• Another report states why Lagosians spend one-third of wages on food
• Analysts: Rising price of petrol, diesel significant contributor to inflation
• Economic growth spurred by govt consumption, investment since 2015
Ahead of tomorrow’s (Tuesday) release of October 2023 inflation figures by the National Bureau of Statistics (NBS), multinational professional services network, KPMG, has said that headline inflation in Nigeria will reach 30 per cent by December 2023. Nigeria’s current inflation rate for the month of September is 26.72 per cent.
KPMG in its ‘Macroeconomic Review H1 2023 & Outlook for H2 2023,’ released at the weekend, anticipated that the current inflationary pressure in the economy will persist into H2 2023, stressing that headline and food inflation are unlikely to ease soon as the depreciation of the Naira continues to reinforce the inflationary impact of fuel subsidy removal via higher input prices and production costs caused by imported inflation.
The report noted that recent reforms in the petroleum industry (like the fuel subsidy removal) and unification of the foreign exchange market will be responsible for the projected spike in prices of goods and services.
The report further stated that the Nigerian economy should grow by 2.6 per cent in 2023, lower than both the revised World Bank’s 2023 forecast of 2.8 per cent for Nigeria and the 3.1 per cent growth rate achieved in 2022.
The professional accounting firm noted that in addition to the effect of the Naira redesign policy, the weak growth for 2023 will be driven by low crude oil output, high inflation, which weakens consumer demand, weak growth of the private sector as several corporate organisations continue to declare huge foreign exchange losses in the first half of 2023 and the FX and subsidy reforms, which are further expected to weaken consumer demand and raise cost of doing business even for the rest of the year.
According to KPMG, interest rate may not be hiked further. It said President Bola Tinubu’s administration targets a yearly economic growth of six per cent in the 2023-2026 period, which it seeks to achieve by stimulating the private sector by improving the general ease of doing business and lowering interest rate.
The body however, observed that this puts the administration in a ticklish position as incentivising the private sector by reducing the interest rate have opposite implications for domestic price stability, apart from raising concerns about monetary independence.
This is coming days after analysts at Afrinvest West Africa are forecasting a further hike in Nigeria’s headline inflation rate to 27.9% for October 2023, according to the company’s October 2023 Inflation Forecast.
After recording a 16-year high CPI of 26.72% in September 2023, the company predicted a further 102 bps spike for Nigeria in October 2023. The spike is linked to the depreciation of the FX rate at both the official and unofficial markets.
Just like other months where food has been the major contributor to the CPI hike, the trend is projected to continue in October due to increased transportation costs for agricultural produce. However, the report suggests that there was a boost in food supply in October due to the ongoing harvest season.
The report also highlights that the rising price of Petroleum Motor Spirit (PMS) and Diesel (AGO) in October 2023 is a significant contributor to core inflation in the month.
With the rising rate of inflation in Nigeria and its attendant effects on citizens, another report has shown that residents of Lagos State now spend a significant portion of their income on groceries and food. According to the report, stew ingredients in Lagos cost ₦6,902 in 2022 but rose to ₦8,060 in 2023, representing a 16.77 per cent increase. Meanwhile, a minimum wage earner in Lagos who gets ₦30,000 monthly would need, at least, 106 per cent of his or her salary to prepare stew once a week for a month in 2023.
The inaugural Stew Index Report put together by PricePally, an online grocery store operating in three Nigerian cities, analysed the cost of stew ingredients and submitted that the price of meat has also significantly gone up with Lagos now the most expensive state in the country.
The Stew Index Report also revealed that fiscal policies, including fuel subsidy removal, cash scarcity and the foreign exchange crisis are the main factors affecting food pricing in 2023. Speaking on the impact of the report, the Chief Executive Officer (CEO) and Co-founder of PricePally, Luther Lawoyin highlighted logistics and preservation as factors causing farmers to lose over half of their harvest.
MEANWHILE, KPMG notes that the government’s revenue is expected to increase for the rest of 2023, especially with the removal of subsidy, exchange rate gains, and the implementation of proposed tax reforms.
“The higher inflow from FAAC is also expected to slow down the pace of debt accumulation and reduce fiscal deficits in the short term. However, government accountability, transparency, and efficiency in the management of the fiscal gains should be the priority. Notwithstanding, oil theft remains a major risk to the revenue performance of the government as growing cases of oil theft imply huge revenue losses to the government.
“To mitigate this risk, the government will need to intensify its effort to address oil theft through a multi-dimensional approach that will include the adoption of enhanced security measures, more community engagements and empowerment and the utilisation of advanced surveillance technology,” it stated.
Additionally, KPMG noted that for H2 2023, there was need to look out for the commencement of operations of the Dangote Refinery, implementation of critical reforms by the Central Bank of Nigeria (CBN) to address foreign exchange illiquidity problems and government fiscal and trade agenda as well as reforms across MDAs.
Earlier in its domestic marco-economic review, KPMG noted that in the last two decades, the Nigerian economy has undergone major shifts in its growth pattern. It pointed out that between 2000 and 2015, the economy grew between six to seven per cent when the economy was largely driven by private investment, which accounted for 70 per cent of investments in the economy.
However, driven by a different growth strategy that increased the dominance of the public sector, the accounting firm said the economy grew by an average of 1.1 per cent in the last eight years. KPMG observed that the growth of the economy since 2015 has been largely driven by government consumption and investment.
It explained that in H1 2023, the economy grew by 2.4 per cent, which was weaker than the growth rate of 3.3 per cent recorded in H1 2022. It said on a quarter-on-quarter basis, the economy improved only marginally from 2.3 per cent in Q1 2023 to 2.5 per cent by the end of Q2 2023.
KPMG reiterated that the non-oil sector remains the life raft of the Nigerian economy with economic activities being driven by the expansion of the non-oil sector, which accounts for about 95 per cent of the total GDP.
It said the non-oil sector grew by 3.6 per cent in Q2 2023 while the oil sector, which had been contracting since Q1 2020 got pushed deeper into recession by 13.43 per cent below the zero line in Q2 2023 after a mild recovery that drove the oil sector to -4.2 per cent growth contraction.
According to KPMG, most of the non-oil sector growth in Q2 2023 was driven by Finance & Insurance (27 per cent), Information & Communication (8.6 per cent), Construction (3.4 per cent), and Manufacturing (2.2 per cent).