Dear Subscriber,

Subnationals are making cool cash from a hot economy

As expected, kneading the multiple exchange rate system into one dough ball (IEFX rate) meant a quick devaluation of the naira and more revenue for the government. As of June, the average IEFX rate fell by 85% to a record low of N853/$ from 462/$ in May. Resultantly, FAAC revenue generated rose by 142% to N1.9 trillion. Increased revenue for state governments points to higher capital expenditure, which could have positive multiplier effects on their states, residents, and the overall economy. More importantly, now, it means timely salary payments that should shore up aggregate demand and consumption levels. As of 2021, consumption made up 67% of total GDP.

But Nigerians are getting broke (suffering from brokitis)

Higher salaries, a potential review of general wages, and disbursement of conditional cash transfers are cheery news. However, inflation is still rabid (22.8% as of June), deteriorating living standards and tipping many more into extreme poverty. The masses are taking the scorching heat of recent reforms, with no comforting end in sight. Fela, back in the day, in the lyrics of his song (Shuffering and Shmiling);

  Suffer, suffer for world                           Open you eye everywhere     

  Enjoy for Heaven                                   Archbishop na miliki

  Christians go dey yab                           Pope na enjoyment

  “In Spiritum Heavinus”                         Imam na gbaladun

  Muslims go dey call

  “Allahu Akbar”

People need a soft landing, meaning a quick response from the government in effectively disbursing palliatives under its numerous social protection programmes. Any misstep on this front and Nigeria could become the cover girl for Chinua Achebe’s telltale “Things fall apart”.

Businesses are playing catch-up with rising costs

To get ahead of slack demand, rising operating expenses and consumer resistance, Nigerian businesses have stayed innovative. But moving the tide with sachetization and miniaturization at this 11th hour seems insufficient for companies, particularly FMCGs, to substantially leverage sales volume and stay afloat. Regardless, it is one coping mechanism that has helped as disposable income falls even further. We’ll keep watching to see how businesses are faring in these trying times. After all, it’s earnings season.

In this edition of the FDC monthly bulletin, the FDC Think Tank unpacks these issues and more, providing their economic implications.

Enjoy your read!