•Cost of living reaches all-time high
•Inflation rate escalates, defies economic principles
•Protest may enhance accountability, improve investment outlook
Nigeria’s economy, following weeks of youth protests, faces more economic risks in areas of unemployment, capital flight, and cost of living. Tension continues to build across the country as protests against bad governance and police brutality become widespread.
Tagged #EndSARS, the movement was to express youths’ disapproval of perceived societal anomalies. It was, however, hijacked by hoodlums, who, for days, dealt deadly blows on the bleeding economy — looting public and private facilities. This has kept youths and vandals on the streets halting business activities and free flow of movement in major city centres.
Experts project that the current situation could worsen the already compromised economy, evident in the rising cost of living as a result of inflation. Cost of living reached post-recession’s all-time high in September when the inflation rate hit 13.71 per cent. It was the highest in 31 months, after the 2017 price crisis.
With the year-on-year (YoY) inflation rate recording unbroken higher percentage points (every month) since last year’s August, Nigeria seems to be on its way back to the situation of three years ago.
Between April 2016 and February 2018, the average inflation rate was 16.6 per cent. It reached an all-time high of 18.78 per cent in February 2017 before it started a retreat that saw the figure settling between 11 and 12.50 per cent.
The country witnessed relatively moderate growth in inflation for almost two years until recently when the figure escalated at a rate many described as alarming.
In September, the composite inflation rate gained 0.49 per cent points to hit 13.71 per cent (YoY). In August, it gained 0.40 per cent to reach 13.22 per cent, unsettling prevailing trends at every point.
The inflation rate of food, the prime essential item, has also remained above composite figures. In September, food inflation was 16.66 per cent YoY, 66 per cent point above what was recorded in August, and 2.95 per cent point above the all-item inflation rate.
The pattern of the inflation rate is more disturbing than the nominal figure. Northern states have been disproportionately affected by food inflation, renewing fear over the country’s capacity to feed its citizens.
Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva, had raised the alarm over food shortage. She said the world was at a loss on how to feed citizens of low-income countries, including Nigeria, which had been hard-hit by the economic impacts of the coronavirus outbreak.
Food inflation in northern states has continued to reinforce Georgieva’s worry. The region, as in the previous three months, led in both composite and food inflation rates. Zamfara, a state considered poor, but rich in food production, topped both composite and food index with 17.42 per cent and 20.94 per cent respectively.
Kogi came next to Zamfara with 16.67 per cent and 19.06 per cent in all-item rate and food inflation (YoY basis). Kogi, along with other northern states, has consistently topped food inflation in the past few months, raising concern about food security in the country.
On state-by-state analysis, Zamfara, Kogi Sokoto, Taraba, Yobe, Plateau, Kebbi, Kaduna and Jigawa exceeded the national food inflation rate average, sustaining the concern about the country’s capacity to feed its citizens.
While inflation has remained upswing in the past few months, some economists believe the youth protests would reduce the purchasing power of Nigeria, leaving the inflation rate better off.
Godwin Owoh, an Abuja-based professor of Applied Economists and debt management expert, added that many Nigerians would have postponed part of their immediate demand, which would have a positive impact on the country’s inflationary pressure.
Nigeria’s inflation has, in recent times, defied basic economic principles. During coronavirus lockdown, for instance, when global demand fell with some economies battling deflation, the country’s inflation trend remained on the upward path.
Contrary to speculation that the protest would trigger massive dumping of shares at the nation’s bourse, the market capitalisation of the Nigerian Stock Exchange (NSE), has remained upbeat.
The market capitalisation gained N188 billion, rising from N14, 811 trillion recorded on October 12, 2020, the first day of protest to close at N14, 999 trillion on the last trading day of last week. The All-share Index (ASI) appreciated by 359.57 points or 1.25 per cent, from 28, 337.49 to 28, 697.06.
Reacting, Owoh said the market’s performance was a reflection of rising positive sentiments – the hope that a new Nigeria could emerge from the protests. He noted that investors’ sentiment, which is natural, has been positive as they hoped that the business climate would become friendlier.
“The thinking was that people could actually be able to do business without the usual harassment. People also expected that the official abuses and corruption would reduce as the government is being held accountable. These are the sentiments of the positive performance of the capital market reflected.
“Beyond the stock market, the investment outlook will improve if the tempo of call for accountability is sustained. Foreigners will begin to show more confidence in the economy. Companies which have relocated abroad may even begin to return when there is a reasonable degree of sanity in the environment.”
A stockbroker with APT Securities Limited, Jamiu Kayode, said the market might not yield to the socio-political tension because investors were looking for an inflation-adjusted rate of return, which other investment instruments could not give.
He said: “I do not think the market will bow to tension because last week we had two trading sessions ended southward (Tuesday and Wednesday) while three trading sessions (Monday, Thursday, and Friday) ended northward. The market is expected to behave in that manner this week
Last week, a professor of Finance and Capital Market at the Nasarawa State University, Uche Uwaleke, said the government’s response to the protest seemed largely conciliatory rather than combative. This, he said, had stemmed tension among investors.
According to Sheriffdeen Tella, a professor of economics at Olabisi Onabanjo University, the stock market does not respond to political and social activities instantaneously as it does in the case of economic activities.
Managing Director of Crane Securities, Mike Ezeh, said: “Ours is an emerging market, which is different from advanced markets. Again, we are under a new normal era since the COVID-19 outbreak. So, trading goes on, meaning that circumstances, as we have in Nigeria, will have little or no impact on market performance.”
