Nigeria’s Catalytic Inflation: What goes up but Never Comes Down?

My early years were memorable and fun filled — ironically — as I came from a strict background with not a few restrictions as to socialization with peers. The extra watchfulness demonstrated by my parents over my siblings and I emanated — quite understandably from clear sight and hindsight of a bifurcated shift in societal values and norms amongst the young and upcoming ones and in particular — teenagers. Unmistakably, that affinity towards a quiet, peaceable lifestyle had deeply rooted, a belief in God and a quest to keep His commandments as enshrined in the Holy Book.

Overtime, I nevertheless found joy in other forms of association with my peers which surprisingly instigated no opposition from my parents. One of such activities I regularly engaged in with those even advanced in age than I were literary debates and riddles.

My first acquaintance with the ‘what goes up but never comes down’’ riddle was met with a thumbs down to my answer. I had subsequently launched painstaking researches and found out the best answer to such a riddle was in fact ‘Age’.

It’s been over 16 years since that discovery that broadened my knowledge base and granted me competitive edge in subsequent events both in smaller cells and for my Alma Mater. Sixteen years later, however, I am afraid that my experience living in Nigeria constantly raises fresh doubts as to the right answer to that riddle.

I am now constrained to say that Nigeria’s inflation rate also goes up but never comes down.

While the statistics are ever available to aid independent verification and theoretical juxtaposition by the most curious mind on the subject matter of inflation in Nigeria, as a data-driven advocate and practitioner myself, I would just this once write from the standpoint of ‘Street Economics’ which simply is the viewpoint of the average Nigerian — irrespective of financial, social and economic strata — understanding what rising prices has evolved over the years and its effect on life, survival and living.

Indexes like the Composite Food Prices, Year-on-Year, Month-on-Month and Quarter-on-Quarter inflation rate; Urban, Rural, Average, Annual, Core Inflation; Consumer Price index (CPI) and Producer Price index (PPI) frequently released by the Nigerian Bureau of Statistics may be contested by any theoretical researcher and diligent economic expert, statistician or professional; what cannot be contested is that much less quantity of items can now be bought with same amount of money unlike in past years. This effectively portends that the worth of the Naira is depleted now more than ever before.

More distressing is the loud sighs, murmurs, complaints, tales of woes, poverty, death and verbal tantrums thrown at Nigerian Leaders by shoppers at the cashing point of supermarkets and restaurants, market stalls and walk-in purchase desks. It currently looks as though it were better to stay mute as complainers have now been tagged ‘foreigners’.

The facts nevertheless prevail — food, staple, spare parts, clothing, housing, transportation, education fees amongst others have in fact tripled across metropolitan areas in the country within recent months.

As a Lagos based professional myself, I look in bewilderment with a pained disposition as the invoices are issued to me by cashiers. I have literally learnt to take three times worth of cash like I previously would to make purchases at the market place.

The reality is setting in over the country but while it does, there remains to be seen the focus on the most important things.

A keen look at the evolution of prices and interplay between market forces will revolve around two factors: The ripple effect of price changes and the downward inelasticity of prices in Nigeria.

This is an urgent call to action for the Nigerian economic societies, experts, socio-economic think tank groups and advisory committee at all levels of government to diminish the ascendancy and prestige of the legacy study and application of classical, Keynesian, or any other theoretical school of thoughts as a panacea to the current inflation quagmire but instead place a spotlight on what I have termed ‘’Street Economics’’ that is indeed the hall mark of the Nigerian Society. In this new band, there are two major sources (roots) of price increase in Nigeria over the years: fuel prices and the Foreign Exchange (Forex) and currency devaluation.

You would notice that in effect, every major increase in fuel price effected by an official announcement by the government would stimulate a ripple effect in other sectors of the economy; more specifically, transportation cost, food prices, service fees, raw materials cost, production cost, and agriculture.

These prices will also be inelastic downwards i.e. will not return to their original figures even with a counter announcement by the government or baselined change after acceptance across the economy.

A depreciation of the Nigerian currency will also kindle a ripple effect in all sectors of the economy whether they are directly dependent of the availability and supply of forex or not.

There are sub-factors like prolonged unfavorable weather conditions like rain and drought which would also establish a new price regime in one-to-all sectors of the economy.

Security challenges is also a bye factor of new price regime institution in the Nigerian Economy as an inability to transport food products to needed markets for a long time will invoke susceptibility to new price changes.

A cursory retrospect at the workings of Street Economics will also presuppose that while the government in fact has a big role to play in maintaining prices levels and keeping them down at all time with right and timely policies geared towards good forex maintenance, fiscal and monetary policies and regulatory interventions, the Nigerian citizenry — you and I — truly have a large role to play in making life and living bearable for us all.

The tricycle rider in Lagos who refuses to review transportation prices downwards after a short spell of fuel prices increases and the trader who maintains the same price rate when they are justifications against same are all part of our unique identity as a people.

And it is from here we can advance the solution conversations while taking into cognizance the peculiarity of the Nigerian economy.

Are we as a people really our own undoing? What is the relationship between the government and sectoral unions and leadership to unify and enforce downward price changes for the benefit of all Nigerians? Is that relationship cordial?

The Nigerian currency has in the last two quarters shed one quarter of its value regardless of actions taken by the Central Bank of Nigeria (CBN) including the set-up of Forex desks at Deposit Money Banks (DMBs) delicensing of Bureau De Change (BDC) operators and push against targeted rising Fintechs, and corporates.

While these actions are at the fore front, it is more important for regulators, economic bodies, agencies, government offices, parastatals, ministries and decision makers to redirect actions towards proactive and perpetual examination that will promote an all-inclusive and central repair of the economic and financial health of the Nation.

Ideally, a first consideration should be production cost of the Manufacturing sector. The government should ensure that local industries are able to produce goods with the strengthened availability of forex which will reduce the speed of foreign imports of raw materials and in turn reduce prices. The Nigerian Economy should currently be able to compete favorably with foreign industries. Local competitiveness will checkmate the exit of manufacturing firms who have decried incessant unfavorable economy climate for business to thrive as reasons for their rampant exit.

The security Situation in the country while palpable, requires urgent actions by the government to promote continuous Foreign Direct investment inflows and ease of doing business so that set-up of foreign businesses could be achieved. The right enabling environment and infrastructure would be required.

Labour productivity and wage rate ‘demutualization’ is urgently required. Massive investment in human capital will be key to the recovery of the Nigerian economy and the adoption of wide array of technology tools and techniques in the country.

It is evident that not much will be achieved without the input of sectoral heavyweight and leaders. The government should ensure that urgent sectoral town halls are held to chart the way for the needed requirements that is agreed and actionable by all.

Local agricultural production is critical for food sufficiency and foreign exchange generation. Adopting innovative methods of production that are scientifically proven will be pivotal.

Government incentives are critical for bolstering an enabling environment while retaining existing businesses, and attracting new productive firms into the country resulting in more employment opportunities.

Poverty Alleviation schemes should be well targeted, monitored and evaluated for maximum impact.

The tax system should be optimized to target surplus units and less of deficit units as a way of maximizing income, increasing savings, real investments and the reduction of the vicious circle of poverty.

It is important that population dynamics of the country be emphasized. Given that a large part of the Nigeria Population (roughly 43%) is aged between 0–14, the government should ensure that education goals are willfully pursued while entrepreneurial and occupational trade be favored and supported.

The multicultural production nature in the country — North and South divides — should be effectively addressed ensuring that no region is kept at disadvantage for the sake of a combined prosperity and wealth creation.

In closing, the Nigerian government should critically explore open trade with its neighbors and in particular — the African Continental Free Trade Area (AfCFTA) as bilateral trade of semi –manufactures within Africa have a large prospect and hold the key to a sustainable future, opening a strata of opportunities, wealth creation, balance of payments equilibrium and currency appreciation which would positively influence other macroeconomic indices in Nigeria.