Subsidy removal, inflation, others threaten Nigeria’s economy in 2022
…As politicking for 2023, Omicron, portend dicey possibilities
By Moses Adeniyi, Uthman Salami, Seun Ibiyemi, Abimbola Abatta
Key indicators giving projection to the expectations from Nigeria’s economy in 2022 have shown that subsidy removal policy, projected rise in inflation, and inconsistency in Naira’s exchange rate, among others, are strong forces which pose threats to the performance of the economy.
This is just as such indices as the newer variants of COVID-19 (Omicron particularly) and the 2023 pre-election politicking have been noted to pose dicey dynamics before the economy in the Country.
From the health sector, it is projected that further strains posed by Omicron variants which have begun to force changes in travel policy across the globe may pose unforseen circumstances for the economy.
Sectoral expectations
From the oil and gas sector, it is expected that strains from hike in fuel prices may hit hard on the economy following removal of subsidy by the Government.
In his perception on the projection from the oil and gas sector, the Chairman and Chief Executive Officer (CEO), International Energy Services Limited, Dr. Diran Fawibe believe fuel scarcity would only surface as a result of government removal of fuel subsidy, with strains of scarcity of petroleum products.
According to him, “The issue is that if there’s going to be fuel scarcity it is in the fact that government is trying to stop subsidy. If government is stopping subsidy, this will cause some disruptions with regards to importation of product.
“The issue is that if there’s going to be fuel scarcity is in the fact that government is trying to stop subsidy. If government is stopping subsidy, this will cause some disruptions with regards to importation of product.”
Questioning the eventual removal of subsidy, he said “If government stops subsidy, who is going to be importing? Is it the NNPC? Presently NNPC is doing the sole importation of products.
“And one of the reasons why government wants to stop subsidy is that, government doesn’t want to be funding the subsidy. If government is not going to be funding it, it means that the National Assembly will no longer be appropriating money. And in this regard, the whole situation is still very much cloudy.”
However, he said, “In the process, there could be scarcity resulting from non importation of products. If the government is not providing the money, you will now ask marketers to be importing. Marketers will want to recover their money and that will raise the price of products.
“I believe before government will stop subsidy, the federal government will have to make arrangements to endure the sustainability of products flow. One can never tell. This area is still very unclear.
“Already, the trade union had announced, even though there are some civil society organisation backing government by the traditional hostility of labour and now joining hand together with the student union National Association of Nigeria Students (NANS), it doesn’t give confidence as to importation of products, so the end result will be scarcity of petroleum.”
Threats to Real Estate sector
Reflecting similar perspectives, Experts in the Real Estate believe the sector risks threats from such activities as the pre-election year politicking of 2022, expected impacts of subsidy removal policies and its projected attendant hike in fuel prices.
Giving perspective to the market projections for the year, Real Estate Expert and Managing Director, Realty Point Limited, Debo Adejana, maintained that fuel subsidy and pre-election campaign as well as expected regulations in 2022 are major events that would shape the Real Estate Market in 2022.
According to him, however, the possibilities before the construction market amidst the pre-election activities may pose either positive chances or alternatively negative impacts.
“A few things would define the market. The fuel subsidy removal would have its own effects on prices in the market. This is also pre-election campaign year – that would also have its impact on the market. It’s a 50/50 chance; there may be more activities in the market in the construction space and in some cases, it would also be affected. But as usual during campaign years, some enjoy while some suffer for it.
“The Real Estate Regulatory Council Bill, would hopefully be signed this year. That would also have its effects on regulation. It is expected the market would be better regulated. This is expected to foster cooperation across the built industry because everybody is expected to have input in the legislation,” Adejana said.
Inflation
The World Bank, Centre for the Promotion of Private Enterprise has projected that Nigeria may be among other countries whose inflation rates, foreign exchange market, debt service pressure is expected to persist in 2022.
The bank said the implication is increasing prices of goods which will end up worsening the welfare of Nigerians.
The bank described such inflation rates as the seventh highest among the Sub-Saharan African countries in 2022.
The report added, “If inflation had been closer to the CBN’s goal of nine per cent in 2021, the average Nigeria’s consumption would have been 15 per cent higher, and eight million Nigerians would have not fallen into poverty.
“If double-digit inflation persists during 2022-2023, rising prices will distort consumption, investment, and saving decisions of the government, households, and firms, with adverse ramifications for long-term borrowing and lending.
“Over time, the disproportionate impact of inflation on lower-income households and those working in sectors with low savings (e.g, agriculture) will exacerbate inequality. Ultimately, inflation will not only negatively affect incomes, but also economic productivity and job creation, further constraining the recovery.”
FOREX CRISES
This is just as the Centre for the Promotion of Private Enterprise has stated that the distortions inherent in the foreign exchange market will persist in 2022.
This is according to the Economic Review for 2021 and Agenda for 2022 report of the Centre for the Promotion of Private Enterprise [CPPE] 2022, signed by the centre’s Chief Executive Officer, Dr Muda Yusuf.
The report stated that the challenge of forex to investors in the outgoing year was multidimensional.
According to the report, the FX challenge will be a key issue for investors in 2022. The following are the dimensions of this dilemma:
- The sharp depreciation of the currency depreciation over the last one year.
- The liquidity crisis in the foreign exchange market, which manifests in the acute shortage of foreign exchange in the official window.
iii. Volatility of the exchange rate which creates considerable uncertainty and unpredictability for investors.
The report said “Monetary and foreign exchange policy rigidities may also pose a risk to the growth outlook as there are no indications of any significant shift in monetary and foreign exchange policy stance in the near term.
“Consequently, the distortions inherent in the foreign exchange market will persist in 2022. The constraining effect of the high Cash Reserve Requirement [CRR] on financial intermediation would also persist in 2022 with a dampening effect on the growth outlook.”
The report stated that investors will have to grapple with the barriers to international trade experienced in 2021. “These are problems relating to the Lagos ports, the traffic gridlock, port congestion, bureaucratic documentation processes, extortions and the prohibitive charges by terminal operators and shipping companies which are unlikely to abate in 2022. Investors would have to grapple with these constraints in 2022,” it said.
Impacts of forex which lasted over 2021 with rift between oil marketers and indecisiveness on the part of Federal Government have been projected to portend some impacts on th sector. The row between private depot owners and the Federal Government hinged on dollar payment of dues and levies by marketers.
The rift almost shattered the stability of fuel supply and price across the country, a feat that had been enjoyed for almost half a decade.
