inflation

  • Examining Buhari’s claim middlemen are responsible for rising food prices in Nigeria

    Claim: Nigeria’s President Muhammadu Buhari recently blamed the increasing cost of food items in the country on middlemen, who he alleged, were hoarding essential commodities for profit.

    President Buhari’s claim is unsubstantiated as there are several other major factors responsible for the hike in the cost of food items. 

    Full Text

    President Buhari has said during  a recent nationwide broadcast that middlemen are responsible for the rising food prices in the country.

    The president also disclosed that he had directed the Ministry of Agriculture and Rural Development to rehabilitate the National Food Reserve Agency to address the continued rise in food prices.

    In his words: “The Agricultural sector remains key to our economic diversification efforts as the sector has been a consistent driver of the non-oil sector contributing 22.35% and 23.78% to the overall GDP in the first and second quarter of 2021.

    “We have seen significant private sector investments in almost all areas of the agricultural value chain. And these have continued even during the COVID-19 pandemic.

    “Unfortunately, as our food production capacity has increased, food prices have been going up due to artificial shortages created by middlemen who have been buying and hoarding these essential commodities for profiteering…”

    Middlemen, also referred to as intermediaries, play a vital part in ensuring that the distribution channel between the producer and the consumer is complete.

    This was not the first time the President would blame the high cost of food items in the country on middlemen. 

    In September 2020, he also blamed middlemen for rising food prices in the country at the time.

    In a series of tweets via his verified Twitter handle, Buhari noted that the government is conscious of the challenge of high food prices, amidst a poor economy rocking the world due to the global coronavirus situation.

    Screenshot of the President’s tweet in September, 2020

    He, however, said middlemen, among other factors, are responsible for rising food prices.

    “We are also engaging with food producers associations and groups to tackle the issue of exploitative behaviour by middlemen and other actors, which is one of the factors responsible for the high food prices being experienced,” the Nigerian leader wrote.

    In verifying this, Dubawa examines other factors, aside from the role of middlemen, that may have contributed to rising food prices.

    Rising food insecurity

    Dubawa conducted research into factors that may have been responsible for the increasing cost of food items in the country. 

    In a report by the World Food Programme, over 13 million Nigerians are food-insecure during the lean season with some 4.4 million in the northeast. 

    Screenshot from WFP Nigeria Situation Report, July 2021 

    In Nigeria, there has been a high level of food insecurity for the past four decades. This, undoubtedly, is a major factor in the rising cost of food prices in the country.

    According to the Food and Agriculture Organization (FAO), food insecurity has been on the rise since Buhari was elected into power in 2015.

    While data shows that demand for food has continued to increase since 2014 due to the country’s rising population, there is no corresponding growth in the amount of food production largely due to surging insecurity, inconsistent government policy, poverty among others.

    Dr. Tayo Bello, a developmental Economist and Associate Professor of Law at Babcock University, has expantiated on the Consumer Price Index in an interview with Dubawa. 

    He defined the CPI as the basket of goods which typically is the product of services purchased by individuals.

    He said, “Importantly, the CPI serves as a barometer for any economy because once it brings inflation, inflation will affect the purchasing power of consumers and it is a serious threat to any economy either developed or developing and it is through this consumer index that you can derive cost of living index.”

    According to him CPI measures the price of consumer goods and it is a tool to measure inflation and can.be used to formulate the future economy.

    Dr. Bello said inflation can be caused by various factors citing the types of inflation.  Speaking on the demand-pull inflation, he explained that this situation arises when the aggregate demand is higher than the goods available.

    He added: ”When you talk of cost-push it is as a result of aggregate increase in cost of production.

    “For example, with the way foreign exchange earnings are declining coupled with rising foreign currencies, there’s no way you will not have a cost push. What we’re having in Nigeria now is cost-push, it’s not like we have a sudden increase in population.

    “The last one is built-in inflation which can be as a result of production cost or other factors,” he stated.

    While making reference to the present inflation rate in Nigeria which is 16%, he noted that the country suffers from galloping inflation, taking into consideration the inflation rate of 15.7% in 2016.

    He said, “Investors pay more attention to CPI because it is an indicator of where the economy is going, it is also a barometer that can be used to forecast inflation and sensitive assets. There’s no rational investor that will go into a country where you know that what they have is persistent increase in the cost of goods and services which is inflation. There was a time I discussed with the press on ‘LikeAMonkey’ inflation (zig zag) and that’s what we have in Nigeria.

    “The present inflation rate in Nigeria is 16% and the projection is that by 2022, it will be 13.5%. Let’s go back to the inflation rate from 2016. In 2016, the inflation rate was 15.7%, in 2017, it was 16.5%, in 2018, it was 12.09% and in 2019 it was 11.4%, and we’re talking of 2021, 16%.

    “If you look back, the inflationary rate was lower in 2019. With this, there’s no way the economy will not be affected because there’s no steadiness. Once we have that trend, what will happen is the economy and the barometer which the CPI measures will show a red indicator and when that happens, it means the economy is not going in the right direction.”

    Between 2018 and 2020, for instance, an average 21.4 percent of Nigeria’s population reportedly experienced hunger.

    In 2014, Nigeria’s population was at 176,404,931 which represents an increase of 4,639,112 people compared to 2013.

    According to data made available by Statista, the country’s population increased to 181,137,448 in 2015 when President Muhammadu Buhari assumed office and currently stands at 212,568,404 in 2021. 

    Meanwhile, in a bid to improve agricultural finance in Nigeria, the federal government (FG) has introduced different financing initiatives, and between 2018 and 2020 committed over half a trillion naira in budgetary allocation to Nigeria’s agriculture sector. 

    However, most of the budgetary allocation to the sector in the period of three years have been for capital items. This is to say the agricultural sector has been underfunded. 

    Screenshot of budgetary allocation to agriculture from 2015 to 2020

    This, among other factors, has greatly affected food production in the country. 

    Production pattern and insecurity

    With a very large population size as stated, Nigerian farmers, to a large extent, lack the capital and technological advancement to produce the bulk of food needs in Nigeria.

    A report by the FAO stated that only 57percent of the 6.7 million metric tons of rice consumed in Nigeria annually is locally produced leading to a deficit of about 3 million metric tons, which is either imported or smuggled into the country illegally. 

    Meanwhile, animal production has remained underexploited. It stated that domestic demands for livestock outweighs supply as livestock mostly reared by farm families in Nigeria are the small ruminants like goats (76 million), sheep (43.4million), and cattle (18.4 million). 

    According to the world bank, the food production index in Nigeria for 2018 stood at 101.9. Recent data from the United States Department of Commerce further showed that Nigeria still depends on approximately 1.7 MMT of imported parboiled rice to meet its domestic rice consumption demand.

    Screenshot of rice production and demand in Nigeria from 2018 to 2021

    Despite his promise of improving security, Nigeria has experienced more insecurity since Buhari came to power in 2015.

    The Global Terrorism Index (2019) ranked Nigeria as the third-worst nation prone to terrorism with no improvement since 2017.

    Nobel Laureate Wole Soyinka has described the country as a war zone and the Sultan of Sokoto recently said northern Nigeria is the worst place to live in the country.

    One of the areas worst hit by the insecurity situation is the agriculture sector as several farmers have become internally displaced persons (IDPs), thereby causing a spike in food prices.

    A study shows perennial cases of farmer-herders clashes, banditry and kidnappings have made many farmers to flee their farmlands due to fear of attacks by bandits or being kidnapped after which a ransom is demanded. 

    5-year inflate trend during President Jonathan’s administration. Writer’s construct. Source: macrotrends
    5-year inflate trend during President Buhari’s administration. Writer’s construct. Source: macrotrends

    Inflation

    Another major factor responsible for food hike in Nigeria is inflation. Since Buhari came into power in 2015, there has been sustained inflation in the country which has continued to make it difficult for many, particularly low-income earners, to eke out a living.

    YearMarket price (Naira)
    20119,000
    201210,000
    201312,000
    201410,000
    Trend of inflation against the price of a 50 kilogrammes bag of rice from 2011-14

    Since the inception of the Buhari administration, this staple food item has continued with an unsteady price as Nigerian households struggle to feed.

    YearMarket price (Naira)
    20158,700
    201616,857
    201718,000
    201818,000
    201925,500
    202026,125
    202128,000
    Trend of inflation against the price of a 50 kilogrammes bag of rice from 2015 – 21

    Interestingly, in 2015, a bag of rice was sold at N8,700, however by 2016, with the high rate of inflation, a 50kg bag of rice sold for N16,857. As of October 2017, the same value costs N18,000, the price was stable through 2018 in some parts of the country.

    In 2019, the same bag of rice sold for N25,500, by 2020, a naira metrics report revealed that a 50kg bag of rice was sold for N26,125.

    In 2021, the average price of a 50kg bag of imported rice goes for N28, 000 based on market surveys. 

    For instance, inflationary pressures have never abated since the Buhari administration announced a shutdown of Nigeria’s porous land borders with all neighbours in October 2019 in a move seeking to spur mass production of food as well as curb smuggling and associated corruption. 

    Currency devaluation and COVID-19 pandemic

    Similarly, the poor performance of the Naira on the currency market, coupled with its devaluation, impacted the demand and supply of food. With food demand outweighing production,  food prices steadily rose.

    Furthermore, the outbreak of COVID-19 pandemic contributed to an increase in the food index to the tune of 22 percent, according to data from the National Bureau of Statistics. 

    Screenshot from the CPI report for July, 2021

    The country fell into its deepest recession in forty years during the height of pandemic restrictions, according to a report by the World Bank. 

    The report stated that the Nigerian economy shrank by 1.8%, as the COVID-19 crisis drove the economic slowdown.

    In a report by Guardian, farmers have narrated how they bribe bandits and herdsmen in their locality to enable them to go to farm unhindered and to ensure cows don’t enter their farms.

    It would be recalled that in August 2019, just three months after celebrating its signing the AfCFTA, Nigeria slapped a ban on the movement of all goods from countries with which it shares a land border: Benin, Niger and Cameroon, effectively banning all trade—import and export—with its neighbors.

    According to the president, the purpose was to curb smuggling of goods such as rice, tomatoes and poultry to encourage the production and consumption of homegrown food.

    But the policy is said to have contributed to the high cost of food items in the country as citizens experience widespread hunger. 

    According to a survey by Statista, the greatest majority of Nigerian households experienced an increase in the prices of essential food items, as over 87% of households said the prices of beans, cassava, yam and sorghum shot higher since January 2020. 

    It added that about 79 percent of respondents said the prices of rice increased over the same time span and 74 percent found onion more expensive than it used to be.

    A similar Food Survey conducted by Dataphyte in March shows that Nigerians witnessed an average of 66.8% increase in the prices of food items between last year February, the month the first case of Coronavirus was confirmed, and March 2021, when the survey was conducted. 

    The analysis of the prices of foodstuffs across 13 states in the country showed that the food price situation had contracted the purchasing power of citizens.

    In May, the UN Food and Agriculture Organization (FAO) warned that at least 9.2 million Nigerians face a crisis or worse levels of food insecurity this year because of the country’s conflicts.

    As a Guardian report puts it, “rising insecurity, misdirection of government funds to the agricultural sector, and poor implementation of interventions by the federal government have been identified as the leading causes of hike in food prices in the country.

    “Other causes include multiple taxations on inter-state food transportation by federal, state, and local governments.”

    Additionally, low level of mechanisation and poor research and development activities as well as adverse weather conditions resulting from climate change contribute to the hike in food prices in Nigeria. 

    Conclusion

    The president’s claim that middlemen are responsible for hikes in food prices in Nigeria is misleading. The hike in food prices in Nigeria cannot be tied to middlemen alone as the president has claimed. The foregoing research has shown that while there might be cases of individual middlemen hoarding essential commodities, as claimed by the president, other important factors contribute substantially to increase in the prices of food items in the country.

    The researcher produced this fact-check per the Dubawa 2021 Kwame KariKari Fellowship partnership with SaharaReporters to facilitate the ethos of “truth” in journalism and enhance media literacy in the country.

  • 2021 Nigerian Budget: The nexus between recurrent expenditure and economic growth in Nigeria

    On Thursday, October 8th, President Muhammadu Buhari presented the 2021 budget estimate to a joint session of the Nigerian National Assembly. The budget expenditure was estimated at N13.08 trillion, the highest Nigerian budget so far (especially when compared to the previous 2020 budget of N10.59 trillion). Hours later after the presentation, the House of Representatives approved the total expenditure of the  N13.08 trillion 2021 budget, which covers the Medium Term Expenditure Framework (MTEF) and the Fiscal Strategy Paper (FSP). The 2021 budget is titled by the President as ‘Economic Recovery and Resilience’   aimed at promoting economic diversification and improving social inclusion. 

    Since independence, various government expenditure reforms have been implemented to raise and sustain the economic growth rate of the country. The public sector contributes to GDP growth rate through the provision of government services, such as education, health and administration, and productive activities in areas of agriculture, manufacturing, transport and communication, and trade. The government plays a leading role in determining the pattern of financing its operations through public sector reforms, which in turn determine how much of the country should borrow and how those resources should be allocated in order to enhance economic growth. The main government expenditure strategy has been restructuring and rationalizing overall expenditure. However,  amidst all this, the recurrent expenditure keeps rising in almost every Nigerian annual budget. According to the Central Bank of Nigeria (CBN), the Nigerian recurrent expenditure stood at N4.85billion in 1981, increased to ₦36.22 billion in 1990, then ₦127.63 billion in 1995. It was ₦178.10 billion in 1998. Then on return to democracy in 1999, there was an astronomical rise to ₦449.66 billion. In 2003, it stood at ₦984.3 billion to ₦1110.64 billion in 2004, and then almost doubled in 2008 at ₦2117.36 billion. In 2012, it was ₦4004.46 billion and rose to  ₦4892.36 billion in 2015, rising further to  ₦5762.7  billion in 2016 and to  ₦7138.7 billion in 2017.  

    Nonetheless, besides the continuous rise in recurrent expenditure over the years, there is an alarming projected inflation rate of 11.95%, and the GDP growth rate of 3.00% that was considered in the budget presented. Thus, Dubawa looks at the nexus between the recurrent expenditure in the budget and the growth of the Nigerian economy. 

    The implication of Recurrent expenditure in the Nigerian budget 

    Recurrent expenditure is a recurring spending on items that are consumed for a limited period of time. In the case of the government, recurrent expenditure includes wages, salaries, and expenditure on consumables – stationery, drugs for health service, among others. Increasing recurrent expenditure remains a challenge to many governments because the government is a major consumer of goods and services in the economy. 

    Some economic analysts have made recommendations that the capital expenditure in a budget should supersede the recurrent expenditure in a budget, if there is to be economic growth. The recurrent expenditures are recurring in nature, whose benefits last for only a limited period which includes, salaries and pensions, the cost of governance (which has been a major source of controversy), etc. 

    The 2021 budget presented by President Buhari includes N5.65  trillion recurrent expenditure, about 43% of the entire budget, plus personnel cost of N3.76 trillion, and debt service of N3.12 trillion. The trend in the budget appears to continue  rising; from 2011 to 2020 the cumulative Federal Government personnel costs–pensions, and gratuities rose to about N20 trillion, thus pushing the recurrent expenditure for the 2020  budget to N4.84 trillion (around 45% of the total budget). 

    In 2019, the recurrent expenditure also gulped 45.75% of the budget at N4.040 trillion. Though there seems to be a little drop in the percentage (43%) of the 2021 recurrent expenditure,  the amount of money is still higher at N5.65 trillion as compared to 2020, 2019, and the previous budgets. 

    The recurrent expenditure continues to form a colossal part of the Nigerian budget, as it currently outstrips the capital expenditures with almost double its size.  Nonetheless,  some findings explained that this reality may not be the best for the Nigerian economy.

    Impact of Recurrent expenditure on the economy 

    According to a study by the Nigerian Institute of Social and Economic Research on the rising government expenditure in Nigeria,the only way to bring about a meaningful influence on the economy is to monitor and evaluate funds that are specially intended for capital expenditure and capital projects.” The study further implied that a budget with a higher capital expenditure than recurrent expenditure will always yield a better economy. This assertion was backed by another research carried out by a group of economic analysts on  “the empirical retrospect of the impacts of government expenditures on economic growth: new evidence from the Nigerian economy” published in the Journal of Economic Structures, the research revealed that “recurrent expenditures of government were found to be significantly impacting on economic growth in a negative way.”

    Though another study also suggested the negativity of recurrent expenditure to the Nigerian economy, it also concludes that “we cannot simply measure effectiveness by “Capital” and “Recurrent,” the real measure is “impact” viz-a-viz costs. The Federal, State, and personal budget must have an impact as the key driver.”

    According to Prof. Akpan Ekpo,  Professor of Economics at the Akwa Ibom State University, “it would be important for the government to increase its capital and recurrent expenditures, because of the need to stimulate consumers’ aggregate demand during the recession by enabling them to have money to spend. But there should be a more proportionate increase in capital expenditure than the recurrent expenditure. This will take care of the demand side. So, it is time for stimulus and not a time for austerity. Government has to pump money into the economy to reflate it.”

    Similarly, Dr. Jakes Bomede of Department of Economics, Bingham University, further explained that “The trends in government borrowing and recurrent expenditure have tremendously increased in the recent years; if Government must borrow, it should borrow to invest into public projects that are growth-promoting in any part of the country without political coercion. Possibly there is an enormous lack of accountability of public expenditures by government officials especially in handling public borrowed funds and this could explain why recurrent expenditure components have always been seen to retard growth. Those who hold powerful positions should account for every kobo that is invested in any project. The More we borrow the more we pay higher depts servicing which amounts to large sums of money. This gives rise to recurrent expenditure which is not good for any economy because it attracts inflation, currency devaluation, and eventually poor foreign exchange rates. It perhaps explains why inflation in Nigeria has gone spiral within the years.”

    These findings appear to send a warning over the rising trend of recurrent expenditure in Nigeria. 

    Conclusion 

    The President has already warned Nigerians about the likelihood of another recession with ‘adverse consequences’ and the 2021 budget also seems to carry such indications. According to the President, the deficit in the 2021 budget will be financed primarily by new borrowings totaling N4.28 trillion,  the highest loan so far in a Nigerian budget. The projected inflation rate at 11.95% and the GDP of 3.00%   in the 2021 budget is not a good sign and may only make the recurrent expenditure worthless because salaries and the general flow of money though may increase, will only pay for fewer goods and services.  In essence, when a high inflation rate meets with high recurrent expenditure the result is usually bad for any economy.

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