The recent spate of violence and piracy in the Red Sea is sending ripples of concern across the Nigerian economy, with fears it could exacerbate the nation’s already concerning inflation rate.
The Red Sea is crucial to shipping more than 15 percent of the global maritime trade and 30 percent of container trade, yet recent attacks on commercial vessels in the area by Iran-backed Yemen’s Houthi rebels have scared off some of the world’s top shipping companies and oil giants.
With disruptions to shipping lanes and rising insurance costs, businesses are bracing for higher prices for imported goods, which could be passed on to consumers in the form of higher prices.
“This is a problem for import-dependent countries,” John Stawpert, senior manager of environment and trade for the International Chamber of Shipping, which represents 80 percent of the world’s commercial fleet, told CNBC.
Nigeria’s food importation increased by 41 percent to N643.68 billion in the third quarter of 2023, according to data from the National Bureau of Statistics.
Stawpert noted that 40 percent of Asia-Europe trade normally goes through the waterway. “It has the potential to have a huge economic impact,” he said.
Among the economies most affected by the trade disruptions would be Greece, Jordan, Sri Lanka and Bulgaria, according to Bloomberg, which cited analysts.
Those ships that choose to reroute will have to sail around Africa to reach Europe, which is estimated to cause seven to 10 days of delay, according to the report.
Findings showed major international shipping companies MSC, Maersk, CMA CGM Group and Hapag-Lloyd, as well as British oil giant BP, said they would suspend their operations in the Red Sea.
“The impact will be longer transit times, more fuel spent, more ships required, potential disruption and delays — at least in the first arrivals in Europe,” Simon Heaney, senior manager of container research for Drewry, a maritime research consultancy said in a note.
That brings up the cost of shipping, but “I don’t think it’s going to go to the heights that it reached during the pandemic,” Heaney said.
Stawpert said he would expect to see some price increases for consumers in the short term but that it depends on how long the security threat lasts.
James Dorsey, a senior fellow at Nanyang Technological University’s S. Rajaratnam School of International Studies in Singapore, said diverting the vessels will not just increase transport time, it also means a large jump in insurance and fuel costs, delayed delivery, and even impact inflation in some countries.
Nigeria, Africa’s biggest economy, is grappling with stubbornly high inflation. The country’s inflation rate has been on the rise in recent years, reaching an 18-year high of 28.2 percent in November.
“We’re already grappling with rising food prices due to domestic factors like insecurity and the ongoing war in Ukraine. Now, with imported goods becoming more expensive, the squeeze on household budgets will only tighten,” Aisha Hassan, an economist at Sofidam Capital, said.
Africa’s most populous country has failed to grow more food for its fast-rising population, which must be fed with staples ranging from rice, beans, tomatoes, and maize, among others.
This has forced the country to spend millions of dollars yearly importing food, thereby putting pressure on its foreign exchange reserves and importing thousands of jobs it would have created if the products were grown locally.
The federal government has in the last seven years spent billions of dollars on various agricultural programmes to spur local food production.
However, there is still no significant impact as the country still has a huge demand-supply gap in most of its staple foods, even as the population growth rate stands at 2.5 percent in 2020, according to the World Bank.
NBS data showed a total of N1.9 trillion worth of food products were imported into the country in 2022, indicating a five percent rise compared to N2 trillion spent on food importation in 2021.
In 2020, Nigeria imported N1.2 trillion worth of agricultural products for the year. In 2019, the country imported N959 billion worth of food, accounting for 5.66 percent of total imports. It imported N857.6 billion and N886.8 billion worth of food products in 2018 and 2017 respectively.
“The data is evidence that will still not grow enough food and we are left with no option but to import,” AfricanFarmer Mogaji, chief executive officer of X-Ray Consulting Limited, said in a response to questions.
“Imports are surging despite continuous government support and this is because of the high insecurity rate in the country,” he said.