By Collins Nweze, Assist Business Editor, and Franca Ochigbo, Abuja
Total value of transactions across the e-payment channels declined by 7.62 per cent to N31.63 trillion in July over rising inflation.
Inflation rose to 19.64 per cent in July, from 18.60 per cent in June, this year and drop in consumer demand for goods and services are to blame.
The Managing Director, Financial Derivatives Company Limited, Bismarck Rewane made these known at the Lagos Business School breakfast session report for August released at the weekend.
Rewane, a member of Presidential Economic Advisory Council, and an economist, said that the e-payment transactions stood at N34.24 trillion in June, but fell in July partly due to the decline in consumer demand and spending as inflation bites hard.
“Value of transactions to decline further to N30.56 trillion in August due to exchange rate swings. The winners will continue to be the telcos, building materials, Fast Moving Consumer Goods, especially the beverage producers,” he predicted.
He said N274.01 billion cheques were transacted in June, and dropped to N240.32 billion in July representing 12.30 per cent decline.
For Point of Sale (POS) transactions, N666.36 billion transactions were recorded in June. It rose to N724.73 billion in July, representing 8.76 per cent rise.
The bulk of the e-payment transactions occurred in NIBSS Instant Payment transfers where N31.73 trillion transactions occurred in June, but dropped to N29.28 trillion in July, representing 7.72 per cent decline.
Also, National Electronic Funds Transfer (NEFT) transactions stood at N1.56 trillion in June, and dropped to N1.37 trillion in July, representing 11.83 per cent drop within the period under review.
Rewane said the forex market in Nigeria is a price discriminatory monopoly, meaning that the barriers between markets are thin and permissible.
“Multiple exchange rates create room for arbitrage and encourage rent-seeking behaviour. Investors rotate funds towards dollar denominated assets as naira falls,” he said.
Rewane explained that the tight liquidity in the Investors & Exporters window is expected to keep the exchange rate within the range of N426.50/$-431.00/$ in the near term, while demand pressure and speculative activities could taper in the parallel market, causing it to appreciate.
At the parallel market, it is likely to trade around N615/$- N625/$ in the near term. “The Nigerian forex market is segmented with multiple exchange rates. The most important rate is the Investors and Exporters window (IEFX). No less than 55 per cent to 60 per cent of Nigerian forex transactions are traded on this window,” he said.
Rewane explained that the Central Bank of Nigeria (CBN) and most exporters and investors use this window. “It serves not only as a source of price discovery but also a barometer for measuring potential and actual CBN intervention in the market. Some of the exchange rate determinants are balance of payments, capital inflows and trade balance,” he stated.
He said Nigerians spend approximately 57 per cent of their income on food alone. Domestic food prices remain high and the global food price index hit record high in July.
He said growing food prices could push an additional six million into poverty. ”An acute lack of funding and credit, limited access to markets, lack of access to information, low use of mechanization, transportation and logistics issues to smallholder farmers are the main challenges faced by the agricultural industry,” Rewane said.
Flour and diesel are major costs components in the baking of bread, accounting for 70 per cent and 15 per cent of the total costs. The price of our and diesel spiked by 76.7 per cent and 209.37 per cent to N26,500/bag and N750/litre respectively in the last year.
“This is likely to push upwards the price of a loaf of bread from N800 two months ago to N900. In spite of the price surge, wages have remained static or even declined in real terms. Consequently, price resistance of consumers is increasing and many are switching to affordable substitutes.
“In some cases, as is empirically evident, we have noticed a drop in the quantity of goods demanded. Since price inflation is not a Nigeria- specific phenomenon, there are indications that the price spiral is not likely to be short-lived,” Rewane said.
He explained that while an increase in interest rate is intended to reduce market liquidity and taper inflationary pressure, Nigeria’s inflation stoking factors appear to be more structural and cost-push.
“Monetary policies are usually less effective in addressing supply-induced inflationary pressure. Hence, inflationary pressures could persist if monetary tightening is not complemented by both structural reforms and fiscal policy responses,” he said.
Rewane added: “We expect consumer price inflation to remain elevated in the coming months due to the lingering economic shocks from the Russian-Ukraine war. This will be further compounded by currency pressures.
“While the Naira is expected to appreciate marginally in the short-term as party delegates continue to sell their spoils, it is likely to be short-lived as Nigeria continues to grapple with a drop in dollar inflows”.