Nigeria - Inflation, Bad Leadership and a Failing State

seesladen (61)in SteemAlive • 3 years ago

Hello there,

This is my very first post on SteemAlive, and I am glad to be here. However, having gone through the various rules and pinned posts detailing how to be active and supported here in this community, I think I need an intro before the intro. You see, I have been away from Steemit for quite a while now, and I had initially intended to take down my Steem Account. For this reason, I had drained it of all resources, and tried my best to never come back. It isn't for any reason other than I needed to sort some personal issues in my life at the time, and writing was taking a lot of time away from me.

But there is something about the need to write, and the desire that simply never leaves you. So yeah, this is me staging a comeback. And I will be complying with all the directives in the pinned posts as soon as I am a little ways back on my feet.

For now, thanks for stopping by. Now let's get into the meat of the article, shall we...?

Now I will begin by saying that I hope the title up there doesn't scare you. But then if it does, my guess is that you are one way or the other connected to the country often referred to as the "Giant of Africa". Your being scared therefore, may be considered to be a good thing in a certain sense. Fear after all, does make a man spring into action. Even though I honestly will be hard put to say what sort of action you might need to take which will bring about a change in the dire fortunes implicit in the scary title. But then time will tell. For now, let's get into it...

Source: Pixabay

So you see, I work as a Research and Financial Analyst, and part of my job description is to study economic data and provide an in-depth breakdown of variables, and data driven projections for the purposes of decision making for my firm. As a result of this, at the start of the year, I presented a paper detailing a high level analysis of how 2021 went, and a prognosis for how some of the macro economic variables for 2022 would fare. Below are a few snapshots of that document...

2020/2021 MACRO ECONOMIC INDICATORS

2021 ECONOMIC SCORECARD

2022 MACRO ECONOMIC PROGNOSIS

Now here is the thing about life and projections. They could blow up straight in your face, and boy, did these blow up. Because somehow, it turned out that these projections were quite optimistic, as much as they portrayed some sort of bad future, at least in an economic sense. Moreso, the foundations upon which these dire projections were built haven't even begun to fully kick in yet. I will explain...

First off, the projections indicated that Inflation would rise in the course of the year. However, this prediction was made on the expected effects of insecurity, high dependence on imports, and subsequent imported inflation, and the expectation that the effect of the new tax laws would ultimately be passed down to the consumers.

However, two unexpected events have helped to hasten up the inflation drive. First, the government somehow managed to import substandard fuel early in the year, thus creating weeks of severe PMS scarcity and a subsequent hike in petrol prices. Secondly, a war kicked off in far Europe, causing severe supply chain disruptions and this has led to an increase in food commodities, and diesel prices. These twin issues have combined to cause a hike in transportation, food prices, and cost of business operations. We didn't even have to go through half of the first quarter of the year, and all projections bounced off in our faces. Business decisions had to be adjusted and new strategies adopted.

Still, all of these are just grammar, let me give you an insight into the current dire situation with a little bit of facts and figures.

-
At the start of the year, diesel was averaging 288 Naira per liter at retail stations. It currently sells at over 700 naira. That is about 240% increase in cost.
-
PMS (or petrol) sold around 165 naira on average at the start of the year. That grew to over 400 naira at the peak of the twin events mentioned above. That is still about a 400% increase.
-
Rising oil prices in the international market would, and should have been a good thing for one of the biggest exporters of crude oil, but Nigeria has somehow watched all her refineries get into a decrepit and non-productive state, and as a result, we import all our finished petroleum products. As such, we pay premium for these products. But that is not all. We also struggle to meet our target production of crude oil, falling short consistently due to the prevalence of oil bunkering in the country, and this means that the impact of the increasing oil price is completely wiped away by imports, and an ill advised petroleum subsidy program.
-
Then, towards the end of the first quarter, electricity almost completely became non-existent, as the national grid collapsed multiple times. Mind you, the power generation prior to that was at best underwhelming. This was amidst a hike in electricity tariff in February, and an end to power subsidy in March. Someone can say at this point that, problem no dey finish. But then, this one never still finish o.
-
Due to increased cost of aviation fuel (from around 197 naira to over 600 naira), domestic airline fares jumped over 100% as airlines pegged all flights at 50,000 Naira.
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Amidst all of these, Nigeria was the first African country to access the EuroBond market in 2022, pricing a 1.25 billion dollar loan at a premium of 8.375%. A loan that was of course over subscribed. Who them say, no like better thing? And guess what the purpose of that loan was - Wait for it - to service the still ill-advised subsidy expectations. How much I wonder, will it cost to finance a new and functional refinery from the ground up?
-
Before I leave the facts and figures, it is pertinent to say that Nigeria's debt service to revenue ratio was 98%between January and May 2021. The IMF has predicted that 2022 would see that figure at 92%. Basically this means that for every 100 naira earned, we would use 92 naira to pay back debts. I rest my case.

I think at this point, it is clear that my title is apt, if not even optimistic in a way, regarding the potential of the supposed "Giant of Africa". But then you may ask, how does all of these directly affect me?

Personally, I think it is obvious but I will break it down a little further. You see, the rising cost of petroleum products directly affect two things - transportation, and cost of operations. This is especially dire considering the present situation of electricity within the country amidst the now almost constant power grid collapses. What this means is that transport prices will go up, and it would be more expensive transporting humans and goods across locations. This would have an inflationary effect on the cost of goods and services. But this is not all.

The cost of production would also rocket, as no light, plus an increase in diesel price means that the cost of operations would be skewed negatively. Companies would therefore be forced to restructure by downsizing, or cutting cost in various manners. We have seen evidence of this already. Manufacturers would also do the same by either adding to the prices of products to reflect current realities, or cutting down on output while retaining price, so as to meet the increased cost. Who else notices how biscuits reduce their contents? See what I mean. So you, the final consumer ends up getting less for more.

Still, it gets worse before it gets better...

Because unfortunately, the government is yet to completely tackle insecurity. In-fact, it has become terribly worse, as traveling across states has now become a daring endeavor. Instead our political and economic heads (Read Transport Minister & CBN Governor for obvious reasons) now ignore their primary responsibilities, and fixate their eyes on the 2023 elections...

There is still the naira constantly falling across exchange windows, there is a scarcity of dollar evidenced by the constantly reducing Fx Reserves, and we are also yet to see the real effects of the new tax regime included in the revamped finance act to be implemented this year. Indeed, it may get worse before it gets any better.

#SladenSpeaks #IfWordsWereNudes

This article has been a thought on my mind for some time, and I originally intended to put it out as an economic digest of some sort for my firm at the end of Q1. However, I got busy, and it turned out to be sort of stale due to the meetings and presentations I had in between then and now.

Anyways, I have been away from writing for so long, and yeah, this is me staging a comeback too. Thanks for stopping by.

#nigeria #steemexclusive #steeamalive #finance #inflation #sladenspeaks #ifwordswerenudes

3 years ago in SteemAlive by seesladen (61)

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Nigeria - Inflation, Bad Leadership and a Failing State

Still, it gets worse before it gets better...

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