Why Nigeria’s economy is in such disaster

by MMC
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  • By Nkechi Ogbonna
  • BBC News, Lagos

Image source, Ufuoma/BBC Gift

Legend,

Government policies have worsened the economic crisis, say unions

Nigeria is currently experiencing its worst economic crisis in a generation, leading to widespread hardship and anger.

A liter of gasoline costs more than three times what it did nine months ago, while the price of the staple food, rice, has more than doubled over the past year.

These two figures highlight the difficulties faced by many Nigerians as wages have not kept pace with the rising cost of living.

Like many countries, Nigeria has experienced economic shocks from outside its borders in recent years, but there are also country-specific problems, partly due to reforms introduced by President Bola Tinubu when he took office. function last May.

How bad is the economy?

Overall, annual inflation, which is the average rate of price increases, is now close to 30%, the highest figure in almost three decades. The cost of food has increased even more – by 35%.

However, the monthly minimum wage, set by the government and which all employers are expected to meet, has not changed since 2019 when it was set at 30,000 naira, which is worth just $19 (£15). ) at current exchange rates.

Many are hungry, rationing the food they have or looking for cheaper alternatives.

Videos widely shared on social media show how some are reducing portion sizes.

One clip shows a woman cutting a fish into nine pieces instead of the average four to five. He is heard saying that his goal is to ensure that his family can eat fish at least twice a week.

What is the cause of the economic crisis in Nigeria?

Inflation has soared in many countries as fuel and other costs have soared due to the war in Ukraine.

But President Tinubu’s efforts to reshape the economy have also added to the burden.

On his inauguration day nine months ago, the new president announced the end of long-standing fuel subsidies.

This has helped keep gasoline prices low for citizens of the oil-producing country, but it has also taken a heavy toll on public finances. In the first half of 2023, it represented 15% of the budget, more than the government spent on health or education. Mr Tinubu argued that this could be better used elsewhere.

However, the subsequent sharp rise in gasoline prices caused other prices to rise as companies passed on transportation and energy costs to the consumer.

Another factor driving inflation is a problem Mr Tinubu inherited from his predecessor, Muhammadu Buhari, according to financial analyst Tilewa Adebajo.

He told the BBC’s Newsday program that the previous government had asked the country’s central bank for short-term loans to cover expenses amounting to $19 billion.

The bank printed money, which helped fuel inflation, Mr. Adebajo said.

What happened to the naira?

Mr Tinubu also ended the policy of fixing the price of the currency, the naira, to the US dollar rather than leaving it to the market to determine it based on supply and demand. The central bank was spending a lot of money to maintain this level.

But the abandonment of the peg caused the value of the naira to fall by more than two-thirds, briefly hitting an all-time low last week.

Last May, 10,000 naira bought $22, today it only costs about $6.40.

As the naira is worth less, the price of all imported goods has increased.

When will things get better?

While the president is unlikely to reverse his decisions on fuel subsidies and the naira, which he says will pay off in the long run by strengthening the Nigerian economy, the government has introduced some measures to ease the pain.

Nigerian Vice President Kashim Shettima has announced the creation of a council to monitor and regulate food prices. The government also ordered the national grain reserve to distribute 42,000 tonnes of grain, including corn and millet.

This is not the first time the government has said it is distributing aid to poor and vulnerable Nigerians, but unions have often criticized the government’s method of food distribution, saying much of the aid does not reach poor families.

The government also said it was working with rice farmers to get more to markets and customs officials were instructed to sell the bags of grain they seized at low prices. In a sign of the seriousness of the situation, this led to a crush on Friday in the largest city, Lagos, which killed seven people, local media reported. These distributions have now been stopped.

The rice was seized under the previous government, which banned rice imports to encourage local farmers to grow more. This ban was lifted last year in an attempt to reduce costs, but due to the fall in the value of the naira, this did not work.

Around 15 million poorest households also receive a cash transfer of 25,000 naira ($16; £13) a month, but these days that doesn’t go very far.

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