Inflation is a characteristic of economic growth; it is a necessary evil, from an economic standpoint. However, higher inflation rates in relation to economic growth impoverishes. That is the reality of Nigeria. While Nigeria’s GDP growth hovers around 3 per cent, rate of inflation is currently hovering around 20 per cent year on year. How can Nigeria bring inflation down to single digit figures?
Tackling the challenges confronting the Nigerian economy requires seamless coordination of monetary and fiscal authorities, say experts.
Though a few are within the control of the apex bank, most require coordination with fiscal authorities while identifying excessive printing of money as a major factor fueling inflation in the country.
Aside from imported inflation, which is triggered by high energy prices, the country’s high inflation is strongly correlated with the increase in the money supply, which may be spurred on by moves to settle domestic debt and other obligations, experts say.
The chief executive officer of Diary Hills Limited, Kelvin Emmanuel, holds that the Central Bank of Nigeria (CBN) needs to assert its independence by recalling the ways and means (W&M) facility, which has created a situation where the money supply is higher than output. Currently, the federal government owes the CBN about N20 trillion.
He stated that “The Central Bank also must migrate the financial system from collateral-based to credit reporting-based lending by setting up the infrastructure that is necessary for the integration of the Bank Verification Number (BVN) with the National Identity Management Commissions (NIMC) National Identification Number (NIN) system. This is the key to developing regulatory frameworks for credit data aggregation, reporting and evaluation agencies in the private sector that are tasked with the duty of building a point-based merit system for individuals, companies, cooperatives and associations to de-risk lending in Nigeria.” All of that is related to money supply in the financial system.
On the other hand, an oil and gas expert, Jide Pratt, said high inflation is a reality to which Nigerians would need to accept. “Inflation is something we all have to face now. To stem the tide as individuals, we need to look towards holding savings for those who can in stocks, mutual funds and other currency for those who can afford it,”he explained.
Pratt, who is also the chief operating officer (COO) of Aiona Nigeria, manufacturer of LED and solar lights, also pointed out that what is happening in the economic space is due to insecurity, and a lack of adequate infrastructure to stimulate trade. “A good example of this is the Lagos-Ibadan expressway, which has taken over a decade to construct,” he said.
Pratt further stated that, “The man hours lost in gridlock has a direct correlation to trade between the two cities. The examples are numerous. Finally, the fiscal policies haven’t been apt to at least tackle the foreign exchange rates and devaluation. This has a direct impact on the cost of imported items as the paucity of foreign exchange from the CBN due to lower foreign direct investment (FDI) means that it is sourced at the parallel market as high as N705 as of today.”
Pratt believes that the next administration already has its job well-cut out for it as resolving insecurity, improving infrastructure and solving the foreign exchange conundrum would form the fulcrum of its core tasks.
“The first task for the next administration is the sincerity of purpose and then tackle insecurity, infrastructure, foreign exchange and FDI. These must be the building blocks. The need to also encourage manufacturing/production as well as boost mechanised agriculture to get food sufficient, then excess to export leaning on ACFTA is extremely pertinent,” he said.
Professor of finance at the University of Nigeria Nsukka, Chuke Nwude agrees. He stated that rising insecurity and foreign exchange (FX) shortage have triggered supply shocks as farmers are forced out of their farms while manufacturing firms cannot optimise their production.
According to him, the consumer price index, which is the prime inflation indicator, and costs of goods are uptick as a result of these factors.
“It is not surprising that such a level of inflation is occurring. The National Bureau of Statistics (NBS) is even economical with the truth. Honestly, it should be more than 19.6 per cent if accurate inventory is taken.
“We are in a consumer nation. We don’t produce enough goods, which is a challenge. Our leadership is lame with no plan to resuscitate the ailing economy,” he said.
Also commenting, a lawyer, ex-deputy governor of the CBN, and professor of political economy Prof. Kingsley Moghalu said the CBN has to stop deficit financing of the federal government to bring inflation to control. Clearly, that is related to money supply.
“Lending the federal government 20 trillion naira in ways and means lending is illegal. The CBN is creating inflation and those in charge of the economy are clueless about how to manage the economy,” he said.
Moghalu stressed that managing inflation is not strictly about adjusting the interest rate upwards to tackle rising prices, but deliberately taking steps to improve the entry of foreign exchange into the Nigerian economy.
He further said, “The Nigerian economy can attract huge foreign exchange, but we drive them away with too much government control such as multiple exchange rates. Some people can get foreign exchange and go and sell it in the unofficial market thereby distorting the system. No matter what anybody says, that happens. In a country of about two hundred million people, there is a market. So, if the government makes the management of foreign exchange transparent, there will be a huge inflow of capital that could drive down the price of foreign currencies.”
“The first problem is the absence of a clear economic philosophy. The balance between the state and the market has not been properly spelled out. Therefore, we have political leaders that tend to use state power to manage the economy,” he added.
Chief executive officer of Wyoming Capital and Partners, Tajudeen Olayinka, said the 20.52 per cent inflation rate is an indication that demand-side management has failed to tame inflation, given the fact that most of the factors responsible for inflation in Nigeria are traceable to the supply-side factors.
According to him, the supply side factors had been largely unresolved before the imported inflation was worsened by the Russia-Ukraine war. He also listed factors impacting negatively on the nation’s economy to include FX scarcity/mismanagement, unending insecurity and limited access to farms.
Other factors, according to him, are crude oil theft/inability to meet OPEC production quota, high cost of raw materials, infrastructure deficit and high cost of funding.
“Nigeria’s economy is in dire need of drip and blood infusion. It will be difficult for CBN’s demand-side management tools to solve the problem. This is not to say CBN is not aware of the possible failure of its demand-side management tools or that raising interest rates will not sufficiently address the current inflationary pressure.
“The apex bank must also act to address the possible threat of a reversal of capital flow, arising largely from an interest rate hike in Europe and America,” he said.
Also, Head of Equity Trading, Planet Capital, Paul Uzum said the medium to a long-term solution to rising inflation is fiscal discipline – that is eliminating the perpetual fiscal deficit.
“There is little the government can do to checkmate imported inflation as long as we operate an open economy and import goods from other countries.
“It will be eliminated within 1-2 years when inflation rates in the world’s big economies fall back to their normal one to three per cent range. But we need to adopt more fiscal discipline and improve productivity.”
