Nigeria: Rising Concerns Over Impact of Inflation On SMEs, Households

By Babajide Komolafe

Economic analysts and members of the organised private sector have expressed anxiety over the severe impact of the continued rise in prices of goods and services on the survival of many businesses and ability of individuals to meet their basic needs, and the potential threat to the economy.

Inflation is the rise in the general level of prices, often expressed as a percentage, and it means that a unit of currency effectively buys less than it did in prior periods. Rapid growth in inflation also means that standard of living of the populace will continue to decline especially where wages remain constant and the prices of goods and service keep rising.

According to the National Bureau of Statistics (NBS), Nigeria's annual inflation rate rose to 18.17 per cent in April, the highest in 50 months. This increase is driven by continued rise in price of food items, reflected in the similarly, food price inflation which rose by 116 basis points to 22.95 per cent in April.

The rising trend of food prices is reflected in a report by analysts at Financial Derivatives Company, which shows that the price of Garri, a major staple for Nigerians, rose further to N15,700 per 50kg in April from N13,300 in March. Similarly the price of 50kg of tomatoes rose from N7, 000 in March to N12,000 in April.

Noting that this trend will persist, analysts at United Capital Plc, said, "Our outlook for inflation remains grim. Our stance is informed by unabating pressures on food prices resulting from several supply-side constraints."

Highlighting why the increase in food prices will persist, they said: "Clearly, food insecurity problems in the country have not subsided, and this continues to be exacerbated by forex scarcity and high costs of importation. Also, we note that as we enter the planting season, supply shortages are expected to garner pace, which could consequently place further pressure on prices.

"Furthermore, an increase in energy prices is likely in the second half of 2021 (H2-2021). Surely, a rise in petrol prices will contribute to the index's inflationary pressures, as it will feed into the transportation and logistical costs on the food index."

The continued upward trend in prices is troubling, said Muda Yusuf, Director General, Lagos Chamber of Commerce and Industry, mounting inflationary pressure is a troubling phenomenon. "More worrisome is the food inflation has accelerated to 23 per cent, he said. Expressing concerns over the impact of this trend on individuals and businesses, Yusuf said: "Rising inflationary pressures weakens purchasing power of citizens as real incomes collapse, it accentuates pressure on production costs, it negatively impacts profitability, and undermines investors' confidence.

"It is not in all cases that high production and operating costs can be passed on to the consumers.

"The implication is that producers are also taking a hit. This is more severe where a product or service is faced with a high demand elasticity. These are products that consumers can readily do without."

At a media briefing two weeks ago, the Group Executive Director of Dangote Industries Limited, ," Edwin Devakumar said the Dangote Cement Plc has not increased the price of cement in the past 16 months despite the continuous rise in the cost of production and surging demand for cement.

Though most of the distributors and marketers of cement products are taking advantage of the increase in demand, which created artificial scarcity in the market, to hike retail price, Devakumar said Dangote Cement has consistently maintained the same ex-factory price for its products.

In the other sectors of the economy such as medicare, fast moving consumables, many manufacturers have been constrained to hike price commensurate with the prevailing inflation rate.

Their reason being that many of them fear that passing the excessive cost of production to their customers may lead to apathy and consumer resistance to their products.

What some manufacturers of consumables have resorted to is to reduce some of their product sizes to ensure that in spite of their inability to raise prices, they could stay afloat in the face of galloping inflation.

Many manufacturing firms are also slashing production due to their inability to procure dollars for raw materials.

Also, they are being pummel by the rising cost of energy, transportation and the rising cost of machinery as a result of the devaluation of the local currency.

This article originally appeared on Vanguard

Photo: Reuters