As food costs reach 58.9% of Nigeria’s household income, why regulatory price control won’t work

As food costs reach 58.9% of Nigeria’s household income, why regulatory price control won’t work

I read an article a few days ago on LinkedIn suggesting that Nigeria needs a ‘price control policy’.

The post postulated that FGN need to ‘ to set minimums and maximums for the prices of goods and services in order to make them more affordable for consumers’.
A reference was made to California State law, (US) which limits the price raising to 10% after the market has been impacted by crisis phenomenon.

The law is intended to prevent ‘price gouging’ which creates inflation, reducing the purchasing power of the masses, and then leads to poor people getting poorer.

Registration for Tekedia Mini-MBA edition 9 (Sep 12- Dec 3 2022) has startedRegister here. Cost is N60,000 or $140 for the 12-week program.

The question is, would it work? I’m thinking, with a few provisos and caveats that I am leaning in the direction of ‘NO’.

One of the reasons is the profound difference between doing business in California and Nigeria

Ease of Doing Business Index

The Ease of Doing Business Index was operated by The World Bank. Even if an investor has never done business in a country, the index provides a headline estimation of challenges, difficulties and risks (obstacles to profitability) condensed to a rating out of one hundred (x/100).

It’s changed its methodology multiple times. Iterative methodology regimes are signified by ‘DB’ followed by a year abbreviation… so DB10 started in 2010, DB15 in 2015 and DB17 in 2017.

The overall trend across successive methodologies has been to ‘mark upwards’, so it is dangerous to pick a particular country and celebrate how its index has improved between 2010 and 2017 as the results involve being measured by very different ‘yardsticks’.

What has been more credibly retained across methodology evolution, is the RELATIVE EDB rating between different global geos.

World bank notice on its EDB service suspension

World Bank suspended its ‘Ease to Do Business’ reports following some methodology inconsistency discoveries in 2020.  2021 reports were not published. A statement on their website suggests they have  completed a process in which ‘historical data up to Doing Business 2020, (were) revised to correct data irregularities’

They are currently working on a new framework called Business Enabling Environment (BBE), which is yet to be launched.

Nevertheless, they are still the defacto reference point for macro data like this.

Nigeria rarely, if ever, gets out of the bottom 10 in EDB ratings. The system does not provide ratings for different internal states, but does provide for some metropolis. The Lagos rating is only 56.5 against a Los Angeles rating of 82.2 and a Pan-US rating of 84. By comparison, war torn Yemen is 38.4. (2020).

To approximate, the gulf of business amenability between California and Nigeria is comparable to a preference for Nigeria over Yemen!

In a country where draconian import bans, killer herdsmen inhibiting backward integration and other supply chain challenges inhibit regularizing both cost of production and cost of sales, unregulated pricing is probably one of very few tools left to stop many businesses running at a loss.

Governance Inefficiency

There are three types of Governance in Nigeria.

The first is the duly elected representatives both at state and federal level; The Presidency; State Governors,  The two houses; and then the civil and military institutions over which they preside.. army, navy, air-force, police, immigration, customs, civil departments … the list goes on.

The second type are Nigeria’s various traditional structures, with different leadership titles depending on the tribal culture. There are titles such as Emir, Igwe, Oba, Oniru, and Sultan depending on what part of Nigeria.

With the advent of colonial rule, traditional leadership structures became fractured and with the gaining of independence, a very fudged version of constitutional monarchy completely lacking any form of federal uniformity emerged.

A myriad of mini-dynasties sprawled the land, each with their own powers of granting non-hereditary honours for notable ‘acts of service’ or from achieving esteemed notoriety in ‘far away lands’.

The third form of Governance is the unregulated governance structures.

This covers a wide range from terrorist organisations to self determination groups, bandit organisations, agbero and local ‘area boys’. They developed either out of control gaps in the other forms of Governance in certain parts of Nigeria, or, because of disaffection with their performance. In some cases they become introduced under funding of foreign actors. From time to time, reports appear in media alleging links and tacit approval from elements within the previously mentioned formal structures. Some of the actors appear to have religious objectives.

But, recall this passage from my New Years’ article on ’11 predictions of the decade’:

‘While a religion is often a significant generator of armed conflict both in the past and in the present, the two principal causes of human warfare are in fact culture and greed for territory, resources or power’   –  Meic Pearse – Author of: ‘Why the Rest Hates the West: Understanding the Roots of Global Rage’

This ‘third sector’ Governance however has predictable ‘civil authority’ hallmarks, such as the imposition of standardized behaviours by ‘control’; (varied levels of) restrictions on personal and autonomous freedoms, extracting income from subjects (taxes) without providing any free market type product or service; and lack of consumer choice or the means to opt out!

Corruption

I don’t like using the C word. It exists. It will always exist. Anywhere in the world it has always, does now, and will always exist. I try not to get involved in too many discussions about it.

The main reason is that the ‘go to’ topic is a sort of dismissive and resigned hopelessness, and I prefer a position that acknowledges the potential for ways forward.

Ultimately it matters less that it exists, and more that ‘continual improvement’ can happen in spite of it.

Theft, for instance, is a form of societal corruption. Modern trade and retail outlets don’t ‘break their brains’ trying to achieve zero theft. They just find a way of factoring it in as a cost of sales, as long as it doesn’t impact sales volume and hurt profit.

What matters is not achieving squeaky clean Governance. What matters is that Governance profits its people.

Irrespective of the nature of Governance, the reality is the overall collective cost of it in Nigeria is too high, and some serious slashes need to be made collectively across the sector to align its cost meaningfully against GDP.

Nigeria currently has the highest average percentage of household expenditure on food in the world (58.9%), with the US (8.6%) being the lowest.

Reduction in the cost of food as a percentage of household income, not only improves quality of life, but it also stimulates the business intellect in the economy, by freeing up extra disposable income to be spent on individuals, improving their value prospect in the job market, contract or entrepreneurial space.

The reality is nobody in Nigeria would complain of ‘corruption’ if Governance was delivering an economy in which food only accounted for 8.6% of the income of households among ‘the masses’.

A ‘price control policy’ will not work, as driving food producers bankrupt would translate a market with foodstuff price challenges, to a market with no foodstuffs at all.

The only area which holds some flexibility is an assault on the cost of Governance as a proportion of GDP, which in turn would bring flexibility to reduce various taxations, generating more demand in the free job market and other improvements.

Please visit my site www.johnmckeown.eu

URLs and online content were referenced between February 12 and 15 2022

brandspurng.com/2019/06/17/nigerian-consumer-inflation-edges-up-to-11-4-in-may-nbs/

theeasternupdates.com/2020/09/23/the-disregard-for-chhieftancy-titles-in-igbo-land/

www.refworld.org/docid/41501c3a15.html

www.worldatlas.com/articles/countries-with-the-highest-expenses-on-food-relative-to-household-expenses.html

www.ers.usda.gov/data-products/chart-gallery/gallery/chart-detail/?chartId=76967

guardian.ng/features/tackling-basic-challenges-in-nigerias-food-production-industry/

www.worldbank.org/en/programs/business-enabling-environment/doing-business-legacy

dailypost.ng/2022/02/10/climate-change-threatening-food-production-supply-in-nigeria-expert/

 

Share this post

One thought on “As food costs reach 58.9% of Nigeria’s household income, why regulatory price control won’t work

  1. A very insightful piece. The first sign of incompetence is to throw money at problems, while the second sign is to churn out more laws/regulations.

    There are lots of things technology and market can correct and make very efficient, but creatures with zero talent always believe that money and more regulations solve problems.

    Again, when you put 469 people in a room, with lots of money spent in maintaining them, it becomes natural that more laws will keep getting passed, it’s one way of justifying their relevance.

    If you can prevent people from stealing, you spend less in policing and litigation; it’s a common sense thing, only that it’s no longer common…

    Reply

Post Comment