The Director of the Centre for Promotion of Private Enterprise, and former Director of Lagos Chambers of Commerce and Industry, Dr Muda Yusuf in this exclusive interview with NewsNow speaks on major factors causing foodstuff price hike, the solution to increasing inflation and anxiety in the financial sector and economic hardship in Nigeria. Excepts:
Muslims in Nigeria are celebrating this Year’s Sallah amid astronomical increases in the prices of ram, tomatoes, pepper, onion, rice and other foodstuffs under President Bola Ahmed Tinubu’s government, how would you react to the situation?
The high food prices have a dampening effect on the Sallah festivities. Most food items are completely beyond the reach of many. The entire spectrum of food items is affected.
The situation has been ascribed to the increasingly challenging insecurity experienced by farmers, both livestock and food crops. The destruction of food crops by herders in many parts of the country is a major factor.
There are also the factors of seasonality of agricultural production, pest infestations of some food crops, climate change, and exorbitant transportation costs.
The spiraling cost of food is quite scary. There is a need to do more to ensure the safety of the farming population in the country. The insecurity is the most important factor impacting food production, negatively.
The subnationals (state governments) need to do more to complement the efforts of the federal government. Indeed, the subnationals have much bigger roles to play in promoting food security. The government needs to roll out more fiscal incentives to drive agricultural production. Scaling productivity in the sector is also very crucial.
National Bureau of Statistics’ latest data showed headline and food inflation surged 33.95 percent and 40.66, meaning Nigeria’s inflation rate failed to cool off for the 17th time since December 2022, what is the government not doing rightly and what solution would you proffer?
It is worrisome that high inflationary pressures have persisted in the Nigerian economy despite some policy measures to tame inflation, especially on the monetary side.
Purchasing power has continued to slump over the past few months. The situation has been further exacerbated by price volatility experienced in many sectors.
Headline inflation rose to 33.95% in May as against 33.69% in April. Food inflation maintained its uptrend rising to a frightening 40.66% in May. The implications for poverty and hunger are unsettling and profound. Regrettably, inflation drivers are not receding. These key drivers include the depreciating exchange rate, surging transportation costs, logistics and supply chain challenges, forex market volatility, energy cost, climate change, insecurity in farming communities, seasonality of agricultural outputs and structural bottlenecks to production. These are largely supply-side issues. There is also the factor of seasonality of agricultural outputs which triggers seasonal price surges in some food crops. It is important to stress that insecurity in the farming communities remains a major factor disrupting agricultural production and perpetuating the food supply crisis.
Elevated inflationary pressures also aggravate pressure on production costs, weaken profitability, and dampen investors’ confidence. Not many producers or service providers can transfer cost increases to their consumers. The implication is that manufacturers and other investors are taking a big hit resulting from the erosion of profit margins. Products with high demand elasticity are generally more vulnerable.
Tackling inflation requires urgent government intervention to address the challenges bedeviling production, and security in the economy. The real sector of the economy needs to be incentivized to ensure the moderation of production costs.
The government could review the tariff policies by granting concessionary import duty on intermediate products for industrialists. The same is true of investors in the logistics sector. Some of these measures are already contained in the draft Accelerated Economic and Sustainability Plan proposed by the Coordinating Minister of the Economy. The effects of high energy costs are also very significant.
It will be very difficult to tame inflation if we do not substantially fix power, logistics, forex and security issues. Regrettably, there are no quick fixes in these areas. However, it is important to prioritize these issues and drive accelerated progress with the right strategies. It is worth emphasizing that the subnationals have much bigger roles to play in mitigating the challenge of food insecurity. They are closer to the players in the agricultural and food value chain. They are the custodians of the land. They are therefore better placed to impact agricultural productivity. The food security situation is frightening and requires urgent and emergency response.
Recently, Heritage Bank collapsed, and the development has created panic in Nigeria’s financial sector about the possibility of the collapse of other banks ahead of the Banks’ recapitalization deadline; in your expert knowledge, how would you assess the strength of the Nigerian banking sector at the moment?
The progressive degeneration of the health of Heritage Bank over the last few years should not have been tolerated by the apex bank and NDIC in the first place. It smacks of failure of regulation. The systemic damage to the financial system would have been minimized if appropriate and firm regulatory action had been taken long before now.
The revocation of the Heritage Bank license had regrettably triggered a new round of confidence crisis in our banking system. There are already speculations about the health of some of the banks. This is most unhealthy for our financial system. The revocation of the license should have been avoided to minimize the systemic damage. The acquisition or creation of a bridge bank should have been better. Though it could be more financially costly. However, the confidence of depositors in the banking system would have been largely preserved. Sadly, some depositors would lose their money for no fault of theirs.
Depositors are not supposed to pay for the negligence of regulators and management of a bank. The apex bank had repeatedly assured the citizens that all banks were safe as recently as a few weeks ago. In light of this, I believe depositors of banks deserve full coverage in the event of bank failure. Citizens have no way of distinguishing ailing banks from healthy ones. It is immoral and unfair to penalize depositors for a crime they did not commit. We need to urgently put in place a policy to ensure full coverage for depositors in the event of bank failure.
Nigeria’s foreign exchange market crisis has persisted despite the Central Bank of Nigeria’s intervention, foreign loans to boost liquidity and other efforts, what long-term solution would you proffer?
The crisis in the foreign exchange market is fundamentally a forex supply crisis. Demand has been largely sticky while supply has remained weak. The foreign exchange policy reform was a major policy step to address the issue. However, not much can be achieved in the short term because of supply-side challenges.
However, if significant progress is made in the improvement of domestic crude oil production and export, reduction in importation of petroleum products and other import substitution initiatives and the boosting of non-oil exports, we may see a medium to long-term improvement in liquidity.
Meanwhile, the CBN needs to put in place measures to reduce current volatility in the forex market. The volatilities are inimical to investors’ confidence and they aggravate investment risk.