NOT A STORM IN A TEACUP

   Government must put a stop to rural insecurity as it creates room for both food shortages and oil theft, argues Jeremy Gaines

The signs are ominous. A perfect storm may be brewing over Nigeria. One with the potential to severely impact the lives of many ordinary citizens. The origin of the tempest is domestic insecurity, but it is now being fanned by international events, too.

Food prices are excessively high at present. This is in part a response to food scarcity, which is itself in part a response to insecurity. The exorbitant food prices are stoking the overall inflation basket figure. And as inflation rises, so the purchasing power of the Naira falls. As people can buy less and cannot make ends meet, so more people slip into poverty. And poverty breeds desperation, which in itself is a potential driver of insecurity. This is the perfect storm in which insecurity begets insecurity.

Add to this toxic mixture the fact that the Naira’s value against the US Dollar is less than the official rate of N415, which does not reflect inflationary pressures but is artificially set (and has been so for the past 13 months). By contrast, the parallel market rate (and it is the one at which the average Nigerian could acquire dollars) now runs at N585 to the dollar, with implication that imported goods will increasingly become more expensive. And as the CBN runs out of dollars (because suddenly NNPC credits no dollars to the Federal account), so goods either do not come onto the market in the first place as importers cannot raise the foreign currency, or, where they can, prices rise further.

Another factor is fanning the wings of the storm: Energy price inflation, with diesel having now hit N288 per litre, surging by some 60%. The cost of petroleum (PMS), by contrast, has not changed, if only because (like jet fuel) there is almost no petrol to be bought. And that lack of petrol has taken the headlines and worried government. Electricity supply has plummeted recently with social and economic activities adversely affected. Yet simultaneously, electricity tariffs are on a upward trajectory as government has surreptitiously withdrawn the electricity subsidy – a step it was compelled to take by shortfalls in foreign earnings due to falling domestic oil and gas production, and an unsustainable petrol subsidy policy. Once again, two factors combine to darken the thunder clouds still further.

For all those thick black clouds on the horizon, when it comes to the underlying inflation and food scarcity problem, the powers-that-be seem unperturbed. Indeed, the chief helmsman at the CBN even suggests that inflation will fall. He went on record on 21st March as reported in THISDAY newspaper saying:

“And now what we are saying is that if farmers are able to access their farms, do they have the wherewithal to procure the inputs, seeds, fertilizer and other inputs with which they can go back to the farm and farm? We are making all those available. And that is why we still remain reasonably optimistic that food prices would moderate in 2022.”

Unfortunately, words on a printed page do not make something be the case. In this case, a real bread and butter issue. Godwin Emefiele simply omits to mention two sad facts. First, Ukraine is a major exporter of the minerals required for fertilizers and of mineral fertilizer, and one of its main clients is Nigeria. Ukraine has stopped exporting. Second, Russia is Nigeria’s third largest supplier of wheat. And has likewise stopped exporting. Some pundits said Nigeria’s wheat imports were secure, because the US and Canada could pick up the slack – the slack is almost the total amount Canada exports to us, so it is unlikely such a gap can be plugged overnight. Read: shortages. Moreover, what the commentators also fail to mention is that the world price of wheat has risen from USD$800 a bushel at the beginning of the Russian invasion of Ukraine to a current price around US$ 1,100 a bushel. So, the bread on the average Nigerian table will soon start to become far more costly, once forward contracts cease to apply. This can only add to the power of that inflation storm.

A call was heard in light of the pending food crisis to ban exports of maize. This seems a little strange as only a year ago the government, or rather the CBN, lifted its ban on providing US Dollars for maize imports. Possibly, it did so because that ban had led to a 16% rise in domestically produced maize. It certainly did not do so because Nigeria had become a net exporter of maize. Indeed, the country produces about four million metric tonnes less than it consumes. Making exports of the commodity minimal.

What gets forgotten in such a context is how the CBN, by its interventions to promote maize and rice production domestically, itself forced the price of these staples up and helped the storm get underway. On the back of the ban being lifted, the price of maize has risen by 15-20% since the beginning of last year. Given that a Nigerian farmer’s one-hectare field yields just over two tonnes of maize, while his Egyptian counterpart achieves 7.8 tonnes, it seems logical that prices rise when you prevent cheaper foreign product entering the market. Exactly the same phenomenon can be seen in rice production, and the CBN interventions, while increasing local production, once again did damage by pushing the price of rice up significantly.

Leaving aside these two extraneous factors that will cause shortages both in shops and in the fields, breaking the gathering storm of inflation and avoiding the wreckage of people’s lives it will invariably cause, will only be possible if two things happen. One, the government must immediately put a stop to rural insecurity. It creates the environment for both food shortages and oil theft, oil that would otherwise bring US Dollars back to Nigeria. And two, it must abandon its policy of Central Bank interventions that focus on bans to encourage quantity. After all, average Nigerians do not want to “Buy Nigerian” if it means either getting something that is of a far lower quality or simply getting less for the same price. Instead, government must immediately implement policies that focus on quality and higher productivity. Only if government tackles those two issues immediately is there any hope of averting the storm breaking.

Gaines is of the African Politeia Institute, Abuja