Household consumption has surpassed pre-pandemic levels because Nigerians have to pay more for goods and services and not because they are earning more. According to a report from the National Bureau of Statistics (NBS) on the Expenditure and Income approach to Gross Domestic Product (GDP), household consumption rose 13.7 percent to N54.8 trillion in the first half (H1) of 2021 compared with N48.2 trillion in H1’ 2020 and N49 trillion and N44 trillion in H1’ 2019 and H1’ 2018, respectively.
Nigerians are spending more on goods and services as a result of rising prices, which reduces the funds available for savings and investment necessary to grow the economy. The increase in household spending is a signal that people are spending more as a result of an increase in prices of goods and services not because they are earning more,” Ayodeji Ebo, senior economist/head, research and strategy, Greenwich Merchant Bank, said, noting, “This will have significant implications on savings and investment.”
Household final consumption expenditure is a transaction of the national account’s use of an income account representing consumer spending. It consists of the expenditure incurred by resident households on individual consumption goods and services. Although inflation has been declining for six straight months, at 16.63 percent in September 2021, most Nigerians are yet to feel the impact on the prices of goods and services.
For instance, BusinessDay findings show that a 12.5kg cooking gas cylinder was sold in Lagos for N3,800 in October 2020; N4,500 in June and July 2021; N6,000 in September, and now N7,500 in Lagos and Ogun states, depending on locations. Prices of major food items like bread, rice, egg and beans have also continued to soar.
“Another reason aside the increase in prices is that economic activities have improved and job numbers have moderated compared to 2020 when people lost jobs, so people have more to spend,” Temitope Omosuyi, an investment strategy analyst at Afrinvest Limited, said.
He also explained that during recessions when the government spent more to boost the economy, households spend less in an attempt to save for the future but as the economy rebounds, the consumption level picked up. Household consumption accounted for the largest share of real Gross Domestic Product at market prices, representing 53.68 percent and 51.82 percent in Q1 and Q2’ 2020, respectively, according to the NBS.
However, with prices of goods rising and incomes stagnating, it means many people cannot afford to save, which has a grave impact on the economy. “For our stage of development, we need a lot of investment spending for us to boost our long-term growth potentials,” said Omotola Abimbola, a macro economist at Lagos-based Chapel Hill Denham. “Those have boosted investment spending a bit but we still need to see more to drive growth,” Abimbola said.
Nigeria has one of the lowest savings rates globally. According to the International Monetary Fund, the gross savings rate in Nigeria stood at 13.9 percent in 2019, far below China at 45 percent, and even below Tanzania (24.8%), South Africa (15.8%) and Togo (21.2%).