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Rising inflation: NECA predicts capital outflow

By on April 2, 2015

The Nigerian Employers Consultative Association has predicted a capital outflow and a loss of the country’s competitiveness if the inflation rate continues to rise in the coming months.

It explained that import penetration into the Nigerian market would grow, while exporters would lose their share in overseas markets, and economic transactions between Nigeria and other countries would decline as a result of rising inflation.

In its review of business performance on Tuesday, NECA said that it had been proven that a much higher rate of inflation in a country than its trading partners would result in the loss of international competitiveness and might worsen trade performance.

Against the backdrop of the rise in the rate of inflation by 0.2 per cent to 8.4 per cent between January and February as released by the National Bureau of Statistics, the group explained that the possible consequences this could have on businesses and on the economy included difficult budgeting, lower investment, high rate of unemployment, balance of payment problems and reduction in purchasing power.

“When domestic prices rise faster than prices in foreign countries, as in the case of Nigeria, exports tends to lag behind imports. As it is in our case, the rate of exchange will most likely continue to depreciate both on account of falling purchasing power of currency within the country and adverse balance of payments. In some cases, there may also be an outflow of capital,” it stated.

NECA said inflation rise in the coming months was inevitable, with the current devaluation of the naira and the fact that the country was predominantly import-dependent.

“In advanced economies, however, any inflation figure above three per cent is considered high. It could, therefore, be concluded that the rate of inflation in Nigeria is fairly high,” the association noted.

It advised the government to make policy decisions to save the value of the naira in order to sustain the survival and competitiveness of businesses.

 

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