The crushing effect of the economic downturn exacerbated by the COVID 19 pandemic and fall in international crude oil prices which only recently witnessed a resurgence took a hefty toll on Nigerians and adversely affected their living standards.
The misery index, which sums inflation and unemployment outlooks, touched a high of 43.57, as inflation increased by 16.47 per cent (year-on-year) in January 2021, and the country’s unemployment rate jumped to an all-time high of 27.10 percent in the second quarter (Q2) of 2020, according to the National Bureau of Statistics (NBS).
From hike in the prices of fuel to the over 100 percent rise in the prices of food stuff , household utensils, services and cost of building materials, Nigerians continued to fold under the burden of inflation, harsh Government policies and the insensitivity of some private sector players who saw the situation as an opportunity to further profit from the already impoverished masses in the absence of bail-out and strategic policies from government as against tactical far reaching solutions to overcoming the turbulent times as introduced by other countries.
The absence of reforms has clearly inflicted more woes on citizens thereby compounding inflation. These evidently are not the best of times for Nigerian’s as consumer price index which measures inflation increased by 16.47 per cent (year-on-year) in January 2021.
This is the highest figure recorded in the country since April 2017.
At a time like this, analysts say well-tailored fiscal resources are urgently needed to contain the COVID-19 outbreak and stimulate the economy but those policies continue to elude Nigerians.
Meanwhile, the pandemic has also led to a fall in private investment due to greater uncertainty, and is expected to reduce remittances to Nigerian households, which in recent years have been larger than the combined amount of foreign direct investment and overseas development assistance.
In a recent report. the International Monetary Fund (IMF), averred that Nigeria’s currency is overvalued and unification of the exchange rate would help solve the Foreign exchange quagmire which has continued to contribute largely, to rising inflation rates.
According to the IMF, the current system creates uncertainties for the private sector because of multiple exchange rates and non-transparent rules for foreign exchange allocation. Unifying the various rates into one market-clearing rate would establish policy credibility.
“Sustained premiums in the parallel market and unmet foreign exchange demand indicate the need for further adjustment in the exchange rate to reduce the gap between supply and demand. An appropriately valued exchange rate and a clear exchange rate policy would also help instill confidence and private sector-led recovery. Policy clarity is also important to attract larger capital inflows, including foreign direct investments, which have dropped significantly in recent years and successful diversification,” the IMF said.
An Economist, Kolopo Oluwo is of the opinion that one of the problems plaguing the country can be alluded to Nigeria’s export structure which has not fundamentally changed over the decades, with hydrocarbon products still accounting for 90 percent of the country’s exports today as they did as long as in the 1970s.
“Successful economic diversification requires trade openness and competitive discipline. The experience of Malaysia, Indonesia, and to some extent India has shown that a shift toward export-oriented industrialization can boost GDP. The limited gains from inward-oriented policies in terms of creating jobs and improving living standards suggests that Nigeria needs to change course,” Oluwo noted.
Kolopo said, to accommodate a growing number of young people entering the labor market, Nigeria will need to create at least 5 million new jobs each year over the next decade.
“Based on experience of other countries, embracing more open trade and competition policies would help diversify the economy and reinvigorate growth, particularly as the African Continental Free Trade Area takes effect.”
Financial expert, Emeka Ohanyere, while speaking to Money Central said, “Nigeria’s naira fell steeply last year, losing nearly 25 percent of its value after the global pandemic collapsed petrodollars and exerted pressure on the reserve”. At the parallel market, the naira exchanged as high as N500 to a dollar, further pushing up prices of imported commodities, beyond the reach of the masses as well as stifling the operations of manufacturers looking to import resources for production as dollar shortage hurt businesses”.
“Manufacturers in the country were significantly faced with a higher cost of importation following which they had to pass on the higher cost to consumers in the form of higher prices, Also the not well thought out border closure took a hefty toll on businesses and Trade, a clear evidence of how weak Government policy can aggravate pain on its governed. “
Another Analyst, Robert Omotunde, Chief Investment Officer, Afrinvest Asset Management Ltd, the rise in consumer prices is in line with expectations, following the pressure points experienced in 2020.
He explained that the different shocks in 2020, ranging from currency devaluation, lock down of borders which are now being re-opened, increase in pump price of petrol, increase in electricity tariff had impacted on the CPI in 2020.
“This current rate of 16.47 percent is expected and it will get worse. Expectation for February inflation will be as high as 16.94 percent, and 17.13 percent in March,” Omotunde said.
Speaking on TVC Business Nigeria show, he noted that insecurity has also contributed to the high inflation rate especially food inflation, due to major disruptions, which is currently at 20.57 percent in January 2021 from 19.56 percent in December 2020.
He said, “Insecurity issues have also continued to affect food inflation in the country coupled with some other issues around exchange rate, and increased import cost.”
He, however, said that the rate may begin to moderate in April, with further decline leading to a headline inflation rate of ten percent by December 2021.
A recent report from IMF further noted that Nigeria has one of the lowest revenue levels as a share of GDP worldwide. A large share of revenues is spent on the country’s public debt service payments, leaving insufficient fiscal space for critical social and infrastructure spending and to cushion an economic downturn.
The report further surmised, that in this context, mobilizing revenues through efficiency-enhancing and progressive measures is a top near-term priority.
Revisiting tax exemptions and customs duty waivers, increasing and broadening the base for excise taxes, developing a high-integrity taxpayer register, enhancing digital infrastructure, and improving on-time filing and payment are important measures that can nudge Africa’s largest economy on a robust sustainable, recovery path, if dutifully executed.