The impact of the oil price crash on the poor in Africa’s top crude producer can be traced through the cost of one household staple: the Maggi stock cube.
Holding up a handful of the red and yellow foil-wrapped cubes, Grace, a market vendor in the village of Chukuku, an hour’s drive from the Nigerian capital, reports that she sells 3 cubes for 10 naira (about 5 US cents at the official rate). Less than a year ago, the 10 naira note bought 4 cubes, she says.
The sliding value of the naira means villagers are buying less, says Samuel Luku, principal of the local junior high school. He and wife have four children and a varying number of other “dependants” — poorer relatives — to feed.
“We are eating less meat and less of everything. It’s almost like a stomach adjustment programme,” he quips. “Things are really so hard in this country.”
Economists and businesspeople blame the government’s monetary policy for the food-price inflation hitting Mr Luku and millions of other Nigerians. The central bank last week decided to maintain the value of the local currency at 197-199 to the dollar and keep in place foreign exchange restrictions imposed last year.
President Muhammadu Buhari subsequently issued a statement saying that devaluing the naira would be like “killing” it. However, economists say a devaluation is inevitable given the country’s balance of payments crisis. They argue the delay is harming the country’s poor.
The current situation where we haven’t devalued, where we don’t have enough dollars, has already created an inflationary impact being felt by the rural masses
“The devaluation debate suggests that there will be an inflationary impact in the country once we devalue. However, the current situation where we haven’t devalued, where we don’t have enough dollars, has already created an inflationary impact being felt by the rural masses,” says Ike Chioke, group managing director at Afrinvest, a Lagos-based investment banking firm.
Multinationals including Nestlé, the maker of Maggi cubes, are “finding it very difficult to source foreign exchange” to buy imported raw materials they cannot get locally says Omair Ansari, a frontier markets consumer analyst at Renaissance Capital. Their local partners are having to buy some of the dollars they need from the black market at a 50 per cent premium — a cost they are passing on to consumers.
“Because the market is not open, inflation is already feeding through when it comes to locally sourced raw materials,” Mr Ansari says. “The real economy is being stifled and inflation is happening anyway for the consumer who is not able to spend because of his reduced income.”
Nestlé did not respond to an emailed request for comment on Monday. Other multinationals, such as Guinness Nigeria, are also feeling the pain. Nigeria’s second-biggest beer brewer on Monday reported its net income for the past six months to December fell 66 per cent.
By contributing directly to the shortage of foreign exchange, policy may already have played a key role in driving up prices
The price pressure hitting consumers has increased noticeably since capital controls were imposed in June, says Razia Khan, head of Africa research at Standard Chartered bank, which has been tracking the prices of food and drinks since August 2014, shortly after the oil price slump began.
The cost of goods including sugar, flour and cooking oil has “all increased much more than would be the case in a supposedly slowing economy”, she says, linking the quick pace of inflation to “policy choices, rather than economic fundamentals”.
Ms Khan adds there is no compelling evidence to believe that the poor would be significantly disadvantaged by an official devaluation.
“Pricing is already influenced by a host of other factors. Maintaining the relative fiction of an unchanged official FX rate does little to change this. By contributing directly to the shortage of foreign exchange, policy may already have played a key role in driving up prices.”
In Lagos, the commercial capital, Opeyemi Owosho, a 30-year-old entrepreneur, has a message for the president: “As much as we need to conserve our foreign reserves and make ourselves a producing nation, I think the measures taken are killing the manufacturing industry at this time.”
Mr Owosho started his company, which makes gas cooking stoves, last August with $50,000 he won in a government-sponsored start-up contest. His company is the only one in Nigeria manufacturing stoves locally, but he relies on imported steel plates.
His operating costs have shot up due to foreign exchange shortages. He started out with 14 employees producing 700 stoves monthly but two months ago was forced to lay off eight workers and now is able to produce only 500 stoves per month.
“I’m finding it very difficult at this time to stay afloat,” he says.
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