It is critical that efforts to gauge the expectations of Nigerians arising from the dire distress in which they have found themselves are accurate. That Nigerians are going through excruciating experiences is no longer news. They have seen their incomes decline so much that their take-home pay can no longer perform the functions of incomes. Some have had to switch from one consumption pattern to another – usually scaling down on quantity and perhaps quality also – in their struggles to make ends meet.
Many who had savings before the onset of the challenge have since drawn down on what they saved and so can only look forward to future incomes. However, the prospects of future earnings are also dependent on the current state of the economy and whatever actions are being taken by the government to put things right. So, whether they believe they can secure jobs in the short run will depend on what they see around them.
In the current economic situation in Nigeria, expectations will play a critical role in their behaviours as they navigate the rough waters. Expectations influence economic behaviours, from consumption to investing and saving. These are three of the four components of the Gross Domestic Product of the economy. The other component, which will be the influencer in this situation, is the government. This is the variable that has the power to lift the economy when these other three are low. Expectations determine whether and how far an individual, household, and even a firm can hold on. When an individual knows that help is near the corner, his or her behaviour will reflect this.
Therefore, the government must step in here to reflate this economy. Incomes have dried up significantly. Without a change in people’s incomes, especially in real terms, this economy will experience a significant contraction because both consumption and investments will continue to fall. This is what is happening right now.
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The average Nigerian’s current expectations range from a belief that the current high interest rates will subsist, to their worries that insecurity will continue to deter full-scale economic activity, especially agriculture, and the fact that welfare will continue to deteriorate.
People’s expectations are generally influenced by their belief in the factors responsible for the phenomenon they face. In its reports on the “Business Expectations Survey”, the Central Bank of Nigeria (CBN) said that the respondent firms believed that insecurity was the major factor that constrained the business activities that month. The same firms also identified high interest rates and high/multiple taxes as other factors that constrained their expansion programmes.
If these factors are constraints to the companies, they also indirectly pose challenges to the consumers. High interest rates, insecurity and multiple and high taxes have one common impact on companies and the output of goods and services: they raise the cost of production, which the companies ultimately pass to their customers.
Therefore, as long as these factors remain operative in the economy, the average consumer expects that prices of goods and services will remain high.
The CBN, yesterday, released its Monetary, Credit, Foreign Trade and Exchange Policy guidelines for the fiscal year 2024/2025, in which it posited a positive outlook for the economy over the period, but also told us that it was not time to celebrate because of the factors driving the negative winds were yet to abate.
CBN said, “The outlook for Nigeria’s external sector in 2024/2025 is optimistic, on the expectation of favourable terms of trade, occasioned by sustained rally in crude oil prices and an improvement in domestic crude oil production.”
The regulator added that the positive outlook was predicated on the sustenance of crude oil prices propelled by the decision to cut production and gains from capital flows and remittances.
Yet, it also captured the realism of our environment. CBN said that lower crude oil earnings, fuel subsidy removal, rising import bills, and increased external debt servicing obligations “could pose downside risks for the accretion to external reserves” and we all know that this is another name for continued pressure on the exchange rate of the naira.
The central bank went further to tell Nigerians that the risk to the outlook is still tilted to the downside, characterised by significant headwinds such as rising energy prices emanating from lingering effects of the Russia-Ukraine war and the persisting security and infrastructural challenges which could undermine the growth outlook in the short to medium-term.
The above is a consequence of the confusion over the pricing of petrol in Nigeria following the emergence of the Dangote Refinery. Quite unfortunately, what Nigerians expected to bring them relief has turned the other way; perhaps for now.
Putting together all the factors above, the summary of the picture painted by the CBN yesterday is that domestic prices (as summed up in the inflation rate) will remain high for the 2024/2025 period because of spill overs from global supply constraints and exchange rate pass-through. In addition, “The persisting security and infrastructural challenges could exacerbate inflationary pressures,” CBN said.
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