Like in the markets at lots of Asian and African nations, there is a sense that prices of everything are rising. Lagos, the commercial capital of Nigeria is no different. Some transport costs like taxis and minbuses have doubled in the last few months. The price of food has risen at a similar rate now around 22% and looking like it will be keep rising.
Nigerian Economic Situation in 2021
Despite the global pandemic and hence huge expectations of economic recession, Nigeria’s economy actually grew in the last quarter of 2020. Yet the economic outlook for the country is not considered favourable for a variety of reasons.
Firstly there is inflation, which is steeply rising in almost all sectors THe average current rate of inflation across all sectors is a worrying 18% at the moment. This represents the highest rate in the last twenty years and is obviously not a basis for future growth.
The other big worry, is that of employment – almost 50% of Nigerians are either unemployed or under-employed. These figures were pre Covid 19 so they will almost certainly have worsened over the last 12 months. What’s more Nigeria’s population is growing at a time when opportunities (due to the pandemic) are falling. It’s estimated by the World Bank that by 2023 over 100 million people could be existing on approximately $1.90 a day.
Social Problems Expected to Rise Too
NIgeria has always had huge social problems which are often linked to it’s economic ones. At the moment the crime figures are not great. Car theft and robbery are the biggest crimes but a lot of crime is associated with both poverty and corruption.
There have been reports that since Covid 19 there has been an increase in prostitution, drug abuse, kidnappings etcetera which will only serve to add fuel to the fire for social problems already present.
For many though and certainly for economic prospects the rise in kidnappings is one of the biggest worries. There have been more people kidnapped in the first four months of this year than the previous 12 months according to the World Bank again. There are a variety of reasons but are responsible for creating a general escalation in violence in varous sectors of the society
This backdrop is of course not something attractive to the foreign investment that Nigeria needs to expand it’s economy. Much talk is made of imposing important structural and social reforms, yet this is typically harder to implement than promise.
Could Oil Be Nigeria’s Saviour?
Obviously Covid-19 has slammed economies all over the world, not just Nigeria. Unfortunately pre-existing economic woes which Nigeria had many makes recovery doubly difficult. Oil prices have fallen for nearly 7 years and the covid economic slump has done nothing to reverse this. Oil production and exports are an important part of the Nigerian economy and they are very vulnerable to it’s price swings.
It’s expected that the current oil price will start to rise as the world recovers from the pandemic. As it makes up about 80% of Nigeria’s export earnings then this will bring a huge cash bonus to the Government finances at least in the short term. Currently Nigeria’s President Muhammadu Buhari has tried to solve this issue and the fall in foreign exchange with some unusual tactics.
THey have banned the import of certain items to protect foreign currency reserves these include things like wheat and sugar. Also closing the country’s land borders to stop these exports and deter the smugglers. Both of these measures have had a large effect on food inflation.
The extra revenue from the oil prices will give NIgeria some much needed financial flexibility. However the economic problems are much more deep rooted in part caused by an over reliance on oil revenues. Previously instead of investing in important infrastructure upgrades and promoting business opportunities, the money has been spent in more regressive ways. Subsiding the costs of electrictity and fuel is of course helpful in the short term, but do little to promote long term prospects.
What is worse is that Nigeria has long neglected it’s domestic tax structures. Tax evasion and avoidance is common and revenues are woeful for the size of the economy. When the oil safety net is removed this makes the states finance’s even more vulnerable.