REMOVING SUBSIDIES AND THE FOREX CRISIS: WHY PRICE INCREASES ARE UNAVOIDABLE

There were conflicting reactions when President Bola Tinubu announced the elimination of fuel subsidies after his inauguration in May.

Some people insisted that the new government should have addressed the corruption in the fuel subsidy payment process before determining whether the policy still needed to be kept in place, while others felt that it was a privilege that needed to be given up in order to free the nation from the oppression of a small number of people who benefited from the enormous sums of money paid by the government for fuel subsidies.

Six months after the fuel subsidy removal adventure, Nigerians are still questioning whether it would have been preferable to indulge in the monstrous fuel subsidy cabals rather than face the severe hardship that the removal has forced upon them, despite the federal government's promises and interventions to mitigate its effects.

As was to be expected, transportation costs have surged dramatically as the nation's food prices hit an all-time high. Transportation fares increased by more than 100% on all routes in June.

Uber and Bolt, two ride-hailing services, promptly disclosed price changes. The effect on the price of commodities was immediate. For example, a 50kg bag of imported rice that cost slightly more than N39,000 in June is currently selling for roughly N60,000, and that price may go up as the holiday season draws near. In June of this year, a middle-sized yam tuber sold for N800; it currently for N1700. A kilogram of chicken that cost N1,450 at the beginning of the year now costs N3,200. The trajectory is also being followed by other culinary items.

The government added to the burden by allowing market forces to determine the currency rate instead of the previous practice of fixing it, even as Nigerians continue to lament the high cost of transportation and growing food prices. Despite being widely viewed as a wise decision, the single exchange rate regime has increased inflationary pressures and severely weakened the naira rather than strengthening it.

The value of the naira hit an all-time low of N1, 300 to the dollar last month. Due to pressure on the dollar's demand, the naira's current value, which ranges from N1,000 to a dollar, is expected to stay unstable in the upcoming months.

Almost every area of the economy has been severely impacted by the elimination of fuel subsidies and the unification of the exchange rate, with some enterprises already closing their doors and others having to take drastic cost-cutting measures in order to survive.

As previously mentioned, there has been a significant increase in food prices in recent months, although the commodity market is not only to blame. In order to keep up with the current economic reality of dealing with a fuel price increase of more than 200 percent and a rising exchange rate, both public and private institutions have raised their rates.

For example, all educational institutions, both public and private, raised the cost of school fees this year and plan to continue reviewing the costs. Given the rising cost of production, local manufacturers have also raised the prices of their products. Nigerian Breweries declared in August that all of its product lines' prices would be reviewed. The corporation claims that the change was made to account for the exorbitant expense of conducting business in the nation. In September, clients received a communication from Seven-Up Bottling Company regarding price modifications.

Google Nigeria, the online company's Nigerian division, also revealed last week that they had raised the membership price for a 100GB online work allocation space from N3900 to N9500. The business also mentioned the possibility of future pricing changes.

In the current regime of fuel subsidy elimination and weak Naira, MultiChoice, Startimes, and numerous other commercial entities are forced to examine the rates and prices of their products in order to survive. A few businesses have also briefly embraced the other option, which is to streamline the staff, lower standards, and diminish quality. In actuality, though, cutting corners has more detrimental short- and long-term effects on the economy.

Nigerians would always have to deal with price adjustments across the board until the benefits of the federal government's new Forex policy and the removal of fuel subsidies start to materialize. Hopefully, as promised by the incoming administration, things will improve.