- Poverty hits hard, Nigerians cry out
- Infrastructure: U.S. fund manager to raise $2bn for Nigeria
Inflation accelerated to 15.6 percent in May, its highest since February 2010, and the fourth monthly increase in a row, depicting deepening crisis in Nigeria’s troubled economy.
The negative impact of this rise in inflation has manifested in unbearable poverty, which has enveloped the entire country’s landscape with many citizens unable to afford to buy basic food items due to skyrocketing prices.
Economic analysts say if something urgent is not done by the government to check the prevailing hunger in the land, some citizens may be pushed to engage in anti-social vices that are inimical to progressive development and growth of the country.
The National Bureau of Statistics, NBS, while releasing the data in Abuja yesterday said it reflected higher prices for electricity, transport and food, a separate index for which rose to 14.9 percent from 13.2 percent in April.
It said “The increase in rates in May relative to April reflects an overall increase in general price level across the economy”.
However, amidst this economic turmoil is the cheering news that the U.S. fund manager, Pecora Capital said on Tuesday it will raise $2 billion over the next 18 months for Nigerian infrastructure projects, a rare show of investor confidence during a period of deep crisis in Africa’s largest economy.
Explaining how the inflation in May spiked, the NBS said “Year on year, Electricity rates as well as other energy prices continue to manifest as key drivers of the Core component of the CPI. The Core sub-index increased by 15.1% in May, up by 1.7% points from rates recorded in the previous month. During the month, the highest increases were seen in the Passenger Transport by Road, Liquid Fuel (kerosene), Fuels and Lubricants for Personal Transport Equipment (Premium Motor Spirit) and Vehicle Spare Parts groups.”
It noted that imported foods as well as a drawdown of inventories across the country continue to push food prices higher.
“The Food sub index increased by 14.9% in May, up by 1.7% points from rates recorded in April as all major food groups which contribute to the Food sub-index increased at a faster pace driven by higher food prices in Fish, Bread and Cereals, and Vegetables groups for the second consecutive month. In addition, the Imported Food sub-index increased by 18.6% in May, 2.2% points from rates recorded in April.
“Month-on-month, after a brief respite in rates in March and April, the rates recorded by the Headline Index increased at a faster pace in May. The index increased by 2.8%, up by 1.1% points relative to rates recorded in April.
“Year on year, both the Urban and Rural indices recorded marked increases for the fourth consecutive month in May. The Urban index rose by roughly 2.1% points from 15.1% to 17.1%, while the Rural Index increased by 1.6% points from 12.8% in April to 14.3% in May. On a month-on-month basis both the Urban and Rural indices increased at a faster pace. The Urban index increased by 0.8% points from 2.2% in April to 3.0% in May. In addition, the Rural index increased by roughly 1.1% points from 1.4% in April to 2.4% in May.
“The percentage change in the average composite CPI for the twelve-month period ending in May 2016 over the average of the CPI for the previous twelve-month period was 10.7%, higher from 10.2% recorded in April. The corresponding twelve-month year-on-year average percentage change for the Urban index increased from 10.5% in April to 11.2% in May, while the corresponding Rural index also increased from 9.9% in April to 10.4% in May,” said the NBS.
Explaining further, the NBS said increased prices of both domestic and imported food products continue to drive food prices higher.
The index increased by 14.9% (Year-on-year) during the month of May, 1.7% points higher from rates recorded in April. All groups which contribute to the index increased with the highest increase recorded in the Bread and Cereals group which increased from 14.5% in April to 16.6% in May. On a month-on-month basis, the Food sub-index increased by 1.3% points from 1.3% in April to 2.6% in May.
The NBS noted that “On a month-on-month basis, the highest price increases were recorded in the Bread and Cereals; Vegetables, and “Sugar, Jam, Honey, Chocolate and Confectionery” groups. The average annual rate of change of the Food sub-index for the twelve-month period ending in May 2016 over the previous twelve month average was 11.2%, 0.4% points from the average annual rate of change recorded in April.
“The “All items less Farm Produce” or Core sub-index increased by 1.7% points from 13.4% in April to 15.1% in May. All key divisions which contribute to the index increased at a faster pace during the month, reflecting a general increase in price levels across the consumer basket. On a month-on-month basis, after slowing for two consecutive months, the pace of increases recorded by the Core Index picked up in May.
“The index increased by 2.7%, 1.0% points from rates recorded in April. In May, on a month-on-month basis, the highest price increases were recorded Electricity, Fuels and Lubricants for Personal Transport Equipment, and Furniture and furnishings groups amongst others. The average twelve month annual rate of rise of the index was recorded at 10.2% for the twelve-month period ending in May 2016, roughly 0.6% points higher from the twelve month rate of change recorded in April (9.1%)”.
Meanwhile, President Muhammadu Buhari is trying to attract foreign direct investment to help support an economy that slipped into contraction in the first quarter this year as lower oil prices hammered Africa’s largest crude exporter.
A string of attacks on oil pipelines by militants in the restive Niger Delta has compounded Nigeria’s economic problems and many investors have complained about the poor current business environment.
“As a long-term investor we see a time of crisis as an opportunity,” Aaron Smith, Managing Director of Pecora, told Reuters. He expected the fund to achieve returns of 25 percent a year over its 7-year lifespan.
A more than halving of oil prices since 2014 has sapped the supply of foreign currency in Nigeria, making it difficult for businesses to import basic equipment or for foreigners to repatriate dollars, raising the risks for investors.
Nigeria still relies on oil exports for around 90 percent of foreign exchange earnings and 70 percent of government revenues.
“I understand that is a concern and we’ve thought about it but we definitely don’t foresee over the timeframe we’ve set out that we’ll have any problems getting money out of the country,” Smith said.
“The fundamentals and demographics in Nigeria, in terms of population, in terms of infrastructure deficits, all offer huge opportunity and the availability of high returns.”
Pecora is a privately-owned firm and does not disclose its assets under management or previous performance, he said.
Smith said areas of possible investment included agriculture, telecommunications and transport as the fund hopes to take advantage of the huge demand for improved infrastructure in a country of around 190 million people.
The Nigerian fund will be based in the Cayman Islands and hopes to attract investment from the U.S., Asia and Europe.