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Nigerians to face more economic hardship as govt plans further policy reforms

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FG’s palliatives face integrity questions amid worsening poverty

Nigerians are yet to see the worst of economic hardship triggered by early reforms of President Bola Tinubu-led Federal Government, as critical economic indicators are going directions suggesting that tougher times are ahead. Also there are indications that government may planning more economic reform policies aimed at reducing it’s expenditure and boosting revenues.

Even with most analysts calling for the adjustment or total reversal of the policies, which, they say, have caused more harm than good, managers of the economy are calling for patience, insisting that there will be light at the end of the tunnel.

President Tinubu inadvertently created more despondency in the minds of many Nigerians when he told journalists after Eid-el-Kabir prayers in Lagos last week that some more sacrifice would be required to move the nation forward. Experts are suggesting that electricity tariffs, gas price, fuel price and the exchange rate, all may go up.

“We have been told by the Chief Imam how we can follow the path of sacrifice. The sacrifice required of a good citizen. Citizenship comes with responsibilities. As citizens, what do we need to do to be committed members of our society? Yes, that is sacrifice; loving your country. Loving your neighbours. Sharing what you have with each other. And to always be thankful to Almighty God,” the President had said.

But the President did not talk about any serious measure against alleged conspiracy of his policies to escalate cost of production of businesses and erode purchasing powers of households with no end in sight.

From the removal of petrol subsidy to the unification of foreign exchange segments, and the cancellation of subsidies for Band A electricity consumers, chronic hardship has defined President Tinubu’s tenure in the eyes of many.

From N187 per litre pre-Tinubu, petrol now sells between N568/l and N800/l. Without well-implemented safety nets, most citizens have found it difficult to cope with the astronomical rise in transportation and food costs. This has heightened poverty, which stood at 46 per cent in 2023 or 104 million citizens, according to the World Bank.

Following the floatation, the naira, which exchanged at N464 per $1 in May 2023, plunged to N1,900/$1 early in 2024 before trading at around N1,450/$1 currently despite a raft of artificial policies to shore up its value. By February, it had lost 68 per cent of its value.

On the back of depreciation, Nigeria has ceded the top three continental slots to South Africa, Egypt, and Algeria respectively. From the Africa’s largest economy, the country is now fourth in Africa with a GDP of $252.73 billion.. From N68 per kilowatt-hour, the tariff for the Band A segment of electricity consumers climbed to N225/kWh before dropping to N206.80/kWh in May.

In a mark of its strong resolve to tame bloated price levels, the Central Bank of Nigeria (CBN), has hiked the benchmark interest rate by 775 basis points since the start of the Tinubu administration, with 600 of that delivered in the first quarter of 2024 alone.

As interest rate raced to record 26.3 per cent from 18.5 per cent within the first 12 months of this administration, borrowing costs continued to strain the operating expenditure and, in some cases, the direct costs of businesses.

Many had no option on that score but to pass the costs on to customers to keep their operations going. In turn, that has made finished goods pricier, further stoking inflationary pressures.

Nigerians to face more economic hardship as govt plans further policy reforms

MPR and Inflation

All this has jerked up prices, though the Tinubu government is yet to implement a wage review, which many fear may worsen the woes of the naira. He met the national minimum wage of N30,000 per month. Businesses are complaining about the increased costs of borrowing funds.

In April, inflation spiked to a 28-year high of 33.69 per cent. Food inflation worsened to 40.63 per cent. Imports are priced steeply because of the depreciation of the naira.

On Thursday, the Association of Master Bakers & Caterers of Nigeria announced a 20 percent increase in all their products to cushion the effect of increase in their cost of production.

The circular to this effect dated June 20, 2024 and signed by its National Secretary, Jude Okafor, read in part; ‘’The President has directed me to inform all zonal chairmen, state chairmen and Local Government chairmen of our great association to immediately effect a 20 percent price increase on all their products across the board to cushion the effect of the recent increase in the prices of their products.’”

Another hike in the prices of bread and other bakery products will no doubt compound the plight of ordinary Nigerians, further lending credence to a recent New York Times feature story titled “Nigeria Confronts Its Worst Economic Crisis in a Generation,” published on June 11.

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The feature,authored by Ruth Maclean and Ismail Auwal, highlighted the severe economic challenges facing Nigeria. It noted that soaring inflation and the plummeting national currency contribute to the economic crisis, with millions struggling to feed.

“The pain is widespread. Unions strike to protest salaries of around $20 a month. People die in stampedes, desperate for free sacks of rice. Hospitals are overrun with women wracked by spasms from calcium deficiencies.

“The crisis is largely believed to be rooted in two major changes implemented by a president elected 15 months ago: the partial removal of fuel subsidies and the floating of the currency, which together have caused major price rises,” the New York Times article said.

But in a statement, the Special Adviser to the President on Information and Strategy, Bayo Onanuga, said the feature reflected “the typical predetermined, reductionist, derogatory, and denigrating way foreign media establishments have reported on African countries for several decades.”

“Most significant about the report was that it painted the dire experiences of some Nigerians amid the inflationary spiral of the last year and blamed it all on the policies of the new administration. The report, based on several interviews, is at best jaundiced, all gloom and doom, as it never mentioned the positive aspects in the same economy as well as the amelioration policies being implemented by the central and state governments.”

On account of the perennial dollar crunch, Procter & Gamble, GlaxoSmithKline Consumers, Bayer AG and Sanofi AG exited the economy last year. The likes of Nestle, PZ Cussons and MTN Nigeria incurred overwhelming losses that threw their balance sheets into the red at year-end.

Unsustainable feat

One big feat by the CBN in the first quarter of the year was clearing a backlog of overdue foreign exchange obligations initially estimated at $7 billion before an audit found that $2.4 billion of that amount were invalid claims. The overhang, the central bank said, had left the naira vulnerable to exchange rate pressures for quite a long time.

To attract dollar inflows, the CBN issued one-year treasury bills in February, which were more than twice oversubscribed, helping to bring more than $1 billion into the economy.

As of 8 March, foreign portfolio investment so far in 2024 stood at $2.3 billion, according to the apex bank, compared to the $3.9 billion reported for the whole of the preceding year. Closing the gap between the monetary policy rate and yields on short-term securities made short-term sovereign debt attractive to foreign investors, boosting inflows, which were also partially strengthened by a rise in remittances from diaspora Nigerians, climbing to $1.3 billion in February from $300 million the previous month.

Such supplies bolstered liquidity in the market, and the grounds gained by the currency against the dollar afterwards, notably from the middle of March till about a month after, were as significant as 34 per cent, making it the world’s best-performing currency by Bloomberg’s rating. But the reverse has since become the case as the naira shortly returned to the worst performing currency

Misplaced priorities

Analysts see imprudent use of improved revenues from petrol subsidy removal and taxation under Tinubu’s government, as responsible for the worsening conditions.

“The N90 billion 2024 Hajj subsidy, amid an economic headwind, is a sickening misplacement of priority, and I know Christians would expect a balancing act, which will further bleed the treasury”, Amos Okoro, economist and public affairs commentator noted.

“On Tinubu’s watch, the Vice President’s residence cost some N21 billion to build; and the National Assembly splurged N57.6 billion on Sports Utility Vehicles (SUV) for its members. Yet, our universities are grossly underfunded.”

There is an unconfirmed report that President Tinubu has acquired two presidential jets for about $630 million (about N940 billion), without a legislative approval.

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The government is also widely criticized for embarking on a Lagos-Calabar coastal highway construction of 700 kilometres at a tentative cost of N15 trillion, when scores of existing highways remain death traps. The Manufacturers Association of Nigeria (MAN) says 367 companies closed as of December 2023. Out of those still in business, 335 are in distress, while N350 billion worth of goods were not sold.

“No economy thrives with an encumbered real sector. Nigeria’s unfriendly ease of doing business has multiple taxations and high energy costs as pivots.”, Okoro argued.

This was emphasised by President of Dangote Group, Aliko Dangote, at the recent convention of Africa’s CEOs in Kigali, Rwanda, that out of every N100 he makes in cement manufacturing, taxation takes N54.

The CEO of TotalEnergies, Patrick Pouyanne, rubbed it in with his disclosure that his company snubbed Nigeria for Angola, in their $6 billion investment because of its policy flip-flops.

The debt profile is not painting any less gloomy picture. The Senate had, in December 2023, approved $7.8 billion and €100 million as part of the 2024 borrowing plan framework. This was followed by a $3.3 billion loan from Afrieximbank, thereafter, a first tranche of $2 billion to mitigate the hardship of fuel subsidy and a more recent second tranche of $2.25 billion from the World Bank, coupled with the African Development Bank’s credit of $1 billion to the country. Locally, a N4 trillion credit line has just been secured to fund the 2024 budget deficit.

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