Nigeria’s economy suffers from floods

Price of food items go up and oil production is threatened as a result of the floods that ravaged parts of Nigeria.

 

The recent floods witnessed in some states in Nigeria have begun to take their toll on economic indices in the country, finance experts have said.

Financial Derivatives Company, FDC, a finance research and analysis firm, said in a report that the flooding has led to increase in food index, as revealed by its Lagos September statistics.

“As anticipated, food inflation rose to 10.2 per cent due to a shortage in food supply. This is partly as a result of recent flooding which delayed the harvest for some crops like cocoa, beans and pepper.

“In addition, transporting harvested products to the markets has become more difficult and expensive as most of the roads are now impassable,” the report stated.

FDC’s Lagos urban inflation rose modestly in September by 0.13 per cent to 11.47 per cent from 11.34 per cent. The increase was influenced mostly by rising food prices. The food index rose by 0.62 per cent month-on-month (m-o-m) to 12.69 per cent from 12.08 per cent in August, influencing the rise in the general price index. The increase could be ascribed to commodities such as beans, plantain, salt, noodles and fruits.

However, the prices of vegetable greens, guinea corn, pepper and rice declined in September, the report showed.

The non-food index eased for the second consecutive month in September, but the decline could not offset the rise in consumer index caused by the rise in food prices. The non-food index moderated by 0.13 per cent to 9.79 per cent in September from 9.91 per cent in August.

The breakdown of national September statistics by the Nigerian Bureau of Statistics, NBS, states that the ease in Core Inflation outweighs the rise in food Index.

Core inflation is the measure of inflation that usually excludes certain items that are prone to volatile price movements, such as food and energy; hence, eliminating products that can have temporary price shocks as these shocks can diverge from the overall trend of inflation and give a false measure of inflation.

Core inflation, which has remained threateningly high at an average of 14.26 per cent in the first 8 months of 2012, fell to 13.1 per cent in September from 14.7 per cent in August. The decline in core inflation, according to the NBS, is due to a lower base effect in September 2012 compared to the period a year ago. This decline in core inflation far outweighed the rise in the food index (the largest contributor to the consumer price index), leading to an overall ease in headline inflation for September.

An Economist and Managing Director, Financial Derivatives Company, Bismarck Rewane, said: “If the impact of the excessive floods wanes in subsequent months, leading to a further deceleration in inflation, the Central Bank of Nigeria may be forced to reduce the Monetary Policy Rate, MPR, by at least 25 basis points (bps) in November. All pointers are in favour of a cut in the MPR.”

“However, we are of the view that the 12 per cent per annum monetary policy rate is here to stay for the rest of 2012, with moderate cuts in early 2013 if macro- economic indicators maintain positive trend.

“The GDP growth rate is estimated at 6.5 per cent compared to 6.85 per cent in the fiscal strategy paper. The downward revision in the GDP growth rate is explained by the severe floods experienced in several parts of the country, which are expected to negatively affect economic activities, and particularly agriculture, in 2013. However, the President foresees growth to be supported by the plan to boost dry season farming” he added.

More effects of the floods

The ravaging floods not only have their pangs on Agriculture, it has also drastically reduced Nigeria’s crude oil production by 500,000 barrels per day, bpd, the Department of Petroleum Resources, DPR, said on Tuesday.

Osten Olorunsola, the Director of DPR, in a statement said the floods in oil-producing areas had led to a sharp drop in the country’s production to 2.1 million barrels per day, mbpd, from the 2.5mbpd recorded before the rains.

He said both big and small oil producers were affected by the floods, but noted that smaller producers, particularly the marginal fields’ operators were the worst hit, with quite a number of firms completely shutting in oil production.

“We had quite a very unfortunate situation of flooding in the last couple of weeks and that certainly dipped production by 500,000 barrels per day. Quite a lot of oil firms and companies were hit. Actually some companies were completely out,” he said.

He however said that production has begun to improve and has peaked at 2.3mbpd.

The Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, had earlier allayed fears and said that the floods, which have affected socio-economic activities in most states of the country including the Niger Delta, did not have any adverse effect on the country’s crude oil production. She said that key oil and gas installations are still intact.

The proposed 2013 budget projects oil output of 2.53million barrels per day- average production in the first half of 2012 was 2.34mbpd, the rains, experts say, have now set this 2013 target on the back foot.

Oil Production is currently about 2.16mbpd and  is not likely to increase if the problems of oil theft and pipeline leakages and now flooding, are not addressed.

“The proposed oil production level of 2.53mpbd for 2013 is too optimistic considering the level attained so far in 2012. Besides, revenue would be adversely affected if weakness in the global economy causes disruption in output levels. In that case, the deficit gap is expected to be larger and domestic borrowing would increase,” Mr. Rewane said.