What is Buhari doing wrong that is resulting in runway inflation in the slightly more than one year he has been in office? For more than 10 years, inflation has largely been kept at a single digit rate in Nigeria until Buhari came to power and now suddenly inflation is galloping and threatening to go back to the 80s and 90s level when Nigeria had high double digit inflation rate. In May 2015, when Buhari was sworn in, inflation stood at 9% but has since risen steadily to its current high level of 16.5%.
Many Nigerians, who visit the open market to buy food items, immediately come face to face with the devastating impact of inflation as they immediately realize that their money cannot buy as much foodstuff as they could buy a year ago. Many women have become emergency planners in the market as they juggle their budget to try and get as much food as possible to feed their family. Sadly, their husbands will not entertain any plea for increase in housekeeping allowance since income has not changed despite the significant rise in prices.
So what has gone wrong under Buhari that has led to a steep increase in prices of goods and services in the last one year?
Fuel scarcity
The first wrong move was not being to stop the multiple scarcities of fuel that began late 2015 and continued into early part of 2016. The fuel crisis were so severe that it almost crippled economic activities and caused a sharp rise in transportation costs across the country, which also translated immediately to higher cost of, especially foodstuff across the country.
Electricity tariff hike
On February 21, the Federal Government approved a hike in electricity tariff across the country by as much as 45%. In February, when the new electricity tariff was announced, the inflation rate stood at 11.4% but by March, following the implementation of the new electricity tariff structure inflation had jumped to 12.8%. Electricity is key component of the cost structure of households and businesses in Nigeria and therefore had an upward push on inflation.
Foreign exchange crisis
The decision by the Central Bank of Nigeria (CBN) to ration foreign exchange to manufacturers and the ban of 41 items from accessing foreign exchange also pushed up cost of goods and services in the market. The decision to ban 41 items forced manufacturers, who needed the banned items, into the black market to source for their foreign exchange. This resulted in an increase in demand for dollars in the black market, which resulted in a sharp fall in the value of the dollar to between N350 to N400. With a greater majority of importers accessing their dollars from the parallel market, this resulted in a sharp rise in imported goods in the open market and its subsequent impact on even non-imported goods and services.
Also the ban on 41 items, which included commonly, consumed items like rice and fish resulted in sharp rise the prices of these items in the open market. A bag of rice, for example has almost doubled in price while the price of fish has also risen sharply.
Hike in fuel price
On 11 May, the Federal Government announced that fuel will now sell at N145 per litre, a 67% increase from the previous price of N87 per litre. The immediate impact of the new fuel price was the immediate rise in inflation rate from 13.72% in April to 15.6% in May. Though, the increase in fuel price came at a time many Nigerians were already buying fuel well above its official price, the Lagos axis which hosts a larger proportion of Nigeria’s economic activities were still largely enjoying subsidized fuel, until the new fuel prices removed that subsidy. This therefore had an immediate impact on national inflation.
Lack of an economic direction
Lack of a clear economic direction from the Buhari government is perhaps the biggest driver of inflation in the country. Faced with a crippling energy crisis, dwindling government revenues, rising inflation and unemployment, foreign exchange scarcity, there is no clear articulation from the government of how it intends to resolve these multiple issues bringing down the Nigerian economy.
Instead, what Nigerians get from the government is the often repeated cliché “we are diversifying the economy” which is actually meaningless since the Nigeria economy is actually diversified. It is the government that needs to diversify its sources of revenues to take advantage of a diversified Nigerian economy. For the government to do that it needs an economic plan and right now it cannot show any and cannot win investor’s and business confidence without an economic plan.
