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Forces fuelling high price regime, despite naira’s rebound - THE NATION

MAY 27, 2024

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From a depressing low of N1,900 to the dollar, at some point, the Dr Olayemi Cardoso-led Central Bank of Nigeria (CBN) engineered a remarkable rebound of the Naira, which, sometime last week, exchanged at N1,390 and N1,340/$ at the official and parallel markets respectively. But this heartwarming return to exchange rate stability is yet to translate to a reduction in prices of goods and services. The buying strength of most Nigerians has also not gained traction. Experts, who weighed in on the persistent asphyxiating high price regime despite the naira appreciation, say that without tackling insecurity, rising transportation and production costs and exhausting existing stock, among other forces, businesses might be hesitant to lower prices immediately. CHIKODI OKEREOCHA and DANIEL ESSIET report.

Even the less discerning could see the forlorn look on the faces of many Nigerians. Some Nigerians, especially those not schooled in the interplay of factors that either drive up or force down prices of consumer goods and services, could not fathom why the high price regime remained despite the current positive development in the Foreign Exchange (forex) market, where the value of the naira has been appreciating against the dollar, and have, in some instances, openly voiced their frustration and disappointment.

Recall that on the strength of recent policies implemented by the Central Bank of Nigeria (CBN), under Dr Olayemi Cardoso’s charge as Governor, the naira has been on a remarkable rebound.

For instance, CBN’s sale of dollars to the over 1,500 licensed Bureau de Change (BDC) operators, clearance of forex backlog and raising of interest rate two times, in February and March, is said to have improved liquidity in the system and restored confidence and stability in the forex market.

These policies are believed to have helped to kick-start the recovery of the naira. Consequently, the naira, which crashed to nearly N2,000 at some point in February this year, started appreciating against the dollar, exchanging at N1,390 and N1,340/$ at the official and parallel markets respectively, last week. With this came expectations by not a few Nigerians that the price of consumer goods and services, especially food items would come down.

Unfortunately, this has not been the case, as the high price regime persisted. The exchange rate stability is yet to translate to a reduction in prices; the buying strength of most Nigerians has also not gained traction either.

While this development appears to have thrown many Nigerians into despair, industry experts and operators from diverse sectors, who spoke with The Nation, say that the expected reduction in prices of goods and services will not be immediate.

According to them, a stable exchange rate manifesting in the appreciation of the naira against the dollar will not immediately translate to lower prices of consumer goods and services, as other formidable forces beyond forex drive prices up or down. They pointed out, for instance, that without tackling insecurity that has made farming across all the geo-political zones a nightmarish experience, and has continued to exert significant upward pressure on prices of food items in particular; the significant gains so far made by the naira will not translate to lower prices of goods and services.

Other factors, notably high transportation and production costs, inefficient distribution networks and supply chain disruptions are also said to have conspired to continue to drive up prices across various sectors. Besides, there is the need for businesses to dispense with old stock of foods and other products that were bought before the current exchange rate stability.

There is also a consensus around the fact that, while price increases respond faster to upward increases in key factors of production, the reverse is the case when the factors are going down. In other words, the naira appreciation, which, no doubt, gladdened the hearts of Nigerians, will take some time to kick in before it begins to reflect in the price of goods and services in the market.

The Chief of Staff, OCP Africa, a subsidiary of phosphate producer OCP Group, Caleb Usoh did not mince words when he told The Nation that: “The fact that the dollar is going down does not mean that food prices will go down. The result will certainly not be felt immediately but in the long-term.”

The truth, according to him, is that the food supply has been seriously hampered, with a supply-demand impact now playing out.

Throwing more light on his perspective on the situation, Usoh said: “We just came out from a couple of months where the dollar was playing up against the naira. Food was seen as an investment commodity. The whole of last year was characterised by the dollar trauma. People were buying food not for supply to the table or kitchen but for investment. Food became an investment commodity, so the export focus was the main deal.”

The OCP Africa boss said people were just interested in buying food and sending it abroad to earn dollars. “The impact of this is that you deplete local supply volume which should have been serving the local mouths and tables. What we have now is a food deficit. This will continue to sustain the high price regime reflecting a demand-supply risk,” he stated.

That’s not all. Usoh also said the previous year, Nigeria had a lot of challenges with farmers’ access to inputs, which was caused by the high price of inputs.

According to him, even the output from the farms didn’t give the country enough volume that be appropriate for national needs. This, he said, combined with the spiralling dollar exchange to the naira and the incentive to mop up food and export or to hold up as an investment commodity.

While stating that this is the situation Nigerians found themselves in, Usoh noted that any disruption in the food system is always difficult to recover from, especially because the food system is characterised by seasonal outputs. He, however, said there have to be other interventions to enhance farmers’ access to farm inputs.

“They (farmers) have to go to the farm. The whole farming process takes about four to five months. I hope a lot of interventions are done now so we don’t face the same problem next year or at the end of this year. Farming season will probably start in the next two months,” he said.

Also sharing his perspective on the time lag for the stability in the exchange rate to begin to reflect in prices of goods and services, a Professor of Animal Science at the University of Ilorin, Kwara State, Abiodun Adeloye said stocking of goods is an issue. He recalled that when the value of the naira was crashing and the dollar was rising, people were buying at very high rates and a lot of them because of the trend were buying in anticipation that they would sell at higher prices.

Prof. Adeloye, however, said the reverse is the case as the naira is appreciating while the dollar is dropping.

“They (businesses) will have to sell what they bought when the dollar was rising. They bought something for N1,000 in February–March. If the stock is not exhausted, a lot of people will run out of business. Somebody bought something at N1,000 per pack and sells it at N600 naira per pack,” he stated, asking: “How does he or she account for the N400 difference?”

While noting that a lot of businesses will crash, even at this moment, Prof. Adeloye reiterated that people are waiting to reduce what they have in stock. “Except people stock goods that move very fast, you will find people keeping stock for weeks,” he stated.

The Executive Secretary of the West African Fertiliser Association (WAFA), Dr Innocent Okuku expressed a similar sentiment. He said the food that is being sold today in the market was not just harvested but was harvested last year, and the process snowballed into the early part of the year.

“It (the food) has been sold and is in the hands of traders, not in the hands of farmers. What this means is that traders are going to do everything to sell what they have at prices that will enable them to recoup their investment and some profit on top of that,” he told The Nation.

Dr Okuku further said that “it is not likely that food prices will drop because of naira appreciation,” adding that “as a country, we don’t have sufficient food reserves to force prices down. Normally, what happens when you have a situation such as this is that the government will evolve a price regime that is appropriate to offer the traders. The traders will be forced to comply with the given price. But Nigeria doesn’t have a strategic food reserve to try and counter the rise in the price in the open market.”

He said in this kind of scenario, what is likely to happen will be an adjustment in the price of foods. “It is going to be a very gradual process following the harvest of the new farming season. The volume will help to force down the price in the market. I’m praying that the naira will continue to gain value so that it remains strong against the dollar and enable us to go to the farm with lower costs. We are entering a new planting season,” Okuklu said.

Another critical factor keeping prices high despite the recovery of the naira, according to Prof. Adeloye is the cost of transportation which hasn’t gone down.

“Prices will still be high if the cost of petrol, for instance, does not go down. The effect of the appreciation of the naira will not be felt immediately. We may give it a month or two. This is my thinking. We are looking at what stock people have had before. That’s number one, and they need to sell out. Then, we are looking at the cost of transportation which is high,” he stated.

The Director-General of Nigeria Employers’ Consultative Association (NECA), Adewale-Smatt Oyerinde also weighed in on the matter. He said CBN’s tightening monetary policy measures have led to the appreciation of the naira, but lamented the rising prices of goods and services. He blamed the situation on other factors outside forex which, according to him, are exerting stronger upward pressure on prices.

The NECA D-G lamented, for instance, that supply chain disruptions, logistical hitches and rising production costs continue to drive up prices across various sectors despite the appreciation of the naira. He, however, expressed optimism that the commencement of production and distribution of petroleum products by Dangote Refinery would positively impact transportation costs and other production expenses.

The Managing Director of Coleman Wires and Cables, Mr George Onafowokan said the appreciation of the naira would not bring immediate gains to manufacturers.

According to him, buyers are still holding back on purchases, waiting for the currency to continue to strengthen. This, he said, has led to a waiting game, with speculators hoping to profit from the situation.

Onafowokan, however, expressed the belief that the naira will further appreciate and recover, citing the government’s efforts to stabilise the economy, including the return of Foreign Portfolio Investors (FPIs) with over 20 per cent interest rate on the Federal Government’s bond and treasury rates.

He also highlighted the rehabilitation of refineries and other initiatives that indicate Nigeria is open for business, not speculation. He, however, emphasised the need for fiscal policies that support manufacturers, noting that the Manufacturers Association of Nigeria (MAN) is pushing for policies to ensure manufacturers remain in business.

While urging the government to implement policies that support manufacturers, Coleman MD encouraged the government to tighten everything to balance the forex position. He expressed optimism that the naira will appreciate more and that manufacturers will reduce prices when the currency regains its strength in the market.

Stakeholders bank on caging insecurity monster

Mr Peter Kolawole, an Agriculture Consultant was emphatic that without tackling insecurity and reining in all shades of criminality that have made farming activities across the country extremely difficult, perhaps impossible, prices of food items and other goods and services will continue to go up.

The former Governor of Sokoto State, Attahiru Bafarawa brought the reality of Nigeria’s scary security situation as it affects farmers and ultimately sustains the high price regime nearer home when he lamented that bandits have forced him to abandon his 10, 000 hectares of land in Kaduna State.

“I used to have farmland which is over 10, 000 hectares in Birni Gwari, Kaduna State. I have been cultivating that land since 1979, but I cannot reach there now because of the bandits. The maize I produced that time was in commercial quantity that I used part of it for my flour mill which is also out of production,” Bafarawa said, insisting that “insecurity is behind the high cost of food items because many farmers have been displaced.”

The embattled former governor, who shared his perspective on the high cost of foodstuff, revealed that the people of Bafarawa, a district under Isa Local Government Area in the Eastern part of Sokoto State, Northwest Nigeria, usually seek permission from bandits before going to farm. He said bandits are also the ones who decide which farm to cultivate or not in his community.

“There was a time I warned the Federal Government about the impending food insecurity in the country but my advice was ignored,” Bafarawa said.

Now, the chickens have come home to roost. If Bafarawa’s warning, including warnings by security experts and concerned stakeholders, were heeded, Nigerians would, today, probably be reaping bountifully from the current stability in the exchange rate in the form of reduced prices of goods and services, especially food items which prices have continued to soar.

Bafarawa, however, said a genuine collaboration between the federal, state and local governments to tackle insecurity, particularly in the North, would push back marauding bandits who have been hurting farming activities in the region and contributing to the high cost of food items in the country.

Indeed, across the country, relentless attacks by armed groups, including terrorists, bandits, kidnappers, armed herdsmen and communal clashes have forced farmers to abandon their farms. Many farmers have fled to safety while several agribusinesses have gone under after the destruction of their facilities.

Increased attacks against farmers by these groups have led to displacements, market disruptions and loss of livelihoods. Rising cases of kidnapping for ransom have limited the availability of labour for farming operations as farmers now dread going to their sites.

With farmers unable to access their farms to harvest their farm produce despite that the produce is due for harvest, there has been a noticeable sharp rise in food prices owing to the substantial reduction in food production.

Some of the abandoned farms, especially those in the North are being controlled and harvested by hoodlums who are, allegedly, mostly herdsmen, even as farmers in Bafarawa District in the Eastern part of Sokoto State, according to the former Governor, now seeking permission from bandits before going to their farm.

The fact is that Nigeria’s food production has been stunted in the past few years due to the rising wave of insecurity, even though climate change has also negatively impacted farmers’ productivity, leading to a low output that cannot meet the demand of over 200 million Nigerians.

With demand overshooting supply, the result, according to experts, is the current high price regime despite the current positive outlook in the forex market. This must be why the founder, the Centre for the Promotion of Private Enterprise (CPPE), Muda Yusuf said: “If we must tackle the high cost of food, we must address insecurity.”


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