Rising prices, lost jobs: Counting the cost of stagflation in Nigeria (II)
Secondary triggers of high inflation and unemployment
Indeed, curbing inflation and shrinking the unemployment net are key to rebooting the economy. But this can only happen if the government can intensify efforts to address salient issues that exacerbate stagflation, and genuinely so.
While the fundamental issues are too hard to ignore, other ancillary events accrue to the incidence of stagflation in Nigeria.
For instance, insecurity in the North and Southern retaliation caused trade suspension between the North and the South in Nigeria. As Northern killings escalated, Southern dwellers retaliated by killing Northern indigenes in their states. This led to a temporary halt in Northern-Southern trade. Food prices ballooned as a result.
Food security in the nation is also threatened by incessant killing of farmers by herders in the North. With shortage in food production and supply, prices of available food items naturally increase. Also, the fear of being killed or kidnapped renders farmers temporarily unemployed as they remain indoors. Supply chain and logistics transporters are also affected by the halt in production.
On August 20, 2019, the Nigerian government embarked on a border control policy to halt cross-continental trade flows between Nigeria and Benin, Togo, Chad, Cameroon and Niger. This policy was aimed at reducing the incessant illegal flow of merchandise in and out of the country.
Staple goods like rice, cooking oil, poultry, tomato, flour and pasta, among other items were restricted from entering the country through its land borders as a result of the new restrictive policy. This move, various reports agree, affected the Nigerian economy as a whole, as well as the neighbouring countries with whom the country trades.
Believing that foreign competition with local production would go wiry, the restrictive policy only seemed to make matters worse.
For instance, rice, a major household consumption good in Nigeria accounts for a large percentage of overall imports into the economy. This import well augments for local production shortage, thus, closing the supply gap in the market for rice in Nigeria.
Accordingly, yearly domestic demand for rice in the country is estimated to be 7.3 million metric tonnes, the United States Department of Agriculture (USDA) reports. However, only 4.8 million metric tonnes accrue to local production capacity.
With this production supply gap, domestic manufacturing and agro-processing industries are worse hit by this policy. As supply shortage is created by the trade restriction, domestic plants are made to overwork the shortage, but no visible incentive is in sight to expand production capacity or establish new manufacturing outfits.
A border reopening order was given on the 6th of December 2020. However, it is unclear whether the re-opening will occasion the much anticipated results as economic activities seem to drag along the Benin/Nigeria border.
The outbreak of the novel coronavirus, further dipping in oil prices and the erratic trends in the exchange rate of the naira relative to the dollar worsened the chances Nigeria could have had to gain the much anticipated economic recovery as desired.
With supply gaps in almost all sectors widening simultaneously, prices continue to skyrocket and unemployment rate throttles up.
Counting the cost of a stagflated Nigeria
The volatility and uncertainty that comes with high inflation and increased unemployment poses major threats to the development of the country.
Already, major tech giants have overlooked the business potentials of Nigeria and have announced their interest in neighbouring African nations. Jack Dorsey’s Twitter Inc. for instance, is one of those.
In a tweet, Twitter’s CEO announced, “Twitter is now present on the continent. Thank you, Ghana and Nana Akufo-Addo”.
Reacting to this decision by the world renowned tech giant, Ghanian president, Nana Akufo-Addo exclaims, “The choice of Ghana as HQ for Twitter’s Africa operations is excellent news. Government and Ghanaians very much welcome this announcement and the confidence reposed in our country”.
Ghana has also been identified by Chinese businesses as a preferred destination for Chinese-led foreign direct investments (FDI) owing to Ghana’s leadership role in the African Continental Free Trade Area (AfCFTA).
Xinhua, a Chinese trade analyst believes that “… because China is already in the country and recognises these needs, and opportunities, it will be easy for them to tailor FDI into the specific sectors to provide these needs arising out of the latest developments that put Ghana at the forefront of Africa’s quest to boost intra-regional trade,” he said
In times past, other foreign direct investments have left the country due to high operating costs from inadequate infrastructure and huge foreign exchange imbalances that distort production possibilities.
Currently, the spike in domestic prices has made the ease of doing business in Nigeria less tolerable as purchasing power of individuals and businesses are eroded. With this, lower investment and savings capacity follows, and expected growth targets are unrealisable.
If more people were employed, the government would have more tax revenue to collect and reinvest into the economy instead of relying heavily on borrowing. Also, social unrests, increased criminal activities like touting, kidnaping, terrorism, cultism and cyber-frauds would not be as perverse if unemployment rates were kept as low as possible.
Consumption expenditure that would have boosted aggregate demand for growth is lost as more individuals in the economy are left without jobs. These individuals either become dependants who increase the economic burden on existing working individuals or they are lured to become agents of social and economic woes in the country.