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The Rising Inflation In Nigeria; Should Nigeria Produce Or Import More?
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The Rising Inflation In Nigeria; Should Nigeria Produce Or Import More?

Elizabeth Ajao

[Image: Inflation_930x693.png]

There have been many conversations around modeling Nigeria to be a producing country. Particularly, due to the rise in the prices of commodities and also in the depletion of the country's FX reserve. This article seeks to examine the impact of importation and production on inflation.

Inflation Broken Down

Inflation is the general rise in the prices of goods and services over a period of time. It points to how there is an increasing level in the cost of goods in a nation. Inflation plays a significant role in the purchasing power of a particular currency.

A Simple Way To Remember 

Inflation reduces the purchasing power of a particular amount of money. Inflation is why I could buy 2 paints of Garri with 1,000naira about 8 months ago and now would only be able to buy just 1 paint with that amount. The inflation rate on the other end measures how fast the prices of goods and services rise over time or how fast a currency loses its value. It is an indication of Financial or economic health in a country

Nigeria's Current Inflation Statistic

The inflation rate for September stood at 13.71% as contained in the Consumer price index report by the NBS. This is the highest recorded in 2.5 years. This points to an increase by 0.49% from the previous month (August), where the inflation rate was at 13.22%.

The Cause of Inflation in Nigeria

In Nigeria, what we have currently is cost-pull inflation and this means is one where there are items present but aren't bought due to its high cost.  It's a case of a lack of money to purchase.

How?

This can be attributed to the devaluation of the Naira. Nigeria as an import-based country is heavily dependent on a foreign currency for the exchange to take place. 

Since the devaluation, there has so far been limited access to FX and this has ultimately led to the advent of multiple exchange rates in the country. This has greatly affected importation as it has been harder to import and this ultimately accounts for the increase in the cost of goods. The other cause for the rising inflation is the border-closure and would be explained further in the article.

FOOD INFLATION

Food inflation is known to be a major cause of the increasing inflation rate. Food inflation rose to 16.6%, for September. This increase was as a result of the increases in prices of bread and cereals, potatoes, yams, fish, meat fats, and vegetables within the month.

This explains that there has been a rapid reduction in the purchasing power despite citizens still earning the same. The food inflation can be said to be impacted by the border closure which has imposed a restriction on the import of food and has called for local production for the nation. The aim is to make a shift to get Nigeria to produce locally. Inflation began to rise after the closure of the border.

Taking A Look At A Glimpse;

The government closed the border in August 2019 to enable more production and to the end that the country becomes self-sufficient. The bad thing is that… This is taking a toll on our inflation rate, food is becoming more expensive while we are yet not producing sustainably. Data has it that 60% of households have been borrowing money to buy basic food items since March 2020

Importation or Production?

We need to know first that;  It isn't that Nigeria isn't producing at all, we are. We aren't just producing enough. The day I heard that Nigeria still imported toothpick was when I confirmed firmly that there really has to be a lot of reform in the manufacturing system in the Nation. Thankfully, it has started and it is going through slowly, but well. 

With the many schemes set up to promote the “made-in-Nigeria” patronage. There has been a lot of work in progress on that. The next question then would be “Since importation is getting harder by the day, due to continuous devaluation and also due to the  border closure, should Nigeria produce more?”

Is Production A Better Option Then?

It is good to note that, as much as we might want to focus more on production, we still would need to import, as a good number of raw materials cannot be found in the country. This also still brings us back to the same issue of importation.

Likewise, our manufacturing sector also hasn’t been able to produce goods at full capacity, due to the high cost of raw materials. Even when they produce, it becomes more expensive than it would have been.

Bottom-line

I believe strongly that Nigeria needs to produce more, to protect our FX, our currency and be self-sufficient. However, it isn't rocket science and so the following needs to be put in place; The infrastructure of the manufacturing sector has to be improved upon to allow the perform better, so as to enable us to cut down on import. There need to be relief measures in place to ensure the transitioning into production doesn't come with a lot of pain. For example, like was done with the production of Rice which as, till date greatly increased the price of local rice by over 200%, there should be measures in place to ensure the smooth passage to local production.

Consumers or citizens shouldn’t be immediately hit heavily by it. It should be a gradual shift. There should be measures put in place so that there won’t be a price shock. As an instance, there could be subsidies imposed on certain classes of food, this would help cushion the effect greatly. There should also be a continuous investment in the agricultural sector; taking people out of hunger is key to dealing with inflation and recession. A major challenge to local production is power, government should fix the power.

To produce more, we need more businesses and companies to be set up for this to take place. However, it is a known fact that the ease of doing business in Nigeria is on the low and so this needs to be greatly worked upon.


This research/investigation/story was supported by the US embassy via the ATUPA fellowship by Civic Hive.

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He may have been instrumental in starting some classifications but he was not responsible for all that followed so it is still perfectly possible for successors to be frauds.
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