At Tekedia Capital, we have funded many agro-businesses in Nigeria, including Winich Farms and Vetsark. And in the process of working with these amazing companies, I have learnt one thing:  Nigeria’s agro-output is not that bad.  What is bad is our capacity to stop wastage in the value chain.

What do I mean? Nigeria does produce a decent amount of tomatoes, yams, etc, but we lose close to 37% (my estimate) of those items. The United Nations’ Food and Agriculture Organisation (FAO) puts that number at 50%: “A Food System/Nutrition Specialist at the Food and Agriculture Organisation (FAO) of the United Nations, Ibrahim Ishaka, has revealed that Nigeria loses around 50 per cent of its agricultural products along the food supply chain. Mr Ishaka disclosed this in an interview with the News Agency of Nigeria (NAN) on the sidelines of an FAO-organised training in Yola on Saturday.” 

So, if you lose 50% of what you produce, you score many own-goals, triggering a situation where farmers are hungry in farming communities. Why is this the case? The typical reason is that we lack adequate storage facilities because we have limited electricity in farming communities.

In the Igbo Nation, this problem is as old as history with the word “unwu” [seasonal farmine] part of the vocabulary.  Unwu is the period between the planting of yam (the king of crops in Igbo mythology) and the harvest period, as during that time, there are limited yams, exacerbated by lack of effective ways to preserve them. In ancestral Igbo, before the advent of packaged food and supermarkets, unwu was famine as the staple food was in short supply. That is why the new yam festival was a big deal then, as it marked the end of the famine period with new yams available.

But why have we not fixed the problem? Of course, we do not have electricity, and most importantly our agriculture policy is heavily planting-focused with limited policies for the harvest time. I have served on the boards of logistics companies and noticed how tomatoes, carrots, etc go to waste simply because trucks are not available to move them to the processing centers or collection areas. 

In other words, during the harvest period, the same governments which provided seeds, fertilizers, herbicides, etc do not remember to provide support to farmers. There are about 100,000 active trucks in Nigeria with Dangote Group controlling about 50% of them. The remaining 50k available are not enough for all, and most times farmers are outbid by many FMCGs; Nigeria has no rail cargo system of value.

From my experience, I posit that most farmers intentionally do not want to scale production because of the supply chain challenges. Of course, they cannot own trucks just to use them once per year! If the policy is altered to include the harvest period where governments also make vehicles, etc available with better coordination from farms to factories and markets, we can reduce waste from 50% to less than 10% and that will improve our food availability by an extra 40%.

Our startups have impeccable data to guide this policy formulation in case Nigeria is interested. Together, we can make farmers richer and that will boost output which will help reduce food scarcity. 

Time to review those predictions on recent policies:

1. Nigeria floats its currency.

My response: “Nigeria’s floating of its currency, while progressive, will cause severe perturbations in the economy – and a stable state may not come as most experts have predicted” – Ndubuisi Ekekwe, June 2023.

Remark: my postulation remains correct as that policy continues to alter the equilibrium points on many things, at family, state and national levels. Net welfare status is LOSS for most citizens.

2. JP Morgan projects that Naira will settle at N600/$ post-float.

My response: ‘“My perspective: I think JP Morgan may need to review. Whether you float, swim or fly Naira, Naira can only survive if the economy is productive with capacity to produce things (digital, physical, service, etc) to reposition the nation’s balance of payment and trade.”’ – Ndubuisi Ekekwe, June 2023, in a piece titled “Why JP Morgan’s Call on High N600s per US$ Stable State for Naira May Not Happen”.

Remark: Against all the leading global banks and our central bank which projected a stable state of around N700/$1, I am correct since the Naira is about N1,500/$ now.

3. Removal of Fuel Subsidy

My Response: “Nigeria will either pause the full floating of its currency or return back to fuel subsidy” because running both at the same will impoverish millions of citizens – Ndubuisi Ekekwe, July 2023.

Remark: even though the official unemployment rate (5.3%) is better than the rates in Germany and Canada, the government agency also noted that more citizens have moved into poverty, making their analysis illogical.

What was your prediction and how is that playing with reality so far? We have enough data now to evaluate.

It all depends on what you understand as the meaning of “progressive”. Progressive is not a synonym of “positive”. In my context, it is simply gradually moving step by step which every government in Nigeria has been hoping to do. But even as I understand that it is…

— Ndubuisi Ekekwe (@ndekekwe) September 29, 2024

Nigeria’s money supply (M2) hit a historic peak of N107.1 trillion in August 2024, reflecting a 0.75% month-on-month rise from July’s figure of N106.3 trillion and a more substantial 5.6% increase from N101.4 trillion in June.

The surge, reported by the Central Bank of Nigeria (CBN), has heightened concerns about liquidity and inflation management, as policymakers grapple with maintaining a delicate balance between fostering economic growth and controlling price hikes.

This jump represents a staggering 65% year-on-year increase, with M2 climbing from N64.8 trillion in August 2023. The surge is primarily driven by quasi-money (savings, term deposits) and demand deposits, which have seen significant rises of 77% and 43%, respectively. Both components are influenced by the devaluation of the naira against foreign currencies, underscoring the deep impact of Nigeria’s volatile foreign exchange market on domestic money supply.

Components Driving the Surge

The money supply encompasses currency in circulation, demand deposits, and quasi-money, all of which signal the growing liquidity in Nigeria’s financial system. By August 2024, currency outside banks reached N3.8 trillion, demand deposits hit N31 trillion, and quasi-money ballooned to N72.2 trillion, all of which are symptomatic of the country’s mounting liquidity despite the CBN’s efforts to tighten monetary policy.

A significant driver behind this expansion has been the rise in forex-related components within quasi-money and demand deposits, particularly as individuals and corporations have sought to hedge against the naira’s devaluation by holding foreign currencies.

Defying Tighter Monetary Policy

In its September 2024 meeting, the CBN’s Monetary Policy Committee (MPC), chaired by Governor Olayemi Cardoso, raised alarm over the unchecked rise in money supply and its potential to stoke inflation. In response, the MPC made a significant move to curb excess liquidity, voting to raise the Monetary Policy Rate (MPR) by 50 basis points to 27.25%. This marked a continuation of the CBN’s tightening stance, aimed at containing inflationary pressures.

The committee also adjusted the Cash Reserve Ratio (CRR) for Deposit Money Banks, raising it by 500 basis points to 50%, while the CRR for Merchant Banks was increased by 200 basis points to 16%. These measures are intended to limit the liquidity available for lending, in a bid to cool off demand-side pressures in the economy.

In addition, the MPC acknowledged the government’s fiscal deficit but praised its commitment to avoiding monetary financing through the Ways and Means channel, which could inject further liquidity into the economy and worsen inflation.

Despite the central bank’s efforts, inflationary pressures have continued to threaten economic growth. Headline inflation eased slightly to 32.15% in August, thanks to a moderation in food prices. However, core inflation, which excludes volatile food and energy prices, remains stubbornly high, driven largely by surging energy costs. This persistent inflation has created a dilemma for the CBN, as it seeks to balance inflation control with the need to support economic recovery.

The MPC made a fresh decision to hike rates to curtail the pace of inflation. However, the rising money supply complicates these efforts, as higher liquidity can spur demand in an economy where production remains constrained. Economists note that if the supply of goods and services does not keep pace with rising demand, prices could continue to climb, undermining the CBN’s efforts to stabilize inflation.

Implications of Rising Money Supply

The growing money supply has mixed implications for Nigeria’s economy. On one hand, increased liquidity can provide a short-term boost by making credit more accessible to businesses. This, in turn, can drive investment, job creation, and production, contributing to economic growth. On the other hand, excessive money supply growth, without a corresponding rise in productivity, risks fueling inflation, particularly in an economy already grappling with price instability.

Economic analysts have raised concerns about the risks posed by the rapid increase in money supply. According to financial analyst Kalu Aja, “The issue is not the N107 trillion; the problem is that nothing is being produced with that N107 trillion.”

He explained that wealthier individuals and businesses are converting naira earnings into foreign currency, while those less well-off are forced to buy increasingly expensive goods with a depreciating currency.

Aja’s analysis underlines a broader concern about Nigeria’s economic structure. “The solution,” he argued, “is to make manufacturing great again in Nigeria, reduce the cost of local production, and improve local productivity.”

If local production can be increased, Aja suggests, it could absorb the excess liquidity in the system and help stabilize prices.

It is believed that efforts to tackle rising inflation have failed because Nigeria’s policymakers face the challenge of managing an ever-growing money supply in a high-inflation environment. Experts have noted that while monetary tightening measures like interest rate hikes and increased CRR can help absorb some of the excess liquidity, these policies alone may not be enough to address the underlying structural issues in the economy.

In addition to boosting local production, economists have emphasized the need for significant reforms, including addressing infrastructure deficits, reducing the cost of doing business, and improving the overall investment climate. Without these reforms they said, the risk remains that the rising money supply will continue to outstrip production, leading to further inflationary pressures.