Economists Propose Measures against Social Unrest amid Rising Inflation

* Identify insecurity, oil theft and forex issues as core triggers

Festus Akanbi and Gboyega Akinsanmi

With the recent rise of the Consumer Price Index (CPI) to 19.64 per cent, experts in public finance and macroeconomics have warned that the trend might trigger socio-political disharmony if the intense inflationary pressures continue to spiral unabatedly.

The experts, however, recommended the need to stabilise the Naira; unlock fiscal liquidity from the country’s idle national assets, and address security challenges nationwide, among others, as measures to avert the impending social tension that might arise from the intense inflationary pressures.

Chief Executive Officer, Economic Associates (EA), Dr. Ayo Teriba; Chief Economist, Standard Chartered Bank, Razia Khan; Group Executive Director, Cordros Capital Limited, Mr. Olufemi Ademola; Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf and Development Economist, Nigeria Labour Congress (NLC), Ms. Hauwa Mustapha canvassed the measures in separate interviews with THISDAY at the weekend.

Amid the worsening insecurity, foreign exchange crisis, and oil theft across the federation, inflation has been on an upward trajectory in the last nine months, rising from 15.4 per cent in November 2021 to 19.64 per cent in July 2022, the highest ever recorded since 2005.

Reacting to the development, Yusuf, a former Director-General, Lagos Chamber of Commerce and Industry (LCCI), specifically warned that intense inflationary pressures could snowball into social unrest, if not quickly addressed, and with such scenarios, economic and political stability could be at risk.
He lamented that the situation “is particularly worrisome because even staple foods are no longer affordable by the majority of the citizens.  It is an emergency social situation that demands an emergency response.”

He, therefore, proposed urgent engagement with stakeholders in the agricultural sector, especially food crop farmers, farmers poultry, investors in fisheries, agro-allied industries and those in the production of staples as one of the steps to bring down the food inflation component of the CPI.
CPPE’s chief executive equally recommended pragmatic reforms of foreign exchange policy, which according to him, would no doubt boost investors’ confidence and attract foreign exchange inflows into the economy.  

On his part, Teriba acknowledged the implication of intense inflationary pressures for the country’s economic, political and social stability, noting that the policymakers should be debating what the federation could do now to ease the burden of compounded consumer price volatility.
If the trend plunges the country into socio-political harmony, EA’s chief executive warned that nobody “will be spared nationwide. Nobody will be safe whether you are in government or you are not in government.

 “So, we should refrain from making comments that can incite the populace to embark upon a mass uprising. The people who start the reign of terror will also be consumed by the reign of terror. Let us encourage our government to act now. It is better late than never.”
Speaking on how the government can reverse the escalating inflationary trend, Teriba recommended the exigency of stabilising the Naira, stressing that devaluation had compounded the composite consumer prices.

 He said the first problem that the government should solve immediately “is to stabilise the Naira. If we do not stabilise the Naira and we still have devaluation happening in the parallel market, it will compound the consumer price index.

“Except we stabilise the Naira, there is nothing we can do about it. The government needs to boost the competency of the Central Bank of Nigeria (CBN) to manage foreign exchange stability. It also needs to boost the capacity of the CBN to manage foreign exchange supply rather than manage foreign exchange demand alone.”

Teriba also challenged the government to identify idle public assets and deploy them to unlock fiscal liquidity and foreign exchange.
He claimed: “Nigeria has rich assets from which we can unlock fiscal liquidity even if we do not sell a barrel of crude oil or collect any tax from the populace. Nigeria has so many idle assets that we can generate sufficient liquidity, both in Dollar and Naira.”

In his reaction, Ademola attributed the rising inflation to insecurity in northern Nigeria and oil theft in the Niger Delta, which he argued, had affected the country’s foreign exchange earnings from the export of crude.

Ademola further noted that inflation “is an expected phenomenon, caused by the global responses to the COVID-19 pandemic. The Russian-Ukrainian war added more to it due to the increase in gas prices and other complementary goods.”

He pointed out that insecurity “is adding to the severity of inflation due to the decline of farming activities and food production.”
He noted that tackling inflation in Nigeria “is beyond the monetary authorities. While managing the prices is the duty of the CBN, the fundamental cause of the problem will require a response from the fiscal authority, both politically and otherwise.”

He equally recommended that the will to curb oil theft and other insecurity issues should be unambiguous while implementable tasks should be developed immediately.

Also contributing, Khan attributed the country’s inflation to foreign exchange volatility and the global food crisis, among others.
She said: “Global food and fertiliser pressures, the fact that diesel prices are not subsidised and the rapid pass-through into inflation from any parallel market depreciation, likely explain the trend.

“While the outcome is not surprising, the concern is that Nigeria may have few tools with which to meaningfully influence inflation outcomes.
“Despite a step up in the pace of Central Bank of Nigeria policy tightening, the action remains overshadowed by greater reliance on CBN financing by the government,” Khan pointed out grave concern about the future of the economy.

Until official foreign exchange markets see greater turnover, Khan further observed that the difficult-to-regulate parallel market, itself prone to overshooting, will continue to play a disproportionate role in price-setting behaviour.
She warned that rising inflation at a time of weak growth also risks exacerbating social concerns – with Nigeria’s policy settings making it more difficult to tackle near-term pressures.

“While inflation is pressured globally, Nigeria’s macro challenges leave it more vulnerable to inflation expectations becoming entrenched. Stabilising prices may be even more costly than elsewhere.”  

Mustapha, NLC’s Senior Research Fellow, feared that with the inflationary pressures, the poverty level “will likely to increase in the absence of effective social protection. Unemployment especially among the youth will ultimately lead to more social crises and insecurity, which can disrupt the political process.”
She, therefore, urged the governments at all levels “to increase government spending in such a way that we can increase effective demand, specifically wages and social protection.