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Boost for Tinubu’s policies as economy shows signs of recovery

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– Although the pains on Nigerians are yet to abate

The trajectory of some critical economic indicators suggests that reforms instituted by President Bola Tinubu’s administration are beginning to pay off, although this has remained a subject of debate in the past few days.

While those with sympathy for the government are quick to point out that the recent rebound of the naira at the foreign exchange market is an eloquent testimony to the efficacy of its adjustments in monetary and fiscal policies, critics insist that the positive numbers have not impacted economic realities as Nigerians still grapple with astronomical cost of living.

The Federal Government had introduced a raft of reforms since Tinubu came into office in late May to attract investors back into the economy and support the naira, which had lost more than 70 percent of its value since last year. They include relaxing foreign-exchange controls, easing rules on international money transfers and reducing the gap between the central bank’s policy rate and yields on the short-dated paper it sells at auctions.

Latest data from the Central Bank of Nigeria (CBN) shows that foreign investors’ demand for Nigerian assets and money sent home by citizens living abroad surged due to the reforms.

Director of Corporate Communication at CBN, Hakama Sidi Ali, said in an emailed statement that foreign portfolio investor asset purchases exceeded $1 billion in February, bringing total receipts so far this year to at least $2.3 billion, compared with $3.9 billion for the whole of 2023. Overseas remittances rose more than fourfold to $1.3 billion in February from a month earlier

The inflows were “driven by increased investor interest in short-term sovereign debt following the recent adjustment to benchmark interest rates,” she said.

The CBN last month lifted its key rate by 400 basis points to 22.75%. “All the different measures we have taken to boost reserves and create more liquidity in the markets have started to pay off,” Governor Olayemi Cardoso had said in the statement.

On Thursday, U.S dollars traded for N1,060, about N840 gain against N1,900 to dollar peak in February this year. But Business Hallmark’s findings show that but for rice and some noodles, prices of goods in the market are still on the rise contrary to the general expectations that with the continued positive trend in the exchange rate, which started in late February, the market prices and general cost of living should be expected to start going down.

Most dealers and producers of goods and services blamed the high exchange rate for the spiral price increases in the market.

However, against the backdrop of the positive stability in the foreign exchange market, the National Bureau of Statistics (NBS), reported a further rise in inflation with a headline rate of 33.2 percent in March as against 31.7 percent in the previous month while food inflation rose to 40.02 percent from 37 percent.

Meanwhile, financial analysts and economists, who reacted to the situation, have indicated further rises in prices of goods and services in the months ahead before marginal stability can take place.

They also hinted that the current positive development in the foreign exchange market would have to be sustained over a longer period while other elements of the cost of doing business would have to come down before the impact of the lower exchange rate can positively affect the prices of goods and services.

Moreover, they explained that while price increases respond faster to upward increases in key factors of production, the reverse is the case when the factors are going down.

The analysts noted that positive exchange rate changes take time to trickle down to the prices of consumer goods. Explaining the discrepancy between the exchange rate stability against consumer price volatility, Victor Chiazor, Head, Research, FSL Securities, a Lagos-based investment house, said, ‘‘Apart from the time lag for the stability in the exchange rate to begin to reflect in the prices of goods and services, Nigerian price history shows that prices are sticky downwards but reflect immediately upwards.”

However, he gave further insight: “The rise in consumer goods prices was initially triggered by the currency devaluation along with high energy and transportation costs. But despite the recent appreciation of the naira against the dollar, energy and transportation costs have remained high.

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“Also, the appreciation in naira will take some time to kick in before it begins to reflect in the price of goods and services. This price distortion shows how much dependence the economy has on foreign currency and shows that government policies towards locally manufactured goods in terms of infrastructure deficiency and incentives remain low.

“Just as we have seen inflation continue to rise despite consecutive increases in the monetary policy rate to curb it, the reality remains that the policy will require some time to kick in and take effect.”

Similarly, an Economist, Dr. Ayo Teriba, while reacting to the March inflation figure, said the recent naira appreciation will impact the country’s inflation between three and six months.

Teriba, who is the Chief Executive of Economic Associates, said: “The devaluation of the exchange rate: If you look at where the naira was one day and what it is today, you will see a massive devaluation year-to-date.

“That improvement in exchange will see through, but with a lag, the inflation you are reading now is in March. The tightening should be reflected in the prices of goods in less than three months. In six or twelve months, you will see the impact.

“It is not overnight, as you see the appreciation of the naira. Monetary policy is subjected to three to 12 months before you see an appreciation impact on the exchange rate. We will have to see the acceleration of inflation first before deceleration.”

However, according to a Daily Trust survey, prices of paddy are beginning to come down in many grain markets in the country as the dry season harvest begins. Paddy is rice in its husk before threshing, and is the major ingredient required by millers to produce the finished product for consumption.

In the last three years, a bag of paddy was sold at between N9,000 and N20,000 for 100kg, depending on the variety and quality. However, between the last quarter of 2023 and this year, it reached between N55,000 and N70,000, depending on the location.

Besides other factors like price of diesel and cost of transportation, the high cost of paddy was linked directly to high cost of rice, which rose to N80,000 for 50kg in certain locations across the country.

But investigations by our correspondents have shown that with the ongoing harvest and the relative appreciation of the value of the naira, prices of paddy are on a downward trajectory.

Report from Kebbi State shows that the price of paddy has dropped significantly in most of the areas, where rice is cultivated. Few months back, 100kg of the produce across various rice markets in the state was sold for between N50,000 and N55,000.

But at Aljanari and Suru, the hub of rice production in the state, paddy is currently being sold for between N43,000 and N45,000, respectively. It is also being sold at between N42,000 and N45,000 in the Dakingari area of the state, as against N50,000 and N56,000 before now, the report also revealed

 

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