Stagnant wages, the inability of a majority of Nigerians to meet their basic needs due to rising inflation and low purchasing power may imperil the economic agenda of President Bola Tinubu.
With household spending rising on a daily basis, more Nigerians are dropping the quality of standard of living in a bid to cope with the current harsh economic reality, LEADERSHIP Sunday learnt.
Since coming into office, the Tinubu government has removed the subsidy on Petroleum Motor Spirit, further worsening the inflation crisis and has also devalued the Naira, making imported goods more expensive.
The government has however left the minimum wage frozen at about N30,000 a month and only choosing to provide a wage award of N35,000 across board to all civil servants for a period of six months.
No agreement has been reached with labour unions on a new minimum wage making it unlikely that an agreed wage increase could come into effect immediately after the first quarter of 2024.
To assess the impact of stagnant wages and a decrease in the purchasing power of Nigerians, LEADERSHIP Sunday spoke with the Lagos Chamber of Commerce and Industry, the Manufacturers Association of Nigeria, the Real Estate Developers Association of Nigeria (REDAN), a clearing agent and a former economic adviser to former President Muhammadu Buhari.
And while the government is faced with the twin evils of high inflation and a weakening economy, a number of economists are of the view that Tinubu should seek to stimulate growth, create employment and tolerate some level of inflation.
The major spending affected by decisions of people are food, house rent, subscription, clothing, among others. People resort to cutting down on household spending as inflation is eroding their savings, making the money they had on them worthless.
Already, the latest data from the National Bureau of Statistics (NBS) has indicated that Nigerians spent N61.08 trillion on food and other household items and services in the first six months of 2023, which is a 2.85 per cent increase from the N59.39 trillion that was spent in the corresponding period of 2022 at the current purchasers’ value.
Household consumption continues to account for the largest share of the country’s Gross Domestic Product, the NBS stated in its ‘Nigerian Gross Domestic Product Report (Expenditure and Income Approach): Q1, Q2.
It said: “Household Consumption Expenditure, in Q1 and Q2 of 2023 grew by -24.95 per cent and 3.30 per cent in real terms, year-on-year. The growth rates in Q1 and Q2 of 2023 were lower than the rates recorded in Q1 of 2022 and higher than Q2 of 2022.
“Household Consumption accounted for the largest share of real Gross Domestic Product at market prices, representing 57.18 per cent and 64.05 per cent in Q1 and Q2 of 2023 respectively, compared to 78.02 per cent and 63.65 per cent in the corresponding quarters of 2022.”
Household consumption expenditure consists of expenditure, including imputed expenditure, incurred by resident households on individual consumption goods and services, NBS stressed.
In October 2023, the headline inflation rate, according to NBS, increased to 27.33 per cent relative to the September 2023 headline inflation rate which was 26.72 per cent.
Food inflation rate in October 2023 was 31.52 per cent on a year-on-year basis, which was 7.80 per cent points higher compared to the rate recorded in October 2022 (23.72 per cent).
The rise in food inflation on a year-on-year basis was caused by increases in prices of bread and cereals, oil and fat, potatoes, yam and other tubers; fish, Fruit, meat, vegetables as well as milk, cheese and eggs.
Similarly, the situation is forcing more citizens in the country to live in rural areas, slums, and makeshift camps due to inability to afford the cost of rent payment in most urban centres across the country.
Specifically, inflation has triggered a rise in the price of building materials, making projects to be delayed and, in other cases, stalled. Developers have also reduced their portfolios, as purchasing powers of Nigerians continue to decrease for them to stay afloat.
Similarly, rents have increased by between 75 per cent in densely populated cities like Lagos, Abuja, and Port Harcourt, where the hike has risen to about 50 per cent in certain locations in the last three years. For example, a duplex of four-bedrooms that was let out for N4 million to N4.5m is now going for between N6 million and N7 million yearly.
And with the Yuletide approaching, the situation is further compounded with expectation of a rise in the prices of imported goods as the Central Bank of Nigeria (CBN) adjusted the exchange rate from N783.174/$1 to N951.941/$1
LEADERSHIP Sunday gathered that the adjustment was made at the weekend by the CBN, meaning that the cost of clearing cargoes in the nation’s seaports will go up.
It could be recalled that the CBN had on June 24, 2023 adjusted the exchange rate from N422.30/$1 to N589/$1 and on July 6, 2023 it was adjusted to N770.88/$1, on November 14, 2023, it was adjusted to N783.174/$1, now, adjusted to N951.941/$1
Clearing agents, however, stated that, with N194 increment, cargoes will be abandoned at the nation’s seaports while prices of goods will go up.
A lecturer in the Department of Economics, University of Jos, Dr Joshua Reti while speaking on the impact of stagnant wages on the purchasing power of Nigerians said inflation is a persistent increase of prices of goods which, if not curtailed would have a lasting negative impact on the purchasing power of the consumers, particularly when their wages are not increased.
“You’d discover that the purchasing power of the consumers whose wages are not increased is eroded completely. It is eroded in the sense that, what you used to buy at the rate of N10 will be N20. It will definitely have an adverse effect on the purchasing power,” he said.
According to him, the common man on the street, the consumers whose wages are not increased are at the receiving end, stressing that it would really affect the purchasing power which will lead to poverty in the land.
“The major thing is the erosion of the purchasing power as long as the wages are not increased in commiseration with the increase of the prices of goods and services,” he declared
A clearing agent, Comrade Onome Monije, told LEADERSHIP Sunday that freight forwarders and importers would have a bleak Christmas.
However, maritime experts have argued that the new customs exchange rate effectively means there would be an increase in import duty payable by clearing agents to the Customs Service and would overall, affect price of goods at the market.
Meanwhile, an economist, Mr Tunde Oyediran stated that, “the increasing cost of food in Nigeria has significantly affected the living standards of ordinary citizens. It has become a serious cause for concern. The real income of the average income earner has been falling consistently. This implies that people can now afford fewer baskets of commodities for their livelihood and sustenance.”
He noted that, food has gone up in price including bread, cereals, potatoes, yam and other tubers, meat, fish, fruits, oils and fats and vegetables, saying average Nigerians consume these items daily, particularly bread. Oyediran said, inflation is perhaps the biggest poverty accelerator in the economy due to its weakening effect on people’s purchasing power.
On its part, the Lagos Chamber of Commerce and Industry (LCCI) said it is concerned about the continued uptick in inflation (year-on-year) and its impact on consumers’ spending and manufacturing productivity in the country.
“As a result, we anticipate economic policymakers to give priority to inflation as well as businesses in the short term to implement a variety of cost reduction strategies, including downsizing and local sourcing of input factors as they bid to lower operating expenses. Also, households must consider the costs/ prices of items when catering to their immediate needs,” the chamber said.
In taming down inflation, the director-general of LCCI, Dr Chinyere Almona said, the government should focus its efforts on boosting supply rather than a decline in demand.
She stated that, “we implore the government to address the challenges inhibiting domestic production and ease the bottlenecks to the distribution of goods within the country. Further, we urge the government to continue to address the problems of insecurity and other factors affecting agriculture productivity in the country to improve food supply.”
She also urged the CBN to improve the flow of credit to the real economy.
Director-general of Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir stated that, “as you would expect, the current inflationary condition in Nigeria is adversely affecting the operation of the manufacturing sector, just like most other sectors of the economy. Some of the impacts of the rise in inflation on manufacturing include increase in cost of production, reduced profit margin, supply chain disruptions, uncertainty in planning, and reduction of consumer spending.”
According to Ajayi-Kadir, elevated inflation serves as a significant sign of underlying macroeconomic weaknesses, and neglecting to tackle the underlying causes will exacerbate constraints on economic expansion and elevate the unemployment rate within the country.
“It is important to note that addressing inflation is a complex and long-term endeavor that requires a coordinated effort from various stakeholders, including the government, central bank, private sector, and civil society,” he said.
He called on the government to strive towards a stable exchange rate which is crucial to controlling inflation; employment of collaborative fiscal policy measure through budgeting and effective taxation to complement the monetary policy actions taken by CBN; increased targeted support to the agricultural sector to enhance productivity, reduce reliance on imports and stabilize food prices; and formulation of policies that promote a stable and conducive business environment which can attract both local and foreign investments, leading to increased production, job creation, and ultimately, stability in prices.
Moreover, the director, Nanyang Technological University (NTU) and the Singapore Business Federation (SBF) Centre for African Studies, Nanyang Business School, Mr Amit Jain, has sounded a note of warning that over 35 million Nigerians are likely to fall into the poverty bracket except the federal government urgently checkmates the high inflation rate, remove trade barriers and provide critical infrastructure for economic growth and development.
Jain stated this at the public presentation of a 10-year roadmap for Nigeria by NTU-SBF Centre for African Studies in partnership with Tolaram and NTU, Singapore in Lagos.
According to him, since 2015, poverty has been on the high side as more Nigerians are slipping into poverty than climbing out of it, advising that, unless something is done urgently, Nigeria might not be able to address the problem of extreme poverty for 35 million people by 2025.
“We have looked at some of the causes of this extreme poverty endemic in Nigeria which include inflation, population growth and climate change essentially explains why it remains so endemic. One of the best ways to address extreme poverty is to curb inflation, reduce trade barriers for many people to get job opportunities, educate the populace and improve their health to become a lot more productive,” he said.
He pointed out that Nigeria needs to take proactive steps to put the country on the path of growth and reduce its inflation rate, adding that Nigeria must revamp crude oil production very quickly to create the fiscal room that Nigeria needs.
He stated that the country, in the next two years, must focus on economic stabilisation, structural reforms to revive growth, prioritise investment in health, education and social protection and avert negative Gross Domestic Product (GDP) growth to arrest poverty.
He added that within the next five years, Nigeria should prioritise reviving growth, enhancing investment climate, improving business confidence, targeting four per cent GDP growth rate and reviving employment.
Also speaking, a Nigerian Economist, Dr Adedoyin Salami, who was the chief economic adviser to former President Muhammadu Buhari, said Nigeria needs to consider how she begins to lay in the short term the foundation for middle term via re-establishing economic stabilisation over the next 12 months.
Salami stressed that education is where the country’s biggest investment must lie.
“The country’s future prosperity is also dependent on her ability to build and sustain an agro economy which education can help achieve. If education is sorted, the speed at which our population is growing would come down and we can be more balanced to pursue the skill and enlightenment the country needs to grow,” he said.
Similarly, the chairman, Real Estate Developers Association of Nigeria (REDAN), South West, Debo Adejana, said all the rents were reviewed last year in city centres, as rent cannot be separated from the economy.
“What we’re experiencing is a reaction to inflation in the system. Every property given out for rent is largely an investment property for the owner and returns are expected. As prices of goods continue to jump, landlords would demand higher rent.”
He said fewer properties were completed in the past three years, which indicates that property stock fell within the period, as production has not caught up with demand due to increased population. Adejana pointed out some tenants have also moved out of city centres to the outskirts or fringes owing to rent increases.