The year 2020 provided little respite for Nigerian consumers. At the start of the year, the Federal government implemented a VAT hike of 50.0% to 7.5% in February 2020.
Shortly after, the Covid-19 pandemic hit, leading to job losses and wage cuts. Following the Covid-19 crisis, the CBN devalued the NAFEX exchange rate twice, at c.12.0%, and adjusted the official rate by c.23.0%. Furthermore, PMS price was revised upwards by
c.12.0% and electricity tariffs nearly doubled on average.
Recently, the National Bureau of Statistics (NBS) released unemployment data for Q4 2020, which revealed a surge to a record high of 33.3%. The NBS also reported February 2021 inflation data showing that food inflation rose to a 16-year high of 21.8%. To highlight the severity, data from NBS shows that Nigerians spend 56.7% of their income on food. With a misery index of 50.6%, it implies worsened economic woes. These pressures continue to
mount amidst stagnant and, in many cases, declining nominal and real wage rates.
Unsurprisingly, economic growth remains uninspiring, given household consumption makes up c.60.0% GDP.
Looking ahead, we see little respite for Nigerian consumers. While we believe that increased economic activity will marginally improve household income, cost pressures on household consumer baskets will dampen any growth. A further electricity tariff hike is likely by Jun2021 and despite the resistance to the PMS price hike, we believe a hike is inevitable in the mid to long term.
Also, food prices continue to soar as FX challenges remain. Overall, in the short-term, the outlook looks grim for the Nigerian consumer; however, sometimes it is darkest before the dawn.