Home Economy Inflation has eroded profit, drop in sales, lower capacity in Nigeria manufacturing—CPPE

Inflation has eroded profit, drop in sales, lower capacity in Nigeria manufacturing—CPPE

by Business News Report

The Chief Executive Officer of the Centre for promotion of private enterprise in Nigeria Dr Muda Yusuf has said that rising inflation in Nigeria has resulted in the escalation of production and operating costs for businesses, leading to erosion of profit margins, drop in sales, decline in turnover and weak manufacturing capacity utilisation, high food prices which impacts adversely on citizens welfare and aggravates poverty. He said that it has also lead to weak purchasing power in the hands of Nigerians which has implications for aggregate demand and price volatility which undermines investors’ confidence.

Yusuf said the drivers of inflation in Nigeria are exchange rate depreciation which has a significant impact on headline inflation, especially the core sub index; liquidity challenges in the forex market affecting access to manufacturing and other inputs; security concerns disrupting agricultural activities; climate change effects on agricultural production; structural constraints affecting productivity in the agricultural value chain; high transportation costs affecting distribution costs across the country. This is also reflected in the huge differential between farm gate prices and market prices.

Others according to him include high and increasing energy cost; monetisation of fiscal deficit [CBN financing of deficit] is highly inflationary because of the liquidity injection effects on the economy; high transactions costs at the nations ports increases production and operating costs of businesses; high import duty on intermediate goods and raw materials; aggressive revenue drive by government agencies, taking a toll on cost of production.

He said “The National Bureau of Statistics has reported a marginal drop of 0.87%, in headline inflation from 16.47% in January 2021 to 15.60% in January 2022.  However, on a month on month basis, there was an uptrend in general price level by 1.47% between December 2021 and January 2022. Urban inflation remained high at 16.17% while rural inflation remained subdued at 15.06% in January 2022. Meanwhile, food inflation, which has a significant impact on poverty and the poor, remained elevated at 17.13%.  Food prices further increased by 1.62% between December 2021 and January 2022, indicating that the uptrend in food prices is yet to abate. The Core inflation, driven largely by imports, maintained an upward trend. It accelerated by 13.87% in January 2022 as against 11.85% in the corresponding period of 2021. Between December 2021 and January 2022, there was a 1.25% increase in prices, driven largely by core component of inflation. This was largely a reflection of the impact of the depreciation in the naira exchange rate and the liquidity issues in the forex market. Although the economy recorded a marginal decline in headline inflation in January, high inflationary pressures continues to be a major worry to stakeholders in the Nigeria economy”. 

To curb the current inflationary pressure, government need to fix the following: address the security concerns causing disruption to agricultural activities. reform the foreign exchange market to stabilise the exchange rate, reduce volatility and stimulate forex inflows; address forex liquidity issues through appropriate policy measures; address the challenge of high transportation and logistics cost; reduce fiscal deficit monetisation to minimise incidence of high-powered money in the economy; manage climate change consequences to reduce flooding and desertification.

He also suggested that government should ensure the restoration of normalcy and good order at the nations ports to reduce transaction costs; reduce import duty on intermediate products and raw materials for industries to reduce production costs, especially in the light of the sharp depreciation in the exchange rate; address concerns around high energy cost and create an investment friendly tax environment. 

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