I’m still baffled and incredibly miffed! I was shocked last week when I stopped at a roadside kiosk in Lagos whilst trying to buy a piece of boli. The boli was priced at two hundred naira (40 pence); two hundred naira! My outrage was profound.
Boli (roasted plantain) and epa (groundnuts) are a popular street food pairing in southern Nigeria. This boli obviously wears a bow tie and a sports jacket since it costs thirty percent more, I thought to myself.
Oh dear, the shock didn’t end there; ‘mama puts‘(roadside cooked food sellers) are at it as well, a bowl of ewa agoyin (cooked beans) with three pieces of boiled plantain continues to command a rather stable price of three hundred naira. However, the quantity served has been halved. And it doesn’t end at ‘mama puts‘. This trend in food shrinkage can also be found in a popular street sausage roll that once had a robust piece of meat in it, but now hosts a hollow shell.
Effectively, one pays a hundred naira for an empty sausage roll. Where is my sausage? It’s called a sausage roll after all. It doesn’t end with food, dear readers; did you know that the cost of a new Volkswagen Passat in Ghana is four million naira? In Nigeria, you’d be lucky to get it for ten million. What is going on here? What is really going on?
The economists in our midst would tell us that this phenomenon is inflation in action; a noticeable reduction in the value and quantity of goods we can buy or a painful tax that robs us of our purchasing power.
The price of goods has worsened significantly of late. I’ve noticed it. Have you?
High inflation is a destructive force that must be tackled. Imagine how you’d feel if the price of that piece of boli jumps to four hundred naira by the end of the quarter.
The boli has not changed, it is still the same type of boli, why must one pay more? The battle against rising prices is for policymakers and not the consumer. To fight this destructive force, several weapons are available at the disposal of policymakers, primarily the central bankers. The most common weapon deployed is the provision of better alternatives for people to invest their disposable income.
Instead of buying the rather expensive boli, if my 200 naira could fetch me 250 naira or more by the end of the year, I’d hold back on buying boli and invest the money elsewhere. When the boli seller realizes that she can not sell a significant amount at that price, she will adjust her business plans and pursue a slightly more productive commodity or adjust her prices downwards.
This is one mechanism that orthodox economics suggests to policymakers on dealing with high inflation. Inflation, for many people, is an esoteric and intangible concept and this may explain why there is a limited outcry from consumers.
Nigeria’s central bank act lists monetary and price stability as its first objective. This however does not show up in its handling of inflation expectations. Evidence that fighting high inflation works abounds plentifully in the developed world. In Nigeria today, policymakers continue to do the opposite of orthodoxy. They make it more difficult to invest the cash elsewhere and encourage consumers to buy more boli today rather than wait a few months to purchase it.
Fela Kuti chronicled and explained Nigeria’s historical inflation phenomenon in his song; Overtake, Don Overtake, Overtake (“O.D.O.O”) where the futility of saving in a high inflation environment was evident.
His protagonist kept saving but could never afford to buy a fan because of the rising prices; the poor lad. Why save now when you won’t be able to afford goods tomorrow?
This doesn’t seem to be a new problem in Nigeria. This song was released in 1989; boli gets more expensive by the day in Nigeria.
Thirty years on from Fela, Nigeria remains stuck in the wicked clutches of “Do it yourself economic” (DIYE) ideas. The DIYE concept was coined thirty-five years ago by economist, David Henderson.
What is DIYE? David Henderson, the former chief economist at the OECD, delivered a strong and well worded six-piece lecture on the BBC’s Reith lectures addressing policy and economics in 1985.
He eloquently expressed the difference between orthodox economic prescriptions and DIYE prescriptions.
DIYE is mostly bad. DIYE is a simple view of economics; it consists of views held primarily by non-economists. It is negatively called pre-economics, having hints of the old mercantilist views.
If Henderson were alive, Nigeria’s “Home Grown Economic” policies will be classed under DIYE. His arguments then were clear, DIYE is mostly binary, non-continuous in its view of economic matters, and should be tossed to the rubbish heap.
Orthodox economics, the antidote to DIYE is primarily the view of economists and stresses the important role of prices and markets in the economy. Let me be clear, orthodox economics doesn’t imply that all economists agree on appropriate policy or even the tools to solve various problems. However, it’s been successful at delivering meaningful outcomes for many countries.
Economically poor countries tend to embrace DIYE at the expense of economic growth and development. The orthodox view on inflation is that policymakers keep a keen “eye” on the price of goods in the economy.
This logic is why low inflation and a stable financial environment has been the gold standard employed by most governments around the world. Inflation management in Nigeria today is not in line with the orthodox view of economics. Actively targeting low inflation has delivered meaningful results to countries the world over.
Nigeria has vacillated between exchange rate targeting and monetary targeting since 1959 with attendant high levels of inflation. Nigeria also has a low productivity problem. High inflation leads to salary increases that are not related to productivity, meaning many employees are getting paid more money simply because the prices of goods increase.
It is easy, rather inexpensive, and intellectually lazy for governments to print more money and increase general prices in the short term. With production expectations adjusting in the long run there is no meaningful contribution to growth.
Reducing the rate at which the prices of boli, epa and ewa agoyin grow is beneficial to the economy and may signal the emergence of meaningful growth in the near term. Negative outcomes manifest when governments act otherwise and chase DIYE economic goals.
In the next article; I discuss what happens when government debt gets out of line. I also discuss the links between Fela Kuti and George Osborne.
This article was written by Dayo Oduwole. Mr. Oduwole is an economist based in Lagos Nigeria.