Stagflation is an economic concept that describes a situation of simultaneous increases in price levels and unemployment.
The concept dates back to John Maynard Keynes of the 1970s when industrialised countries around the globe battled with high inflation and slow growth.
Nigeria’s developing economy may have a long struggle with post-pandemic recovery as its frontier economic indicators show no serious sign of a possible bounce back as expected.
The inflation rate, measured by the index of consumer prices (CPI) which is a key indicator of economic performance has risen to a 34 month high from 16.47% in January 2021 to 17.33% in February (month-on-month). By March, CPI had climbed as high as 18.17% according to the National Bureau of Statistics (NBS).
Food prices have reached unbearable heights, and sellers of food products, as well as buyers, sing the same song of pain and anguish. While food importers and manufacturers blame the economy for the current price dilemma, sellers shift the incidence on final consumers who buy these items.
Food inflation as of January 2021 stood at 20.57%. A month after, it accelerated to 21.79%. Core inflation in Nigeria increased as well from 11.85% in January to 12.38% by February (month-in-month). On a year-to-year basis, core inflation has witnessed a 1.6% increase, signalling an increase in the price of other products less food and energy by 1.6% within a year.
The rise in the general level of prices in the economy has resulted in an economy-wide contraction. As producers strive to keep their heads above waters, tough decisions must be made to remain in business. Hence, the Nigerian labour market witnessed wage cuts and job losses in varying numbers.
With increased job losses comes a high incidence of unemployment. By quarter four of 2020, the unemployment rate in Nigeria has risen to 33.3%. This is a sharp contrast to 27.1% unemployment rate recorded in Q2 2020, according to the NBS.
According to NBS survey in Q4 2020, the economically active population of the country (15 – 64 years of age) expanded by 4.3% over Q2 2020 record. However, the number of individuals in the labour force in the country shrank by 13.22% in Q4 2020, relative to Q2 statistics.
A further decline is recorded for persons who are actually in employment during the reference period. NBS statistics show that there are 20.6% fewer persons gainfully employed in Nigeria by Q4 2020 when compared with Q2 2020.
The rural unemployed grew from 28.2% in Q2 2020 to 34.5% in Q4 2020, while urban unemployment accounted for a 31.3% increase in Q4 as against 26.4% in Q2 2020.
According to World Poverty Clock, Nigeria, at the latest count recorded 43% of its over 200 million inhabitants living below the poverty line of less than $1.90 per day. Obviously, these numbers are frightening, and there seems to be no immediate plan in sight to contain this situation.
Foundational issues
The government of President Muhammadu Buhari took over power from former President Goodluck Ebele Jonathan in 2015. President Buhari’s campaign took the country by storm with several lucrative economic promises, but Nigerians were too swayed with the sweet-toned manifestos and refused to demand the “how-to” of achieving the various campaign promises.
No doubt, Buhari had inherited some negative spills from his predecessors, one which he promised to overcome in no time: a monocultural state, heightened insecurity, ailing reserves, retrogressive electricity supply, deep-rooted corruption among government officials and private businesses, sovereign wastefulness, revenue leaks, huge national debt among others.
Earning foreign revenue from a single product has been a major economic challenge in Nigeria, and the government of President Buhari signalled a motion to engage in economic diversification through massive investments in agriculture. To date, agricultural productivity and output far underperform their expected outcomes, and Nigeria continues to depend on the import of consumables.
The government also promised to decimate the occurrence of security breaches perpetrated by terrorist elements across the country, but this has continued to linger. These problems combined, have overstretched the patience of the economy, and the results cannot be expected to be better than it currently is.
How we got to this point
President Muhammadu Buhari’s takeover in 2015 brought Nigeria to a new era of economic trends. Before 2015, the consumer price index (CPI), as well as food inflation, experienced a generally slow decline.
In 2010 for instance, CPI was 11.8% while food inflation stood at 12.7%. By 2011 the following year, CPI had dropped to 10.3% and food inflation also declined by 1.7% to reach 11.0%. While a brief rise in CPI is observed between 2011 and 2012 (CPI increased from 10.3% in 2011 to 12.0% in 2012), food inflation dropped to 10.2% in 2012 from 11.0 in 2011.
The year 2013 and 2014 experienced stability in the level of prices as CPI remained 8.0% in both years. Food prices, however, experienced a marginal decline from 9.25% in 2013 to 9.15% in 2014. NBS record shows that CPI and food prices in 2015 stood at 9.55% and 10.59% respectively.
The unemployment rate record throughout 2010 to 2015 show a steady rise but in a sluggish fashion. By the time President Jonathan would hand over power, the unemployment rate stood at 9.0% per annum.
Beyond 2015, the story significantly changes. Inflation rates (CPI and food inflation) commenced in double digits and the unemployment rate showed the same trend.
As prices continue to trend upwards, so did the unemployment rate, and the economic situation of the country continues to worsen. By Q2 2021, CPI has reached a 34 month high of 18.17% while food inflation peaked at about 23%.
Within the same period, the labour market has grown leaner with a 33.3% unemployment rate outcome. With this picture, the growth trajectory for the country seems sketchy and efforts to counter this trend must be made a priority at this time.
