The latest Consumer Price Index (CPI) report released by the National Bureau of Statistics (NBS) puts Nigeria’s inflation rate at 21.09% in October 2022, a 17-year high. Food inflation also surged to 23.72% in the review month from 23.34% in September, while the core inflation rate rose to 17.76% from 17.6%. On a month-on-month basis, the headline inflation rate moderated to 1.24% compared to 1.36% recorded in the previous month, but higher than the 0.98% recorded in the corresponding period of 2021. The composite index increased due to increases in the core and food inflation rate in the period under review. According to the NBS, the possible factors responsible for the increase in the year-on-year index include disruption in the supply of food products, increase in the cost of importation due to the persistent currency depreciation, and the general increase in the cost of production e.g. increase in energy cost. The rise in the food inflation rate was caused by the increase in the prices of bread, cereals, potatoes, yams and other tubers, and oil and fat.

Global inflationary pressures triggered earlier this year were primarily caused by trade disruption caused by the Russia-Ukraine war, China’s Covid-19 imposed lockdowns and a surge in US consumer spending fueled by government stimulus spending and high oil prices. Learning from the lessons of the great inflation of the 1970s, central banks worldwide responded swiftly by raising interest rates which have hiked borrowing costs and stifled capital flows. The latest inflation data from the US and UK indicates that pressure is beginning to ease slightly. Capital markets have reacted favourably, signalling that investor optimism is returning. However, Nigeria has bucked that trend, with inflation remaining robust despite the CBN’s aggressive rate hike. The reason is that latent fiscal issues are yet to be addressed, including import and currency controls, high insecurity and the impact of widespread floods in key food-growing regions. Nigeria last experienced single-digit inflation in 2015. For virtually all of the current Muhammadu Buhari administration, inflation has been at double-digit levels, with food inflation even higher. This represents a destruction of economic value, with many Nigerians unable to afford most items and increasingly even the cheaper substitutes they switched to in this high inflationary environment. It is sad because many reasons inflation is double-digit are policy issues within the government’s control. For example, the limited capacity of strategic food reserves means that global shocks in the supply chain are easily transmitted into the Nigerian economy. In addition, measures like making forex officially unavailable for food imports and shuttering borders solidified Nigeria on this high inflationary path. Remarkably, the inflation in Nigeria is not driven by the fact that more Nigerian money is chasing goods – essential goods have become more expensive. For a country where 84% of its people cannot meet daily nutritional needs, high food prices only complicate a muddled picture. Nigeria’s policy priority must shift from an expensive obsession with self-sufficient production to making food cheap, available and resilient from supply shocks. Otherwise, the road to recovery will be a long and painful one.

Salaries and wages in Africa’s biggest economy grew in the second quarter of 2022 at the slowest pace since Q3 2020, when the country plunged into the COVID-19-induced recession, a BusinessDay analysis of official data shows. According to new data from the National Bureau of Statistics (NBS), the compensation of Nigerian employees (wages and salaries) in real terms fell to 3.93 percent in Q2 from 6.48 percent in the previous quarter. It dropped by 15.51 percentage points on a year-on-year basis from 19.44 percent in Q2 2021. Analysts attributed the slow growth to the high cost of doing business which has been elevated by energy prices and foreign exchange (FX) volatility, high base effect, and the talent exodus from the country, popularly called ‘japa’ (a Yoruba word for “run quickly”). “Industry players continued to face higher costs of operation arising from increased input costs, given the depreciation of the naira, FX liquidity constraints, and structural rigidities,” Cordros Securities said in a recent consumer goods report. Nigeria’s inability to supply and distribute sufficient electricity has left manufacturers at the mercy of alternative energy sources, such as generators that consume diesel and petrol, which takes 40 percent of the total production cost, according to the Manufacturers Association of Nigeria (MAN).

It is challenging to sugar-coat the reality that the Nigerian economy is hurtling towards a Hail Mary moment. The oil sector, which traditionally makes up to 70% of government revenues, has been shrinking due to a lack of investment which has seen production drop by more than 60% over the past decade. As an investment destination, Nigeria is dogged by a perception of being a difficult place to operate a business. Key constraints include infrastructural constraints, particularly around logistics, utilities and transport, and other business constraints – policy uncertainty, distribution channel complexity, insecurity, corruption, finance cost and availability. In the past, much praise has been heaped on the resilience of the informal sector, which serves most of the country’s population. However, that sector is bearing the brunt of inflationary pressures as the spending capacity of consumers has eroded to the point where workers’ wages cannot even meet basic needs, let alone discretionary spending. A 2019 SBM report showed that 63% of Nigerians have nothing left to spend after taking care of food, and with the current inflation figures, more people would have been plunged into that net. It is within this economic paradigm that wage stagnation has thrived, often underreported as the spotlight is usually beamed on unemployment and underemployment numbers. While these two issues deserve the significant attention they receive, wage stagnation for those who remain employed is a real issue with economic costs. The employed segment of the population often becomes an income source for the unemployed and underemployed, and their already strained wages come under more pressure by these demands. A vibrant and well-paid workforce that forms the middle class should constitute the bulk of an economy’s purchasing power – however, eroding wages have hollowed out the Nigerian middle class and, by extension, plunged effective purchasing power that forms the basis of corporate earnings and value creation, perpetuating a vicious cycle of declining wages, unemployment and diminishing productivity. Breaking out of that trap will be critical to changing the outlook of Africa’s largest economy.

The Shura Council of the Islamic State of the West African Province (ISWAP) has banned the naira as a means of transaction for the illegal tax it collects from peasant farmers and fishermen, Daily Trust reports. The move appears to be a reaction to the Nigerian government’s move to redesign and reissue higher denominations of its currency. According to the Central Bank of Nigeria (CBN), the ₦200, ₦500, and ₦1000 notes will be reissued by December and by 31 January 2023 the old notes will cease to be legal tender. The paper, citing Zagazola Makama, a counterinsurgency expert in the Lake Chad region, said this move threw the ISWAP population in the Tumbus of Lake Chad into confusion and prompted the switch to the West African CFA, a currency used by most of Nigeria’s neighbours. ZagaZola, according to the paper, said the terrorists also banned all Nigerian fishermen, herdsmen and farmers from sneaking into the Lake Chad area through Marte, Abadam, and Gamborun Ngala to prevent the naira from reaching terrorist camps. Ibn Umar and Malam Ba’ana, the ISWAP militant commanders in charge of taxes and levies, who imposed the ban, said the people were only allowed to come through safe routes established by the terror group – Bulgaram, Cikka, Guma, Maltam, Doron Liman and Ramin Dorina villages in Cameroon. In exchange, ISWAP collects 1,500 West African CFA Francs as monthly taxes from the people who appear willing to pay. They have also secured trade routes for merchants to enable them access food, weapons, fuel and other logistical support items.

ISWAP’s caliphal ambitions continue to grow at a frenetic pace that is leaving policymakers panting at its pace. About a year ago, the group announced a new Wali or legal guardian for about half of Borno. The announcement prompted state governor Babagana Zulum to announce that he is still governor of the whole state. In January, the group announced Gudumbali (headquarters of Guzamala LGA) as its new headquarters – a move that solidified its territorial expansionist intent. On face value, the proposed naira redesign is problematic for Nigeria’s shadow economy, as hostage negotiator Sheikh Ahmad Gumi noted, saying it would make kidnappers seek ransoms in dollars and other foreign currencies. However, a deeper look shows that having cash out of financial institutions is just one part of a broader economy built on terror proceeds. Kidnappers have been known to receive ransoms through formal financial channels, including banks, with minimal hindrance from the Economic and Financial Crimes Commission (EFCC). In this case, the resort to the use of foreign currencies such as the CFA France should be seen as a protest–not against the naira’s redesign, but against the last vestiges of the Nigerian state in occupied territories. For all intents and purposes, ISWAP has checked out of Nigeria, and this pivot is its most potent sign. On the Nigerian side, successive government announcements that it still controls areas under ISWAP superintendence have met a reality check. If there is any lesson to be learned from this, Lord Tywin Lannister’s maxim “any man who must say ‘I am the king’ is no true king” is one that Abuja and Maiduguri should note.

The federal government has been prohibited from selling the shares of Nigeria Air to Ethiopian Airlines, by a Federal High Court in Lagos. The temporary injunction was given in a suit marked FHC/L/CS/2159/2022 and filed by registered trustees of the Airline Operators in Nigeria (AON), Azman Air Services Limited, Air Peace Limited, Max Air Limited, United Nigeria Airline Company Limited, and Topbrass Aviation Limited, the plaintiffs. The suit had Nigeria Air, Ethiopian Airlines, the Minister of Aviation – Hadi Sirika; and the Attorney-General of the Federation (AGF) – Abubakar Malami; as the first to fourth defendants. In the enrollment order dated 15 November and seen by The Cable, A. Lewis-Allagoa, the judge, said the government, represented by the Aviation minister, and the AGF should not proceed on an “establishment agreement” until the substantive matter of the suit is heard and determined. While asking all the parties in the suit to maintain “status quo”, the judge ordered an accelerated case hearing. The Plaintiffs asked the court to award them ₦2 billion in damages and order a perpetual injunction restraining the federal government from transferring the shares and operations of Nigeria Air to Ethiopian Airlines.

The litigation on this is pretty straightforward. Nigerian airlines have instituted legal action primarily to protect their turf from competition. The first pockmarked point on the tarmac is the structure’s composition that birthed Nigeria Air. Ethiopia Airways has an Africa expansion master plan to expand its services across as much Africa as possible. It has entered into partnerships with eight airlines in other countries. The carriers in these countries have become subsidiaries of Ethiopia Airways. In none of them, however, does the 100% government-owned carrier have up to a 49% stake. Worse still, the Nigerian government only has a 5% stake in the company, meaning it would not have the voting power to decide on routes, management composition and any other policies that would put the country’s needs first. To sweeten the deal further, the government permitted the firm to deploy three Boeing 737 aircraft on domestic routes with Ethiopian crew at no discernable financial gain to the country. Virgin Nigeria had the same favours extended to it during its turbulently short stay in Nigeria. It did not end well. On such terms, domestic operators, who have a business interest that Mr Sirika says has been taken into consideration to protect, could face a pricing war with Ethiopian Airways, which they are bound to lose. Foreign airlines access loans at concessionary rates of 1.5 to 3% spread over 25 years. In part, because of the capital-intensive nature of aviation and domestic macroeconomic considerations, no Nigerian operator has (or can) access such favourable considerations from any financial institution. Take the biggest domestic carrier, Air Peace, for instance. It doesn’t fly enough routes to take dollar-denominated loans that would burden it with more forex commitments than it already has to keep up with while racking up earnings in naira. Aside from potentially chasing out Allen Onyema from the domestic market, Ethiopian Airways does not have the incentive to run a successful Nigerian Air international route for the simple reason that it would harm the parent company. The airline already has an air service agreement to operate from Nigeria’s four international ports. Operating a successful international carrier from Nigeria would mean cannibalising the sort of transit traffic through Addis Ababa, which is critical to maintaining Ethiopian’s competitiveness with the Gulf carriers – Emirates, Etihad, Qatar – as one of the world’s premier ‘super connectors’. The airline’s vision is to establish its footprint in domestic markets across Africa and reduce the international market share of foreign and Gulf airlines. Nigeria has had eight failed attempts to have a national carrier. There have been two successful ones (if successful is narrowly defined as getting off the planning stage), Nigeria Airways and Virgin Nigeria. The first attempt was to help reduce Nigeria Airways’s insolvency in 1992 by focusing it on the domestic market and creating an international carrier called Nigeria Air to run international routes. It was the second attempt globally to run a privatised national carrier after the successful privatisation of British Airways. The move was alien to the mostly unprepared staff of Nigeria Airways, who, together with the then government’s narrow political interests, scuttled the well-conceived initiative mapped out by then Nigeria Airways MD, Mohammed Joji. Some staffers went as far as vandalising an automated ticketing system to keep the manual boarding pass structure that was the bedrock of the company’s infamous graft and corruption. Between 1999 and 2003, the country saw four failed moves at launching an air carrier. The first was a plan to create an entity simply called Newco as a transition away from the heavily indebted Nigeria Airways. Olusegun Obasanjo invited the International Financial Corporation (IFC) to design a technical plan and advise the government on how to approach take-off. The team came up with three options, including Newco, which was adopted. Acting on a rumour that Vice President Atiku Abubakr, who interfaced with the consultants in his role as head of the National Committee on Privatisation, was manoeuvring to head Newco, Mr Obasanjo began unscrewing the process he had started. He acted inversely to all the suggestions put forth by the IFC for Newco to emerge. The IFC did the logical thing and walked away. The then aviation minister, Kema Chikwe, took advantage of the void and attempted two moves of her own. The first was with two suspect personalities from Pakistan, who floated Air Wing Aerospace company in the UK with just a pound. Although they had no capital, she gave them six prime Nigeria Airways properties to use as collateral in raising funds for Air Nigeria from local banks. The lack of due diligence by the minister was exposed by the House of Representatives, and the plan was scuttled. Her next move, Nigerian Global, was botched by the Nigeria Labour Congress and some of the government’s cabinet members, including the vice president, finance minister and defence minister. Chikwe’s successor, Isa Yuguda, invited economist Bismarck Rewane to help float a carrier that sought to work with then-fledgling South African Airways as technical partners. Mr Obasanjo undercut that effort himself by bringing in Richard Branson without telling Mr Yuguda. A $200 million loan guarantee backed Mr Branson’s effort from domestic financial institutions tied to seven leased aircraft. The team brought in management that had no Nigerian interest. By the time it left, it had racked up a debt of ₦35.5 billion, which was sold to AMCON. When Mr Branson effected a pull-out, the Chief Operating Officer of Virgin Nigeria, Dapo Olumide, stepped up to save the firm from total collapse. While he worked to restructure the loans and terms of the leases, UBA, who owned the company’s debentures, negotiated to sell the firm to Jimoh Ibrahim. The company, which morphed into Air Nigeria ultimately failed. The final attempt before President Buhari came on board, was Nigeria One, proposed by Stella Oduah, an aviation minister under Goodluck Jonathan. It never materialised. The essence of this long treatise is to make the obvious point – the mistake Mr Sirika is determined to make has already been made and is not worth repeating. These sorts of efforts add to the cost of doing business in this part of the world.