The Times: Understanding The New Nigeria
2016 has been a year of hardship for most Nigerians. From the 45% increase in the electricity tariff, with tariffs rising from 14N per KWH in 2015 to 23.60 per KWH in Feb 2016, to the fuel price hike from N87 in 2015 to the current rate of N145.
It is important that you understand the current trends in the Nigerian economy, and most importantly the implication of this on your spending habits and business.
The first downward trend in the Nigerian economy is a slowdown of economic growth as depicted in the graph below. The economic growth rate in Nigeria has reached a 25 year low, key drivers of this slow down include: the electricity and gas industry, declining at 44%, the Finance and insurance declining at 11.28% and the manufacturing industry declining at 7.0% . However key to note is that some industries have managed to weather the storm. The Agricultural industry grew at 3.09% in Q1 2016, the broadcasting industry at 6.85%, the transport services at 2.23%.
The Unemployment rate is rising, reaching a high of 12.1% in Q1 2016. With the economic downturn and some companies posting losses, the wave of lay-offs have been rampant in country. In Q4 2015, we saw Nigerian Bottling company lay—off ~1880 staff, Diamond bank lay off 1000, and this trend has continued into 2016 with Zenith Bank recently sacking ~1200 of their staff. This trend is set to continue for the rest of the year.
Inflation reached a high of 13.7% in April 2016, as compared to 8.66% in April of 2015. This means that commodities and services are generally more expensive In Nigeria as is depicted in the graph below. As can be observed from the graph, core food products like onions, garri and rice have experienced a 100%, 36% and 50% increase in price respectively. What is particularly worrying is the implication of this rise on access to food.
Finally the strengthening dollar, with the official exchange rate at 199.5N/$, while the parallel market rate rose to as much as 400N/$ in Feb 2016 finally settling at ~ N315/$ in March 2016. Very few people have access to this official rate, thus traders are often forced to buy foreign exchange from the parallel market to purchase raw materials and finished products, thus leading to a rise in the cost of doing business. Additionally this system encourages arbitrage as those with the means, can buy low at the official rate and sell high gaining 100% profit on their exchange.
So what’s our advice to you?
Substitute: It is time to substitute foreign products for Nigerian made products. Even when buying Nigerian made products, one should substitute more expensive options for cheaper ones. For example, I have changed my method of making stew, instead of making a tomato based stew, I have transitioned to the fried pepper Yoruba style stew, as the price of pepper is much cheaper than the price of tomato. For businesses, this is more difficult, but a couple of options are available such as switching your product source from strong currency economies like USA, Europe and the UK to the Asian economies, Turkey etc. where the currency is weaker and thus goods are cheaper . A useful tool for tracking prices and making pricing decisions is standard charter bank price tracker at https://www.sc.com/BeyondBorders/infographics/nigerias-price-trends/
Diversify your portfolio: Despite the economic slowdown in the country, it appears that several industries have weathered the storm including agriculture, transportation services, predominantly markets that get to the Bottom of the Pyramid (BOP). So, diversify your revenue portfolio to include products that get to the masses- even if the margins are small , the volume tends to be large thus making them profitable.
Invest: Asset prices are set to fall in the coming months, it is expected that as a country goes into recession, supply of assets such as houses will increase as people offload some of their assets for access to cash. If you happen to have some available financing, this is the time to invest.
And for the recent reduction in electricity generation plus the rise in fuel prices:
Change your primary source of energy: Utilization of inverters or solar panels as an alternative to fuel powered generators can offset some of the electrical bill while ensuring greater consistency in power supply in homes. So this is the point to switch your primary source of energy.