beyondbrics

Your typical Nigerian consumer, whoever he or she may be, is not having a good time of it. Fresh from the depressing news that those living in absolute poverty is rising, there is a “double whammy” of price rises to contend with, as one bank put it in a research note.

After the removal of the fuel subsidy (that caused protests and strikes, costing the economy over $1bn), a new electricity pricing regime is expected in the first quarter of 2012 – which could raise costs by 50 per cent. This has prompted a report on Nigeria by BofA Merrill Lynch to forecast consumer expenditure to slow by 4.2 percentage points in 2012.

It’s hard to know what’s the really bad news. Last week the national bureau of statistics released a report showing the startling increase in poverty. From 2004 to 2010, the overall population grew from 126m to 163m. But the number of people in poverty rose from 69m to 112m – meaning the proportion of the population in poverty has grown from 54 per cent to 69 per cent.

This is despite the GDP per capita almost doubling from $644 in 2004 to $1,222, according to World Bank data. Nigeria’s statistics bureau described it as a paradox – which is one way of putting it.

But back to 2012. The removal of the fuel subsidy has seen petrol prices increase from Naira 65 per litre to N97 per litre – a 50 per cent hike, and electricity prices could rise by a similar amount – even up to 88 per cent, as the FT reported last week. Although the government hopes to cushion the blow by pushing the bigger price increases on wealthier households and corporates, and only 40 per cent of the population are on the electricity grid, it’s not helping matters. The BofA Merrill Lynch report suggests that there will be a a notable slowdown in consumer expenditure growth from 9.7 per cent in 2011 to 5.5 per cent in 2012.

So what can take up the slack? Government spending, of course. This chart from BofA Merrill Lynch shows the expected composition of GDP:

The extra government contribution to GDP means BofA Merrill Lynch expect economic growth for Nigeria to recover from 6.3 per cent in 2012 to 6.9 in 2013.

Good news? Well, Nigerians in poverty haven’t seen their plight alleviated too much by previous GDP growth in the past. And there’s still the matter of inflation, which could hit 16 per cent this year.

A tough year or two ahead.

Related reading:
Nigeria: No. 1 in Africa by 2014? beyondbrics
Uncertainty raises Nigeria growth fears, FT