Floods may worsen Nigeria’s inflation and revenue woes

By Temitayo Lawal
Posted on Thursday, 3 November 2022 10:45

Residents wade through flood water following a massive flood in Obagi community, Rivers state
Residents wade through flood water following a massive flood in Obagi community, Rivers state, Nigeria October 22, 2022. REUTERS/Temilade Adelaja

Floods in Nigeria have created a huge humanitarian crisis, killing over 600 people, displacing 1.3 million people, and destroying over 200,000 homes since September, with huge consequences on inflation and government revenue.

Nigeria’s economic recovery is hinged on agriculture. It contributed 23.24% to overall GDP in real terms in Q2 2022, but its quarterly growth has slowed from 3.16% in this year’s first quarter to 1.20% in the second quarter.

Crop production accounts for the largest share of the sector – representing 91.99% of overall sectoral nominal growth in the second quarter of 2022. However, floods across the country have submerged several farms and washed away produce leaving farmers without revenue.

“This unfortunate development will worsen the food crisis in the country,” says Muda Yusuf, CEO at the Centre for the Promotion of Private Enterprise.

We would see a pass-through effect on food prices. It is bad enough that food inflation was already about 23% before the flood, posing a food security risk.  The situation would be aggravated by the ravaging incidence of flooding. This has grave implications for poverty,” says Yusuf.

Headline inflation for September was 20.5% while food inflation grew to 23.12%, according to the country’s statistics bureau. An average Nigerian household also spends about 56% of their income on food.

LNG supply

On 17 October, Nigeria LNG Limited (NLNG), the country’s gas-producing company, declared a force majeure due to its inability to maintain gas production and meet its contractual agreements with its clients.

A week later, the company clarified that the action was due, in part, to the submergence of its pipeline network and gas assets due to flood water, as well as the fact that it couldn’t get the required feedgas from its upstream gas suppliers whose production facilities have been disrupted by the flood.

One of the components of the energy crisis in the country is the soaring cost of gas,” says Yusuf.

“Gas prices have more than doubled in the last one year. The force majeure will result in cost escalation of gas. This would adversely affect manufacturing productivity and citizens welfare,” he says.

The force majeure will result in cost escalation of gas.

The price of cooking gas rose by 61% to N9,906 year-on-year for a 12.5kg canister in September 2022 around the same time major flooding began. Currently, the price is around N10,000.

NNLG’s decision to restrict gas supply to the domestic market with its limited production means that its supply to international clients will suffer. The company supplies 40% of Nigeria’s domestic cooking gas.

LNG exports from Nigeria have increasingly decreased from over 90% of its capacity in 2020 to about 60% just before declaring the force majeure in 2022. Nigeria supplies gas to parts of Europe and Asia, earning $1bn from gas sales to Portugal this year (up to June) alone.

The flood-induced force majeure also means that Nigeria’s revenue will take a hit. This is paradoxically coming at a time that many European countries are on the look out for alternative sources of gas amid the Ukraine-Russia war and while Nigeria is battling with a revenue and debt service crisis.

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