Factors that stoke runaway inflation in Nigeria

Sopuruchi Onwuka

Rising insecurity at fishing hubs in the northern parts of the country is compounded by Ukrainian export holdup and rising petrol prices to push Nigeria’s inflation to pre-2005 highs, amplifying how Putin’s war decisions aggravated Buhari’s bad policies to impact Nigerian economy.

According to the latest figures from the Nigerian Bureau of Statistics (NBS), local inflation hit a 17 year high of 19.64 percent in July to reflect Nigeria’s waning local food production and rising dependence on costly imports at a time of acute foreign exchange crunch.

According to the agency which generates field data for national planning and business intelligence, key inflation drivers in the past year include petroleum fuels, wheat and baking flour products, as well as wild fish harvested from the Lake Chad in the northeast and the rivers in the north central parts of the country.

In plotting the inflation drivers noted in the NBS’s price jump report, The Oracle Today discovered that the findings tallied with previous predictions by the United Nations and the World Bank about the global impact of the ongoing Russian invasion of Ukraine and subsequent blockade of its coastal quays.

President Vladimir Putin had in February sent Russian troops to invade and claim back Ukraine into Russian federation, claiming that Russian speakers are under oppression by influential neo Nazi politicians in Ukraine. But the Ukrainian President, Volodymyr Zelenskyy, dismisses Putin’s narratives as cheap pretext to attack Kyiv for seeking military alignment with Western powers.

Both Russia and Ukraine are global grain export factors. They are also responsible for global supply of large proportion of global fertilizer and other agro-chemical inputs. Exports of grain from both countries have been stalled due to trade sanctions on Russian and lack of port access to Ukrainian exports.

Ukraine is under siege by Russian naval and air forces while Russia has come under stringent trade and diplomatic sanctions from world’s most powerful economies, forcing merchant ships and international traders to boycott both countries.

Security risk in the Black Sea has therefore forced hiatus on grain and fertilizer export from the region, exacerbating food supply shortages and hunger in mainly poor and developing countries.    

According to the NBS, supply chains for food raw materials imports into Africa continue to be impacted by Russia’s war in Ukraine, so food prices in Nigeria were 22.02 percent higher in July than same month last year. But the NBS inflation index is spread across gross average, ignoring specific cases where prices have jumped by over 100 percent.

The war in Ukraine has specifically raised a fierce competition for available stock of grain and fertilizer in the Nigeria market. The situation, according to industry reports, has forced the cost of fertilizers to record highs, and pushed the cost of grains and grain flour to the roofs.

Prices of bread, dough fries and sundry baked items in the country have notoriously soared by over 100 percent from N250 last year to N800 per standard loaf as bakers struggle with protests from bread consumers. And amidst high bread prices bakers and pastries have mounted protests and embarked on protracted strike against rising cost of grain flour. The lingering strike has also mounted additional pressure on prices of their products.

Apart from baked food items, the NBS pointed at other food items that are getting increasingly difficult to buy.  They include cereals, premium cooking oils, and other food products abundantly produced in Ukraine.

The United Nations, in official briefings, said it has however brokered a fragile armistice by both warring countries on narrow export corridor that would enable Ukraine export piling stocks of grain, fertilizer and cooking oil to ease hunger in the poor African and Asian countries where starvation face communities displaced by conflicts.

Ukrainian President, Volodymyyr Zelenskyy, declared in a recent briefing that the country’s grains are now being exported from legal and illegal market routes, warning countries of the world to avoid buying grains stolen by Russian forces from warehouses in territories they currently occupied in Ukraine.

However, the latest NBS data are yet to capture any improvement in supply and prices of grain. It did not show any improvement in imports from both Russia and Ukraine, indicating that the resumed exports from Ukraine are yet to hit supply destinations in Africa.

According to the NBS, prices of cereals, tubers, meat, fish, oil, and fat have remained high in the past year; and The Oracle Today reports corresponding uptick in bandit attacks and community responses across the country during the same period.

Beyond food, the statistics house declared, crucial services including air transportation suffered jumps in prices at a time road transportation has become increasingly unsafe due to widespread and brazen commercial kidnapping by Fulani bandits.

Jumps in the cost of airline services are also propelled by supply turbulence in the international oil markets which have also been destabilized by fallouts from Russia’s invasion of Ukraine.

The Oracle Today reports that the global prices for middle distillate fuel products, including the automotive gas oil (AGO) also called diesel, aviation turbine kerosene (ATK) also called Jet-A1, dual purpose kerosene (DPK) used for construction and cooking, and similar products have shot up due to demand uncertainties as refiners brace for energy transition.

July’s inflation rate for Nigeria is also supported by rise in the retail prices of petrol in the month. Following unending debates about commercial deregulation of petrol, government silently allowed minor price markup in June to allow workable margins for retailers.

The trigger effect of petrol prices on inflation is a time tested guarantee. Petrol more than any other fuel product fires micro to small enterprises, home power generation and transportation in the country. It is estimated that petrol fired micro-generating units used by homes and small businesses produce about 25,000 megawatts of electricity used in the country; while grid power supplies about 4000 megawatts.

Thus rise in the retail price of petrol is regarded as major and critical cost escalation in production and services. This mainly informs the spate of public outcry that traditionally greets any attempt by the government to allow increases in the price of the product.

However, with the reforms introduced with the Petroleum Industry Act (PIA) the domestic price for petrol appears to have started yielding to market forces, unfortunately at a time of high international price cycle.

Again, Nigeria’s critical level of refining capacity and her continued reliance on massive importation as primary source of supply mean that cost of supply under the prevailing high foreign exchange rate will continue to keep local retail price of petrol higher than necessary.

Hopes that private refineries, including the 650,000 barrels per day Dangote Refinery, will soon displace imported products have been shaken by crude feedstock crises that have beset the regenerating midstream petroleum industry.  And the Dangote Refinery, which has a guarantee of feedstock through the 20 percent equity interest it sold to the Nigerian National Petroleum Company (NNPC) Limited, has continued to miss commissioning schedules due to visible credit finance crunch.

Thus, petrol importation will likely continue to mount demand pressure on the nation’s parallel foreign exchange market, widen rate disparity, maintain a pull on the value of the Naira and propel inflationary trends in the near term.

Again, government has made it abundantly clear that local refineries must buy feedstock at international price parity and currency of transaction, making the refining input cost dollar denominated and the market returns Naira denominated. The inevitable currency mismatch and associated high cost of foreign exchange, players in the industry have severally pointed out, may not offer any price relief under a deregulated market.

Thus, rising transportation cost and lean production output from unsafe environment would continue to trigger price jumps for local food products sourced from locations in Northern Nigeria where bandits and insurgents have displaced the local communities. The resulting near war situation has impacted local food production and stoked price jumps.

In explaining high cost of fruits and vegetables at a popular produce market in Abuja, the dealer who identified himself as Musa said farming watermelon and transporting it to the urban market where the values are high have become nearly impossible in the face of badit occupation of the farmlands.

He explained that fermers who curremtly keep their farms are those find it unsafe or too late to relocate. He added that farmers now pay rent to bandits to keep their farms, and also pay tax on produce after harvesting their crops.

The case of fishermen, according to him, is more pathetic as greater parts of the rivers and lakes are reserved for the bandits and insuergents who rely on the water sources for household purposes.

The insurgents started trooping into Nigeria allegedly on the invitation of President Muhammadu Buhari to assist him capture power in 2014. Since assuming office in 2015, government of President Buhari has thrown open northern Nigerian borders to foreign bandits that roved the Sahel. His objective, his critics allege, is to resettle roving Sahel Fulani tribesmen in Nigeria.

Millions of them have poured into Nigeria, and with cells of Islamic State and Al-Qaida fighters with them, under Buhari’s visa on arrival programme. They have also been enrolled into the national citizenship register by the National Identity Management Commission (NIMC) and issued National Identity Number (NIN).

Government under the Buhari administration has also floated numerous land reform programmes for the herder community in a ploy to secure settlements for the immigrant bandits, and the attempts to push them down south have spread crime and clashes across the country; plunging the country into total insecurity.

The NBS data showed that price jumps in the country have been consistent since the first quarter of the year when bandit attacks escalated across the country, raising fears of political ploy to destabilize the country ahead of 2023 election and achieve tenure elongation.

Nigeria’s half year 2022 inflation, according to the NBS data, is the highest since 2005. It is also the second highest in the ECOWAS region just after Ghana which struggles with 19-year high inflation rate of 29.4 percent in June.