Leading rating company Agusto & Co. Ltd. recently emphasized how Nigeria’s swift economic reforms are having a detrimental effect on the nation’s Cost Of Living crisis. Although it is believed that the reforms are required to set Nigeria on a path of sustainable growth, the hurried implementation of these changes has resulted in increased energy, food, and logistical costs, making the country’s economic woes more severe for Nigerians. A hawkish Monetary Policy that raised borrowing prices to all-time highs has further squeezed the Economy and put more strain on consumers and companies.
Also, the report highlighted persistent difficulties in important industries. Even though it is a vital source of income, the oil business still faces problems including theft, vandalism, and falling investments, which prevent it from reaching its full potential. Although the harvest season brings certain benefits, Insecurity and violence hinder the agricultural industry. A falling Naira and rising borrowing costs have hurt exchange rate-sensitive industries including Trade and manufacturing. Consumer spending has also decreased. By late Q2 2024, the currency rate had steadied around ₦1,500/$, although not enough to undo the overall economic pressure.
Effects of the reforms on energy, exchange rate and agriculture.
Significant reforms were recently implemented by the Nigerian government, including the elimination of gasoline Subsidies and the transition to a managed floating exchange rate system. Fuel prices spiked sharply after gasoline subsidies were eliminated, tripling in certain areas at the pump. The goal of this policy shift was to lessen the government’s fiscal burden, but it also raised Manufacturing and transportation expenses, which caused Inflation to reach its highest level in almost 20 years in July 2024—24.08%.
In an attempt to alleviate shortages of foreign money, the exchange rate reform caused the naira to depreciate sharply against the dollar, which culminated in a settlement of approximately ₦1,500/$ by the end of 2020. Since the Central Bank of Nigeria raised the Monetary Policy Rate (MPR) to 20.75% in order to fight inflation, borrowing has become unaffordable during the restrictive monetary policies that accompanied the implementation of these measures. Increased input costs and persistent Security concerns have severely impacted Nigeria’s Agriculture sector, which accounts for a large portion of the country’s GDP.
The industrial industry has suffered due to excessive borrowing rates.
Due to farmers’ struggles with high transportation costs and insecurity in important agricultural regions, the sector’s growth slowed to 1.41% in Q2 2024 from 1.50% in Q2 2023. Even though the oil industry provides a significant portion of government revenue, it nevertheless faces significant obstacles like theft, Pipeline vandalism, and falling investments. The Niger Delta’s ongoing security concerns caused oil production to average 1.18 million Barrels Per Day (bpd) in Q2 2024—well below OPEC’s aim of 1.8 million bpd.
Nigeria’s ability to benefit from high oil prices around the world has been diminished by these issues, and the country’s ability to generate money is still severely hampered by the decline in foreign investments in the oil industry. The industrial industry has suffered due to excessive borrowing rates and the declining value of the naira. The industry is primarily dependent on imported raw materials. Due to lower consumer demand and higher operating expenses, the sector’s growth decreased to 0.92% in the second quarter of 2024. Similar effects have been seen in trade, where companies have reported a drop in sales volume as a result of consumers’ declining purchasing power.
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Concerns have been raised by economists regarding Nigeria’s reforms’ pace and order. “While subsidy removal and exchange rate unification are steps in the right direction, the timing, coordination, and lack of complementary policies have exacerbated the economic hardship faced by Nigerians,” said economist and former director general of the Lagos Chamber of Commerce and Industry Dr. Muda Yusuf. He thinks that the impact on disadvantaged households might have been lessened if these reforms had been implemented gradually and in conjunction with tailored social safety nets (SSN). In a same vein, Economic Associates CEO Dr. Ayo Teriba emphasized the need for a more impartial strategy.