Nigeria, the most populous nation on the African continent and an economic powerhouse is currently in the throes of a severe cost-of-living crisis that has profound implications not only for its people but also for its economic landscape. This crisis has emerged as a potent confluence of both domestic and international factors, creating a formidable challenge that threatens the financial well-being and stability of the nation.
On Friday, October 13, 2023, the Central Bank of Nigeria (CBN) removed self-imposed foreign exchange restrictions on 43 previously banned items. This turns out to be the final piece of the jigsaw of Nigeria’s monetary conundrum, which has previously impacted Nigeria’s inflationary woes.
At its heart, Nigeria’s cost of living crisis is characterised by an alarming surge in inflation, hitting a staggering 25.8% by August 2023. While rising prices are not uncommon in economic systems, the sheer magnitude of this inflation surge and its associated impacts set it apart. Key contributors to this crisis include the removal of petrol subsidies and the discontinuation of exchange controls, actions that have triggered ripple effects throughout the nation’s economy.
This is not merely an economic issue but one that is felt acutely by every Nigerian household. It transcends mere statistics and graphs, manifesting in the everyday struggles of ordinary citizens as they grapple with skyrocketing prices for essential goods and services, including food and fuel. This phenomenon has cast a long shadow over the lives of Nigerians, transforming the pursuit of necessities into a formidable challenge.
Nigeria’s Inflation Woes
In August 2023, Nigeria witnessed a disconcerting spike in its annual inflation rate, surging to a staggering 25.8%. This abrupt and dramatic increase in inflation sent ripples through the country’s economy, severely impacting the everyday lives of its citizens.
A contributing factor to this alarming rise in inflation was the contentious decision to remove petrol subsidies. This policy shift had immediate and cascading effects on various facets of the economy. The removal of subsidies caused fuel prices to triple, translating into elevated transportation costs and a subsequent ripple effect on the prices of goods and services. Consequently, the average Nigerian found it increasingly challenging to cope with the mounting cost of living.
Furthermore, the discontinuation of exchange controls further compounded the issue. With the Naira’s value declining, the cost of imported goods surged, subsequently affecting the prices of essential commodities such as rice, meat, and tomatoes. As a result, the erosion of the Naira’s value presented another roadblock to affordability, making it notably harder for Nigerians to sustain their basic needs.
This inflationary surge has had severe consequences for the average Nigerian, who now faces the daunting task of affording fundamental necessities. With prices escalating at an alarming pace, many citizens are grappling with the growing disparity between their earnings and the cost of living. Essentials, from food items to transportation, have become increasingly out of reach for a significant portion of the population.
Context: Inflation Estimation for Food Items and Fuel
To gain a snapshot of the cost-of-living crisis, a rough estimate of inflation was carried out for selected food items and fuel in Lagos, Nigeria from May 2023 to October 2023. The method involved comparing the prices of these items between two points in time: May 2023 (representing the initial cost) and October 2023 (representing the current cost). The inflation rate for each item was calculated using the standard formula:
Inflation Rate = ((Current Price – Previous Price) / Previous Price) * 100
This formula measures the percentage increase in prices over the specified period. By applying this method to each of the selected food items (tomatoes, yams, gari, beans, rice, and bread) and fuel, we determined the inflation rates.
The overall estimated inflation rate was obtained by averaging the individual inflation rates for these specific items. However, it’s essential to emphasise that this is a simplified estimation based on a limited selection of commodities. It does not constitute a comprehensive representation of the broader Consumer Price Index (CPI), which includes a wide range of goods and services consumed by the Nigerian population. Therefore, while this estimation provides valuable insights into the challenges faced by consumers, it doesn’t capture the full extent of the cost of living crisis or the complex economic factors at play.
The following prices were analysed:
TOMATOES Medium basket – October 2023: N90,000 – N100, 000; May 2023: N20,000
YAMS 1kg of a tuber – October 2023: N700 – N1000; May 2023: N443.02
GARRI 50kg bag – October 2023: N22,000 – N24,000; May 2023: N18,500
BEANS 50kg bag – October 2023: N30,000 – 40,000; May 2023: N28,000-30,0000
RICE 50kg Bag – October 2023: N40,000 – N50,000; May 2023: N35,000 – upwards
BREAD One Loaf – October 2023: N1000 – N1500; May 2023: N553
Fuel price per litre – May 2023: N557; October 2023: N617
By averaging the inflation rates for these specific food items and fuel, an overall estimated inflation rate was calculated, yielding a figure of approximately 70.58%. It’s important to stress that this number is a rough estimate based on a limited selection of commodities. It does not represent the comprehensive and nuanced Consumer Price Index (CPI) that incorporates a wider range of goods and services consumed by the Nigerian population. Therefore, while it provides insight into the challenges faced by consumers, it does not capture the full extent of the cost-of-living crisis or the broader economic complexities at play.
Addressing Forex Restrictions and Their Impact on Nigeria’s Economic Landscape
The recent decision by the Central Bank of Nigeria (CBN) to remove self-imposed foreign exchange restrictions on 43 previously banned items holds significant implications for Nigeria’s economic situation. To grasp the significance of this move, it’s essential to rewind to the period when falling crude oil prices posed a substantial challenge to Nigeria’s external reserves.
In 2014, crude oil prices were riding high, averaging $100 a barrel. However, by 2015, they had nosedived to $59 per barrel, taking Nigeria’s external reserves down with them. This downturn in external reserves forced the CBN into a difficult position. It had to figure out how to effectively manage the demand for foreign exchange.
The solution was to implement administrative measures, including banning specific items to curb foreign exchange demand. However, these measures unintentionally gave rise to a two-tier forex market. Exporters, against CBN directives, opted to keep their export earnings within the CBN, as it offered pegged and subsidised rates. Simultaneously, the black market became the go-to choice for selling forex due to its unrestricted rates.
The recent CBN reforms involved freeing the naira from its peg and allowing it to float in a managed system. The primary objective was to level the playing field with the parallel forex market. Nevertheless, one significant aspect remained unaddressed—the CBN’s ban on the 43 items, which continued to influence the forex market in unique ways.
The latest policy adjustment by the CBN seeks to rectify this disparity. By removing the administrative controls, particularly the ban on the 43 items, the CBN is signalling its intent to be both a buyer and seller of foreign exchange in the FX market. This aims to encourage commercial banks to sell forex to all importers at market prices determined by the banks, ultimately reducing reliance on peer-to-peer (P2P) and other parallel markets, streamlining the forex market.
While the removal of administrative controls doesn’t guarantee an immediate boost in forex supply, it eliminates roadblocks to the influx of foreign exchange. The pivotal point here is the pressing need for a more liberalized forex operation at retail banks and Bureau De Change (BDCs) to facilitate seamless and cost-effective remittances.
Overall, this change in forex policy and market dynamics intertwines with the broader effort to address Nigeria’s cost of living crisis, offering hope for improved economic stability and a more prosperous future.
Nigeria’s Cost-of-Living Crisis and the Exodus of Professionals
The cost-of-living crisis in Nigeria has spurred a significant exodus of professionals seeking better opportunities and economic stability. This section delves into the factors driving this trend and its implications.
Nigeria is experiencing a concerning trend as a growing number of its professionals, especially young talents and entrepreneurs, are choosing to leave the country. This exodus can be attributed to the profound economic challenges brought about by the cost-of-living crisis.
The cost-of-living crisis has profoundly impacted professionals. High inflation rates, economic uncertainties, and currency devaluation have eroded the economic prospects of young professionals and entrepreneurs, making it increasingly difficult to sustain a decent quality of life within the country. These challenges have significantly strained the budgets of professionals, making everyday life more burdensome.
A noteworthy aspect of this exodus is the surge in the number of Nigerians being granted work visas in the United Kingdom. As professionals seek greener pastures and economic stability, many have turned to the UK, which has become an attractive destination due to its economic opportunities, job prospects, and higher living standards.
In the context of this exodus, the term “japa” has become significant. Derived from a Nigerian Pidgin term, “japa” encapsulates the act of leaving one’s home country, often in search of better living conditions elsewhere. This term represents a choice made out of necessity in response to challenging circumstances.
One critical aspect of this exodus is the “brain drain” phenomenon, particularly among healthcare professionals, including doctors. The healthcare sector in Nigeria is experiencing a substantial loss of skilled medical practitioners due to the cost-of-living crisis. Factors such as inadequate working conditions, low salaries, and limited opportunities for professional development have driven these professionals to seek better prospects abroad.
This exodus of professionals reflects the broader consequences of the cost-of-living crisis, as Nigeria loses the talents and expertise that are vital for its social and economic development. It underlines the urgency of addressing the crisis and retaining skilled professionals to ensure the nation’s sustainable growth and development.
Factors Behind Nigeria’s High Inflation
Nigeria is grappling with a significant inflation rate, particularly in the food sector. There are multifaceted factors contributing to high inflation, with a specific focus on food inflation:
Food Inflation: One of the primary drivers of inflation in Nigeria is the soaring food prices. Food inflation has outpaced overall inflation, causing substantial strain on household budgets. This can be attributed to a combination of factors.
Insecurity in the North: Insecurity, especially in the northern regions of Nigeria, has disrupted agricultural activities. Farmers in these areas have faced significant challenges, including attacks on their farms and the displacement of communities. This insecurity has not only reduced food production but also disrupted supply chains, leading to scarcity and driving up prices.
Government Protectionist Policies: The government’s protectionist policies, including restrictions on imports and foreign exchange controls, have played a role in food inflation. While these measures are intended to promote local production, they have often led to supply shortages, which, in turn, result in increased prices.
Population Growth: Nigeria’s population growth is another critical factor contributing to high food inflation. With one of the world’s highest population growth rates, the demand for food continually outpaces supply. This has created significant pressure on food prices, especially for staple foods like rice and yams.
These factors, combined, have exacerbated food inflation in Nigeria. The insecurity in the northern regions disrupts the production of key staples, and government policies, while aimed at self-sufficiency, have sometimes resulted in unintended consequences. As the population continues to grow, there is an urgent need for sustainable policies and strategies to mitigate these inflationary pressures, ensure food security, and stabilise the cost of living for Nigerians.
Impact on Local Markets and Food Prices
The cost-of-living crisis in Nigeria has had profound repercussions on local markets, precipitating a series of challenges that resonate with both traders and consumers. Let’s take a look at the localised impacts of the crisis and how it has unfolded at grassroots levels:
Reduced Footfall and Escalating Prices:
Local markets, once bustling with activity, have experienced a noticeable reduction in footfall as a result of the cost-of-living crisis. Shoppers are more cautious about their purchases, with many households grappling with shrinking budgets. This decline in customers has significantly affected the livelihoods of market traders.
In interviews with market traders, a recurring theme emerges: the hardships they face in the wake of rising costs. As the prices of staple foods like rice, yams, beans, and garri surge, traders confront several challenges. First, they find themselves in a precarious situation, as they must strike a balance between procuring goods at higher costs and selling them at prices that their customers can afford. This “price tightrope” has left many traders with diminished profit margins and concerns about sustaining their businesses.
Consumer Coping Strategies:
Conversely, consumers have had to devise creative coping strategies to manage their everyday expenses. Families have adopted a more cautious approach to meal planning, often opting for more affordable alternatives or smaller portions of certain foods. In some cases, individuals have shifted their dietary preferences to accommodate the rising prices of specific commodities.
Moreover, community-based initiatives have sprouted as a response to the crisis. Neighbours are pooling resources, buying food items in bulk, and redistributing them to ensure that everyone has access to essential goods at reasonable prices. Such endeavours represent the resilience of Nigerian communities in the face of adversity.
Charting a Course Amidst Crisis: Navigating Nigeria’s Cost of Living Turbulence
The prevailing cost of living crisis in Nigeria demands careful consideration and comprehensive action to alleviate the hardships faced by its citizens. Summarising the current situation reveals a complex web of economic challenges, including surging inflation rates, dwindling purchasing power, and an array of external factors impacting the nation’s economic stability.
Emphasising the need for immediate government intervention is paramount. The government must adopt multifaceted strategies to address the root causes of the crisis. This includes revisiting economic policies, implementing targeted fiscal measures, and fostering an environment conducive to sustainable growth. Critical areas such as foreign exchange management, subsidy policies, and investment in key sectors should be reassessed to bring about tangible improvements.
The broader implications of the cost-of-living crisis extend beyond economic concerns, permeating into the realms of political stability and social well-being. The economic hardships faced by the population can fuel social unrest, creating a ripple effect that threatens the stability of the nation. To avert this, the government must prioritise policies that not only tackle economic challenges but also promote social cohesion and political harmony.
The cost-of-living crisis in Nigeria necessitates urgent and strategic government intervention. By addressing the economic root causes and considering the broader implications for stability and well-being, Nigeria can navigate these challenging times and lay the groundwork for a more resilient and prosperous future.