2020: COVID-19, food inflation, energy reforms pressure cash-strapped consumers
…challenges to persist in 2021
The outgoing 2020 has been very challenging for Nigerian consumers as the combined impact of weaker disposable income due to Covid-19 disruptions, foreign exchange (FX) scarcity, rising food inflation and higher energy costs worsened living standards in an economy where per capita income declined in five straight years.
From an income perspective, the Covid-19 pandemic disruptions and lockdown restrictions crippled business activities, forcing companies to retrench workers or effect pay cuts in order to minimise personnel cost as a way of managing the shock. And from the purchasing power perspective, consumers were faced with rising prices of food and non-food items, reflected in sustained acceleration in headline inflation amid lower disposable income.
“Cost-cutting measures by businesses and corporates at the peak of the pandemic significantly depressed consumer wallet, which had already been weak before covid-19,” Damilola Adewale, a Lagos-based economist, said.
“As a matter of fact, the impact was more profound on the low- and middle-income segment of the population who saw food expenditure take most part of their budget with almost nothing to save or invest,” Adewale further said.
The National Bureau of Statistics (NBS) headline inflation, which serves as a measure of consumer prices, rose at a faster pace for 15 consecutive months, reaching a 32-month high of 14.89 percent in November, while Nigeria’s unemployment rate came to 27 percent in Q22020, as more and more were rendered jobless due to Covid-19 disruptions.
Around 82.9 million Nigerians are extremely poor, constituting 40.1 percent of the total population with real per capita expenditures below N137, 430 in 2019, according to NBS’S Poverty and Inequality report in May 2020. The World Bank predicted that there would be 95.7 million Nigerians living below the poverty line by 2022.
Before the pandemic, the previous year was not as tough as this year even though consumers still faced myriads of challenges from fragile economic growth to unfavourable protectionist policies of the government. Apart from the pains felt from the Covid-19 disruptions, more pains were added as a result of policies implemented by the government in an attempt to solve the economic impacts of the pandemic.
These policies were the increase in Value Added Tax (VAT) rate by 50 percent to 7.5 percent from five percent, an increase in electricity tariff and petrol price, naira devaluation due to decline in oil prices and foreign investor apathy which led to dollar shortages in the FX market.
Also, the ENDSARS movement in October, which caused political unrest, affected consumer spending as the destruction of public properties such as buses (BRT) pressured pricing of transportation and many others and the current heightened insecurity situation in the country which is making Nigerians feel unsafe.
Ayorinde Akinloye, a consumer analyst at United Capital Plc, noted that the rise in VAT was expected to weigh on consumer spending, but cost pressures with the deregulation of the downstream oil & gas sector, increase in electricity tariffs and sustained rise in food prices exacerbated poor consumer conditions.
The challenges faced by consumers also affected the wholesale and retail trade sector, which is the country’s second-biggest sector by output contribution and can be likened as the barometer of consumer purchasing power.
In the third quarter of 2020, NBS reported that trade recorded yet another negative contraction for the sixth consecutive time, although the magnitude of contraction moderated from 16 percent in the second quarter to 12 percent in the third quarter.
Also, Nigerian retailers were faced with challenges from low patronage, weak sales and low stock of goods due to FX depreciation. Earlier in the year, foreign retailers such as Shoprite South Africa and Mr. Price had announced their exit from the Nigerian economy.
According to Jide Atolagbe, a consumer analyst at Afrinvest Limited, the collapse of global oil prices dealt a huge blow to local consumers as the Central Bank of Nigeria (CBN) was forced to devalue the Naira which affected the pricing of local goods adversely.