Report: Nigeria’s Food Inflation Linked to High External Debt, Naira’s Depreciation

Dike Onwuamaeze

A report has linked the prevailing high food inflation in Nigeria to the country’s growing external debt and devaluation of Naira, irrespective of whether the food is produced domestically or imported into the country.

The report titled ‘How Do Financial Markets Affect the Cost of My Dinner? Nigeria’s Trade Flows, Partners, Global Roles and Vulnerabilities’, authored by Jaume Portell Cano, was presented and during a training on financial journalism organised by the Spanish Embassy in Nigeria in collaboration with the Nigerian Guild of Editors, stated that “the price of our dinner is fundamentally linked to the mechanics of international finance, debt, and global markets.” 

 It also noted that “as Dollar-denominated liabilities increase, any devaluation of the Naira raises domestic food prices, including for staples such as rice.

“This price pressure occurs whether the rice is imported or locally produced, as key agricultural inputs, like fertiliser, natural gas, and gasoline, are globally traded and their price depends on commodity markets.

“A weaker Naira makes these inputs more expensive, impacting farming productivity and transport costs.”

The report also said that “economic diversification and fiscal space to support agriculture are crucial,” emphasising that “without them, commodity exporters remain trapped in boom-and-bust cycles and face worsening terms of trade— effectively needing to sell more soybeans/oil/palm oil each year to purchase a single car or another manufactured product.

“The current status quo is unsustainable and does not benefit these economies.”

The report also stated that Nigeria’s external debts have grown five folds since 2007 when the country was granted debt relief.

It also projected that half of Nigeria’s “debt repayments in 2026 will be interest,” while “42 per cent of repayments between 2025 and 2031 will go to private creditors.   

The report, which relied on MIT Complexity Index tools to place Nigeria in the global economic context, raised questions on what does Nigeria sell, to whom, and how much it earns from this? As well as “what does Nigeria buy and what does this tell us about its economy?”

According to the report, Nigeria’s export in 2023 was $61 billion, which comprised crude petroleum, which earned $43.5 billion and contributed 71.3 per cent of the country’s export trade. The report put global trade on crude petroleum at $1.28 trillion.

Other exports included petroleum gas, 13.7 per cent; gold, 2.52 per cent; nitrogenous fertiliser, 1.73 per cent; cocoa beans, 1.25 per cent and refined petroleum, 1.15 per cent and more.

Nigeria also exported $8.38 billion worth of petroleum gas out of global trade of $565 billion.

The report also stated that Nigeria’s import trade in 2023 was $68.4 billion. Nigeria’s biggest import in 2023 was refined petroleum at $18.2 billion, which is 26.6 per cent of the country’s importation; followed by tanks and armored vehicles, 13.4 per cent; wheat, 4.35 per cent; cars, 2.29 per cent and raw sugar, 1.09 per cent, etc.

Nigeria also imported $706 million worth of medicaments, 48.8 per cent of this import came from India.

Cano noted in the report that “Nigeria exports raw materials in markets where it lacks a dominant position, making it vulnerable to production decisions by larger oil and gas suppliers.

“Meanwhile, it relies on imports of manufactured goods—such as gasoline—that require advanced technology and specialisation.

 “These products are not only more expensive but also have a significant influence on the entire economy.

“Furthermore, when importing essential items like food and medicine, Nigeria must compete in a global market where African countries typically possess limited purchasing power.”

The report noted that the world’s three most traded commodities in 2022 were crude petroleum, $1.28 trillion; cars, $975 billion and refined petroleum, $931 billion.   

 It said: “The three most traded products are linked to fossil fuels and any big change will create global disruptions.”

The report also used the Economic Complexity Index (ECI) that measures the depth of knowledge embedded within an economy.

“For instance, an economy that merely extracts iron ore requires far less knowledge than one that transforms that ore into steel.

“Processing raw materials requires significant investment in infrastructure, education, and technology, as well as a skilled workforce capable of using these tools.

“Consequently, more complex economies create a greater number of high-skill jobs and tend to be wealthier. In contrast, less complex economies require fewer skilled workers and tend to be poorer.

“There are exceptions to this rule. For example, Australia (75th out of 132) and Qatar (78th out of 132) have relatively low-complexity economies with little diversification, yet they maintain a high GDP per capita,” it added.