about their new working hours in their branches across the country. Prior to this, Guaranty Trust Bank about a month ago reduced its operating hours from 5pm to 4pm.
Although the bank did not justify the decision, it is believed that rising diesel prices and other challenging operating conditions are among the factors.
This, in effect, may further prompt the reduction of labour services required in carrying out tasks, leading to an increase in the country’s unemployment rate.
It is worth noting that the unemployment rate and the youth unemployment rate, which stood at 33 percent and 42.5 percent, respectively, may likely rise as businesses may downsize their staff strength in order to cope with the high cost of operation. This will, in effect, further stiffen an economy like ours that has faced turbulence in recent times.
In addition, Russia and Ukraine contribute 30 percent of the world’s wheat production. A lot of it goes to low-income and food-deficit countries because they are the cheapest on the market. Between Russia and Ukraine, they supply half of Africa’s wheat imports.
The dependence of Nigeria on imported products like wheat, cereals, oil products, and fertiliser from Russia leads to a decline in the agricultural output due to scarcity of farm inputs, thereby increasing the cost of food in the country.
The illiquidity of foreign exchange also poses a significant threat to the inflation-driven economy. As Nigeria’s imports exceed exports, it is likely for the country to import inflation from other countries, causing a further rise in prices of goods and services and weakening the purchasing power of people.
Furthermore, the aviation industry has shifted the burden to customers by notifying the public that flights payments will now be in dollars. This is to cushion the effect of the surge in aviation fuel experienced in the industry on the business. However, it will be challenging for travellers as travel costs increase.
Therefore, the government needs to find a lasting solution to the problem of fuel scarcity, which has an enormous spill-over effect on the economy, by reconstructing our oil refineries and reducing dependency on importation.
Indeed, we are of the conviction that if we had put in place vibrant domestic policies, we would have been able to minimise the impact of the Russian-Ukranian war on the country’s economy.
Also, if Nigerian monetary authorities want to prevent chronic inflation, in that case, they must substitute locally produced goods of sufficient quality and quantity for imported goods. They must adopt a monetary policy posture that does not easily vary from the specified economic target.
Finally, the government must increase local production of staple commodities to meet local demand. The government should also concentrate on sectors in which we have a comparative economic advantage over other countries so as to avoid and reduce the importation of inflation from different countries, promote local production, and encourage investors.
This will lead to the generation of employment opportunities and a significant reduction in the unemployment rate. Certainly, it is not too late for the government to embark on these home-grown solutions. This indeed is about the only way to ensure an economy that will give fillip to our employment situation.
