Naira depreciation, subsidy removal fueling inflation in Nigeria – Experts, as NLC strike looms

[By VICTOR NZE]

Nigeria’s inflation which has been confirmed at an 18-year-high rate of 25.8 per cent is taking pressure from some fiscal and economic policy decisions of the President Bola Tinubu administration, according to experts.

This soaring inflation is further worsened amid a looming industrial action threatened by the Organised Labour over rising cost of living amid stagnant wages.

According to economic experts, the local currency’s depreciation, removal of subsidy on petroleum products without a corresponding increase in local production, in addition to rising cost of food prices have all combined to drive up the inflation rate.

While the depreciation of the local is largely attributed to its floating, a measure which led to its freefall in the foreign exchange market, the subsidy removal is directly blamed for the rise in cost of food and transport fares, all of which are tied to petrol pump prices.

The National Bureau of Statistics, Friday, disclosed that the country’s inflation rate has now hit a staggering 25.8 per cent in August, a figure representing an 18-year high last recorded in August 2005.

In addition to the listed factors, the experts also identified logistics costs and money supply growth as fueling inflation rise in the country.

In May 29, 2023, President Tinubu has boldly announced removal of subsidy on imported petroleum products, a move which immediately elicited a rise in food prices and transport fares.

The removal was not informed by any commencement of improvement in local production of the commodities, as marketers were expected to source for foreign exchange from the open market in order to import and supply to the domestic market.

The pressure of demand on the foreign exchange coupled with the slag in local currency negatively impacted on the market, as the Naira stalled and continued its freefall, which further compelled the government to scrap the old regime of coexisting parallel foreign exchange markets by harmonizing it all rates.

According to the NBS, the country’s August inflation figure rose for an eighth straight month from July’s 24.08%, compounding a cost of living crisis worsened by Tinubu’s reforms.

The last time Nigerians experienced this level of inflation was in August 2005, official data shows.

“Nigerian inflation rose faster than expected in August, a month that more typically sees seasonally subdued inflation pressures.

“The inflation data in our view reflects only in part the lifting of the subsidy. Much of the pre-existing pressure came from Nigeria’s monetary policy stance in the months that preceded this outcome, and the continued naira depreciation on the parallel market,” commented Razia Khan, Standard Chartered managing director and chief economist for Africa and Middle East.

It would be recalled that the CBN raised rates by a smaller-than-expected 25 basis points in July, contrary to analysts’ expectations. It is due to set rates again on September 26 and some analysts expect a more hawkish stance.

Also speaking, Mr Lawrence Uchegbu, an economist said the Nigeria situation ‘is somewhat self-inflicted.’

Mr Uchegbu blamed the Tinubu government of failing to do the basic groundwork, before doing what we already considered the necessary.

“We all agree that petroleum subsidy should be scrapped, it has become a conduit pipe for siphoning of country’s commonwealth. However, as much as we needed to do that, the President should have conducted a feasibility report on the readiness of the Dangote refinery, the completion of the state-owned refineries across the country and other measures before exposing the Naira to undue pressure.

“The local manufacturing sector which also should have been propped up to boost the local currency was nowhere to be found and hence the collapse of the system.

“Subsidy removal was also a trap which the previous government left open. The former government went on a borrowing spree, and none of the funds was channel towards growing local manufacturing sector via infrastructure growth. Now we are starting from square one,” he told Oracle Today newspaper.

Similarly, Deputy-President of the Lagos Chamber of Commerce and Industry, Gabriel Idahosa, blamed the devaluation of the Naira as a major factor, while also stating that the new administration might have also inherited undisclosed debts.

Furthermore, a professor of Economics at the Olabisi Onabanjo University, Sheriffdeen Tella, also cited the floating of the naira as the major factor.

“You see, the naira depreciated seriously in the second quarter. The domestic borrowing also increased because of the borrowing from the Central Bank to pay up debts on subsidy.

“The government was borrowing to pay for subsidy and that subsidy was steadily increasing. If you convert it to dollars, it won’t be so much, but because Naira has depreciated, by the time you do the multiplication, it will increase significantly in Naira terms,” Prof Tella said.

According to the NBS figures, food inflation, which accounts for the bulk of Nigeria’s inflation basket,

Meanwhile, labour unions have remained resolute in their call for a nationwide industrial action over worsening economic situation in the country.

A tw0-day nationwide strike called for September 5 and 6, this year is expected to be followed up by a longer 14-day industrial action to press for economic reforms and improved wages for workers.

This is even as emergency measures in the forms of palliatives to the populace have been condemned as ‘an insult’ by the Organised Labour.

Earlier, this month, while addressing the media after its National Executive Council meeting (NEC), in Abuja, the NLC President, Joe Ajaero said that the gathering agreed to “embark on a total and indefinite shutdown of the nation within 14 working days or 21 days until steps are taken by the Government to address the excruciating mass suffering and impoverishment being experienced around the country.

Before arriving at the decisions taken by the NEC, Ajaero said that ‘the meeting analysed the prevailing national sentiment, taking day into account the extensive hardships and deprivation afflicting our citizens across all States of the federation.’

“The Council scrutinized the Nigerian government’s failure to establish essential structures to address the widespread suffering in our nation.

“Furthermore, it considered the government’s deliberate neglect and disregard for engaging with national stakeholders through the channels of social dialogue, a commitment it had solemnly declared during the President’s inaugural address on May 29, 2023, among others before coming out with the Communiqué.”

Earlier in July, this year, barely a month after it suspended a planned June 7 nationwide industrial action over hike in pump price of petrol, the NLC began mobilizing its members for a fresh indefinite strike over unmet demands tabled before the Federal Government.

Rising from a late meeting with the Organised Labour, Federal Government confirmed reaching agreement with the labour unions with resolutions which also includes suspending the planned nationwide industrial action.

The meeting saw parties reach resolutions including the review and establishment of the framework for completion of the rehabilitation of the nation’s refineries, as well as, the setting up of a joint committee comprising Federal Government, TUC and the NLC ‘to review the proposal for any wage increase or award and establish a framework and timeline for implementation.’

Details of the agreement reached between Organised Labour and the Federal Government were also captured in a communiqué issued and signed by the NLC and TUC leaderships, immediately after the meeting.

“Following the engagements between the Federal Government, TUC and the NLC with the intervention of the Speaker, House of Representatives to resolve the disputes that arose from the withdrawal of subsidy on PMS, the following resolutions were reached:

“1, The Federal Government, the TUC, and the NLC to establish a joint committee to review the proposal for any wage increase or award and establish a framework and timeline for implementation.

“2, The Federal Government , the TUC and the NLC to review World Bank Financed Cash transfer scheme and propose inclusion of low income earners in the program.

“3, The Federal Government, the TUC, and the NLC to revive the CNG conversion program earlier agreed with Labour centres in 2021 and work out detailed implementation and timing.

“4, The Labour centres and the Federal Government to review issues hindering effective delivery in the education sector and propose solutions for implementation.

“5, The Labour centres and the Federal Government to review and establish the framework for completion of the rehabilitation of the nation’s refineries.

“6, The Federal Government to provide a framework for the maintenance of roads and expansion of railway networks across the country.

“7, All other demands submitted by the TUC to the Federal Government will be assessed by the joint committee.

“Consequently, the parties agreed follows:

“A. The NLC to suspend the notice of strike forthwith to enable further consultations

“B. The TUC and NLC to continue the ongoing engagements with the Federal Government and secure closure on the resolutions above.

“C. The Labour Centres and the Federal Government to meet on June 19, 2023 to agree on an implementation framework,” the agreement read.

NLC and its sister labour group, the Trade Union Congress (TUC) had declared a nationwide industrial action in June in protest against the decision by the Federal Government of President Bola Tinubu to remove subsidy on imported premium motor spirit (PMS).

 NLC and TUC in their statements had condemned the unilateral action taken by the Tinubu in scrapping the petrol subsidy regime without consultation with relevant bodies and without palliatives in place to reduce the hardship which the decision would cause to Nigerian workers.

This is further as the TUC called for an increase in the minimum wage of workers as a way to ameliorate the hardship.

Meanwhile, last Tuesday, the NLC through its National Assistant General Secretary, Mr Christopher Onyeka, accused the Federal Government of distributing a bag of rice to a dozen citizens while reportedly giving N100m palliative to each member of the National Assembly.

“We sent the letter to the Federal Government on September 1, 2023, so by September 22, 2023, the 21-day ultimatum will end.

 “We have made it clear that the Federal Government has abandoned and absconded from the table for negotiation; that government is no longer negotiating with Nigerians and there is no good faith negotiation that is going on.

“President Bola Tinubu promised Nigerians on his own on the television with the President of NLC, Joe Ajaero, that he was going to restructure the committees, but he did not do that, and since then the committees have not met and there has been no negotiation that is on-going. As it is, NLC is not negotiating with the government,” Onyeka said.

The NLC secretary added that Nigerians were insulted by the inadequate palliative being given.

“Can you see the insult that a ward would share a bag of rice and the government calls that a palliative? “It is an insult to Nigerians, whereas the government gave legislators N70bn and each of the legislators gets over N100m in a country where Nigerians are suffering.

“The FG is buying cars and houses of over N100m for each person and Nigerians are keeping quiet as if what is going on is a normal thing,” the NLC scribe said.