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ECONOMY-NIGERIA: Fears of Further Pain

LAGOS, Jun 24 2009 (IPS) - With no formal education, Mama Ibeji may not be tracking the global economic crisis in the newspapers. But from her little roadside restaurant in Makoko, a Lagos suburb, she can tell that all is not well with the Nigerian economy.

She feels the rising inflation in her business as the cost of food items and other input for her restaurant go up.

“Things were much better last year. Semolina* (see guide to Nigerian cuisine below), which used to be 750 naira is now N1,350. A bottle of palm oil which used to be sold for between N120 and N130 is now N180. This sharp increase has been more pronounced in the last three months,” she told IPS. (A dollar will get you 165 naira on the black market in Nigeria at the moment.)

Apart from the rising cost of doing business, another concern for Mama Ibeji is that her customer base is dwindling. “Those who have stopped patronising us, they don’t have the money. Some of them will say they have not been paid their salaries, so they don’t have money.”

An increasing number of her customers are desperate to buy from her on credit. “We cannot afford to sell to them on credit. It is not possible to buy things at expensive prices and sell on credit,” she says.

Oil

Nigeria relies on crude oil sales for more than 90 percent of its export earnings. With the dramatic drop in the price of crude oil in the wake of the global economic crisis, Nigeria’s income has dwindled. The price of oil has fallen by about two thirds from its peak of $147 per barrel in July 2008. This has adversely affected the economy of Africa’s largest oil exporter.

The drop in the price of crude oil and the generalised panic following the sub-prime mortgage market collapse in the U.S. in 2008 saw foreign investors pulling their money out of the country and resulted in a shortage of hard currency.

This led to a fall in the value of the local currency, the Naira. In the black market, where most Nigerians source their hard currency dropped by about 50 percent. The official rate also fell to N145.

Julius Olarewaju, a member of Nigeria’s Manufacturers’ association says the devaluation of the naira means manufacturers have to spend more money on imported raw materials.

“A lot of our inputs, major inputs, chemicals, whatever are imported. With the value of the naira going down, it means you need more naira to be able to buy whatever inputs you want. So it again escalates the cost of our production, and it is not good enough, it is killing our factories,” he told IPS.

Inflation

Higher production costs for the manufacturing sector are passed on to consumers leading to inflation. Just like the manufacturing sector, small businesses like that of Mama Ibeji are also passing some of their costs to the consumer.

“A wrap of eba* was 10 naira last year, now it is 20 naira. We have to increase the price of our food in the face of inflation. That is the only way we can recover our cost. We have no choice; we have to pass the increase unto the consumer,” she says.

According to Nigeria’s National Bureau of Statistics, inflation rose from 8.2 percent in April, to 9.7 percent in May. The rising inflation and the inability of many Nigerians to cope with it have caused some disquiet around the country. In May, workers started a series of demonstrations to demand higher pay.

The main workers union, the Nigerian Labour Congress, NLC, wants the minimum wage – currently the equivalent of 30 dollars a month – to rise to about 300 dollars.

The greatly increased wages, say NLC officials, are needed to cushion the effects of inflation and because the cash-strapped government wants to deregulate the petroleum market and remove an expensive fuel subsidy.

Ismail Bello, an official of the workers’ union, fears the worst if the government goes ahead with deregulation. “For us deregulation will mean further increase in prices of petroleum products. For workers we believe that deregulation will bring more pain, it will result in an increase in prices,” he told IPS.

He adds that deregulation “will result in [further] inflation, it will depress workers pay which is already very depressed given the kind of economic crisis that we are going through.”

Tight revenue

But for the government, deregulation in prices of petroleum products has become inevitable. The government says it is spending about five billion dollars annually on the petrol subsidy. The government wants to remove the subsidy in order to free up much needed funds in the face of the economic crisis.

Even though Nigeria is a major crude oil exporter, it has to import refined petroleum because the country’s refineries – all government-owned – are not functioning due to years of official mismanagement and corruption. The country relies on imported fuel for domestic consumption. The government pays oil importers A subsidy so they can sell the imported oil at a cheaper rate locally.

Reacting to workers’ agitation against dropping the petrol subsidy, Nigeria’s labour minister, Prince Adetokunbo Kayode, said it has become even more pressing because some of the money the government is paying as subsidy to fuel importers is fraudulently ending up in private pockets.

“A lot of government money is going down to the issue of subsidy and this subsidy is not being transferred to the common man on the street,” he said.

But for people like Mama Ibeji and her customers, any removal of fuel subsidy and the subsequent increase in the price of petrol will create immediate hardship as poor Nigerians will struggle to pay more for transport, food, and other necessities.

She says there will be unpleasant consequences if prices, especially those of food, continue to rise. “It is important for the prices of food to drop; this will make life better for the poor. If the price of food does not go down, life can not be better for the poor.”

The manufacturing association’s Olarewaju feels the long term solution to the economic crisis is for Nigeria’s economy to become less reliant on oil. He says one way to do this is to make the business climate more attractive to investors in other areas besides the oil and gas sector.

“The solution, like we told government, the infrastructure has to be upgraded and there should be some element of protection for the local industry.”

Many Nigerians indeed feel that Nigeria has a potential for industrial growth which can make the country less dependent on the oil industry. This lies partly in its population of 150 million people which is potentially a huge local market for industrial products.

Besides, given that Nigeria is the most prosperous country in the West African sub region, it could easily dominate the region with its goods. But basic infrastructure for industrial growth like electricity and a good transport network are lacking in the country.

For Mama Ibeji, another option for economic prosperity is for the country to diversify into food production. “The government has to do something because the people are undergoing too much hardship,” she says.

Many Nigerians recall with nostalgia the days before Nigeria’s economy became almost totally reliant on oil in the early 1970s, when agriculture was the mainstay of the country’s economy. For many, the time has come to return to the land.