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Flood and Economic Crisis – A Stitch in Time could have saved Nine
The National Emergency Management Agency (NEMA) warned as early as January this year that flooding was imminent and likely to be devastating. But nothing was done. As a result, the recent flooding in Nigeria’s top 13 food-producing states pushes food inflation higher as supply shortages ensue despite the harvest season. The general increase in commodity prices climbed, albeit slowly, to 20.77% in September. We forecasted a rise of 20.9%. The major culprits remain the flooding as well as exchange rate pass through effect (N743/$ at parallel market), money supply saturation (N49.3trn), and high logistics costs (diesel price up again to N820/litre). The combination with other structural factors affecting Nigeria’s food production will definitely lead to an economic crisis. In response, consumers could resort to panic buying ahead of the festive season.
Wheat value chain – A cry for help!
It’s no longer breaking news that Nigeria is a net importer of wheat. On average, we spend $2bn annually to import 4.7 million metric tonnes of wheat to plug our supply shortfall of almost 3 million metric tonnes. The gap is so wide that the country dances to the rhythm of the global wheat price volatility due to the Russia-Ukraine war. What’s worse is the constant devaluation of the naira that makes it more expensive. The implication has an even more dramatic effect on food inflation (23%) and the price of finished products like bread (up 100% from a year ago). The solution to our wheat problem is for the FG to invest in the value chain of the commodity and then gradually reduce our import bill. We’ve said this solution before, but it is even more important to reiterate it now that inflation is sky high and the country is grappling with revenue.
VAT revenue to support fiscal health
The FG’s coffers are running thin. And unlike what we are witnessing, increasing our external and internal borrowing shouldn’t always be the answer to fix our ever rising fiscal deficit that is now N11trn according to the 2023 proposed budget. A possible solution to address this revenue problem is to improve tax collection. Already, Nigeria’s tax-to-GDP ratio is critically low (6%-8%) far below the 15% tax-to-GDP ratio recommended by the World Bank and IMF for developing economies. A bright spot for the FG is VAT that raked in over N1.53trn for the FG in 2020.
What next?
In 130 days, Nigerians will head to the ballot box to decide the new fate of the country. Before then, it’s imperative to repeatedly take a microscopic look at the country’s economic state and remind policymakers of the hard choices to be made for a better future. Of the many decisions, taming inflation, reducing debt, restoring investor confidence and reducing naira volatility are top priority.
In this edition of the FDC monthly publication, the Think-Tank discusses in detail OPEC’s oil production cut, the wheat value chain and VAT as a panacea to fiscal imbalances.
Do enjoy your read!
