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By: Odewale Abayomi
Between November and December 2020, the National Bureau of Statistics (NBS) released two shocking data. They stated that Nigeria has officially slid into another recession and the inflation rate hit 14.89%. Nevertheless, Nigeria’s official inflation rate is still much higher than the Central Bank’s target range of 6% to 9% while the recession, according to the NBS is the worst since 1987 as the Gross Domestic Product declined by -3.62%.
No doubt, the devaluation of the naira, COVID-19 lockdown, land border closure, bandits–herders attack on farmers, increase in electricity tariff, cost of fuel and Value Added Tax (VAT) have all led to huge production costs leading to a spike in costs of goods and services. The outrageous costs of goods gravely lower the standards of living and dwindles the purchasing power of the vast majority of Nigerians who struggle to survive above the poverty line. And as a result of the unstable naira/dollar exchange rates, most local firms that rely on imported raw materials have had to increase the prices of their products or repackage them in sachets in order to make profits.
This is an unhealthy indicator for Nigeria’s economy amidst staggering unemployment rate. This signals a warning that Nigeria needs to reevaluate the current economic policies and set feasible short, medium and long term economic road maps in order to leave behind the multifaceted economic quagmire. The economic model of exporting raw commodities for processing elsewhere and the importation of the processed commodities into Nigeria is unsustainable. The manufacturing sector’s share of gross domestic product is under 4% while over 80% of manufactured goods in Nigeria are imported.
The freight cost per 40 feet container from Europe to Apapa port which previously cost 1.1 million naira ($3,000) is now 3 million naira ($8,000) culminating in the spike of prices of imported commodities.
Local substitutes for basic imported items will certainly ameliorate the biting inflation. For a balance of trade, Nigeria needs to address infrastructural deficiencies and create an enabling industrial development environment for an export-driven economy to thrive. Why can’t Nigeria refine its crude oil and export the surplus refined oil and residues? Why can’t Nigeria process cocoa into chocolates for consumption locally and outside Nigeria’s shores?
On a global scale, Nigeria’s economic productivity is very low. There is an urgent need to increase productivity in order to get out of the economic quandary. The focus should be on optimum employment for robust productivity, keeping inflation low – at best, a single digit, and a good terrain for Foreign Direct Investments (FDI) and businesses to thrive. It is high-time government thrashed choking policies and embraced sound ease-of-doing business policies for Nigerians in the informal sector who contribute about 65% to Nigeria’s GDP.
No country is economically independent. International trade allows countries to expand their markets and access goods and services that are not available domestically. To key into the global economy, countries can not do without importation and exportation of goods and services. Due to supply deficits, it was not surprising that inflation in Nigeria rose steadily every month when land border trade was shut between August 2019 and December 2020.
Border closure is against the signed treaties on the free movement of goods and services as stipulated by the Economic Community of West African States (ECOWAS), and even antithetical to the African Continental Free Trade Area (AfCFTA) deal which relies on open borders for operation. However, some countries close their borders in seldom cases of security and disease pandemic concerns. Border closure with the hope of stopping substandard products and thwarting smuggling is illusive. Nigeria’s customs and immigration officials need to be proactive by putting in place modern screening mechanisms and strategy of manning the porous borders.
As more Nigerians couldn’t afford premium products, the rising poverty casts doubt on the government’s efficiency at creating an enabling economic system. Sachetization of premium commodities is an indicator that Nigeria’s economy is on life support, and as such, this is the right time to reposition the ailing economy.
ODEWALE Abayomi, writing fellow at African Liberty, tweets @ODEWALEAbayomi
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