Share of food in consumers spending is considerably large, says Afrinvest
Afrinvest, a leading investment banking firm, said in a review note that the share of food in consumer spending is still considerably large. In the last 10 years, total consumers spending expanded 5.8% on the average per annum to more than ₦40 trillion.
According to Afrinvest, since the reweighting of the Consumer Price Index (CPI) basket in 2010 and the consumer spending pattern report of the same year, there has been no comprehensive data showing how consumers allocate their spending in Nigeria.
The firm observed that this changed this week as the Nigerian Bureau of Statistics published a report on consumer expenditure patterns in 2019, the first since 2010. Then, based on the data provided, total consumer spending grew at a compound average growth rate of 5.8% to ₦40.2 trillion.
The growth occurs between 2010 and 2019, with the share of household consumer spending largely the same as the reported 58.6% of real GDP in 2019. The share of food expenditure was estimated at 56.6% or ₦22.8 trillion, little improved from 64.7% or ₦15.7 trillion in 2010.
This is unsurprising given that the share of food spending in the recently released poverty line of ₦137,430 in 2019 was 59.5%. Afrinvest attributes the large share of food spending and the slow improvement in the past decade to a slow improvement in living standards.
This is also likely to reflect the adverse impact of the economic recession of 2016 and the sluggish recovery subsequently on households, the investment banking firm added.
Meanwhile, non-food expenditure was 43.4% or ₦17.4 trillion, up from 35.3% or ₦8.6 trillion in 2010. The firm stated that comparing this data point with the existing CPI weights based on the 2003/4 Nigeria Living Standards Survey shows that the share of food would be little changed from the current 50.7% if reweighted.
It said: “The implication for the non-food component of CPI is that the share of education, health and communication services should be revised upwards while the share of utilities and clothing & textiles should fall”.
Another crucial insight from this report is the strong deviation of consumer spending pattern across regions and urban/rural areas, analysts observed.
“South-west had the highest share of consumer spending at 30.0% or ₦12.0 trillion while the North-East had the lowest share at 6.1%. We believe the reduction in the share of North-East from 11.2% in 2010 reflects insecurity which has resulted in the displacement of people”, the firm stated in the note.
According to the firm, the share of food expenditure in total consumer spending was lowest at 51.3% in the South-West and highest at 64.2% in the North-East. Then, it stated that the average share of food expenditure was 53.5% in the South and 63.1% in the North, broadly reflecting the incidence of poverty.
“Rural consumers had the largest share of consumer spending at 52.5% or ₦21.1 trillion while urban consumers had a share of 47.5% or ₦19.1 trillion”, analysts remarked.
However, while urban consumers spent 51.5% of their total spending on food, rural consumers spent a higher share of 61.3% on food. The top ten states accounted for 51.7% of total consumer spending, with the highest share by a wide margin in Lagos at 12.6%.
The investment banking firm held that the ten states at the bottom had a paltry share of 11.6% with the lowest in Taraba at 0.7%. Afrinvest sees an opportunity for a reweighting of the existing CPI index based on the 2019 consumer spending report, which reflects recent consumption patterns.
However, the firm stated that given the little changed share of food in consumer spending, it is not optimistic that this would lead to much lower inflation levels in Nigeria. Analysts explained that the food index remains the major driver of inflation in Nigeria, elevated at 14.9% in February 2020 while there were single-digit rates across other indices.
“Reducing inflation to the target band of 6-9.0% of the CBN would require large improvements in agriculture productivity and food supplies, which should translate to moderate increases in food prices”, Afrinvest stated.
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Share of food in consumers spending is considerably large, says Afrinvest
