In the last 11 months, the disposable income of Nigeria’s middle class has come under pressure due to some unfavourable policies of the government.
Africa’s biggest economy faced a double blow from the COVID-19 pandemic and low oil prices which emptied government coffers.
The dual shock further weakened the already fragile economy which never bounced back fully after the 2016 recession.
The economy contracted by 6.1 percent in the second quarter of 2020 and shrank 3.62 percent in the third quarter, ushering in the second recession in five years as the pandemic took a toll.
The COVID-induced lockdown crippled business and the already squeezed consumer’s purchasing power, but they still had to deal with mounting inflationary pressures.
Nigerians have experienced pains this year with inflation at 14.23 in October, its highest in 31 months.
With food prices on the increase, it has been difficult for the average Nigerian to purchase essential staple foods.
This is made worse with unemployment which rose to 27.1 percent in Q2’20, the highest in six years.
The World Bank has also projected that the poverty rate in Nigeria will increase to 42.5 percent in 2020 from 40.1 percent in 2019, dragging 5 million more people into poverty.
Of all the countries in a recession currently, Nigeria has the second-lowest per capita income at $2,386, following India closely with a per capita income of $2,169.
The government in an attempt to solve the economic implications of the pandemic has enacted policies that have only added more pains to the already burdened citizens.
Value Added Tax (VAT) increase
The Federal Government in September 2019 formally announced plans to increase the Value Added Tax (VAT) rate by 50 percent to 7.5 percent from 5 percent. The VAT increase was effected in February 2020, the same month COVID-19 was discovered in Nigeria and a month before the lockdowns were imposed.
The VAT hike was part of a broader drive to increase tax revenue to deal with the expenditures of minimum wage increase and development of capital projects and infrastructure.
However, the 2.5 percent is not so favourable for businesses as it increases the cost of production, especially for those involved in ventures that require multiple stages of production, and this is passed to the consumers in the form of higher prices.
This has worsened the decrepit economy and put more pressure on families and businesses as it resulted in an increase in the costs of goods and services.
Inflation has remained in double figures for the last three years, above the central bank’s single-digit target, which has pushed up the cost of living in a country where most people live on less than $2 a day.
Electricity tariff hike
Amidst all the happenings this year, the government approved an increase in the electricity tariff on September 1, 2020. This came a few months after the National Assembly promised tariffs will not be increased until the first quarter of 2021.
The electricity tariff was increased from N30.23 per kwh (kilowatt unit of energy per hour) to as much as N62.33 per kwh.
This came at a bad time for Nigerians who are already stretched by rising inflation which has weakened their purchasing power.
Also, the epileptic power supply in the country is another reason why the hike was not a welcome development for Nigerians.
Most businesses in Nigeria struggle to keep expenses to a minimum but due to the tariff increase, business owners are forced to increase the amount budgeted for power. This negatively affects the running cost of the business.
Increase in petrol price
Nigerians had to deal with an increase in fuel price following the government’s subsidy removal.
This year alone, the petrol price has been increased four times. It has risen from a range of N121 per litre in June to a high of N167 per litre.
The increase in the price of petrol has only worsened inflation and poverty levels while further crippling businesses already reeling from the pandemic.
Higher food prices
Although consumers’ real income has been squeezed, the prices of major food items have been on the increase.
According to the National Bureau of Statistics, food prices rose by 17.38 percent in October compared to 14.85 percent in January.
The closure of the land borders has been a major trigger as Nigeria does not have enough production capacity to meet demand. Therefore, the gap is passed on to the consumers in the form of high prices.
Major commodities including rice, yam tubers, oil, vegetables, onions, pepper, tomatoes, maize, chicken/turkey have seen a spike in recent times.
Specifically, a recent BusinessDay survey at Mile 12 market showed that onion is one of the many commodities that are rapidly escalating in prices as a 100kg bag of onions has now jumped to N80,000 as against N30,000 last year.
Similarly, a 50kg bag of local parboiled rice now sells for an average of N28,000, a 65 percent rise from N17,000 it sold in July last year, while that of foreign rice sells for N32,ooo from N14,000 in the 14-month period.
Naira depreciation
The decline in oil prices and foreign investor apathy led t0 dollar shortages in the FX market and that has seen naira depreciate significantly.
The CBN has devalued the naira twice this year alone. The official naira has weakened by 24.5 percent to N381 per US dollar from N306 per dollar at the beginning of the year.
The CBN was forced to cease weekly inter-bank foreign currency sales since March to buffer the foreign reserves which were drained as crude oil prices plunged significantly in the wake of the pandemic.
This action led to a dollar shortage in the foreign exchange market.
Many businesses and manufacturers that rely heavily on dollars have been struggling as the lack of access to foreign exchange is hampering their ability to import vital raw materials, machines, and spares that are not available locally.
In a bid to keep their businesses running, they turn to the parallel market to source dollars.
The naira depreciated to 475 per dollar on the parallel market on Friday.
Heightened insecurity
The insecurity situation in Nigeria is currently on the upswing. Nigerians do not feel safe anymore with the occurrences in the economy.
Recently, in the northeastern part of the country, dozens of civilians working in rice fields were slaughtered.
The increase in terrorism in recent times continues to threaten the lives of Nigerians.
Also, the overwhelming unemployment rate, hunger, and poverty, among others have also increased social vices in the economy.
The insecurity situation in Nigeria is currently on the upswing. Nigerians do not feel safe anymore with the occurrences in the economy.
Recently, in the northeastern part of the country, dozens of civilians working in rice fields were slaughtered.
The increase in terrorism in recent times continues to threaten the lives of Nigerians.
Also, the overwhelming unemployment rate, hunger, and poverty, among others have also increased social vices in the economy.
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