Cheta Nwanze, Lead Partner, SBM Intelligence

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Subjects of Interest

  • Fiscal Policy
  • Geopolitical Analysis
  • Governance
  • Politics

COVID-19 and pandemic economics in Nigeria 08 Apr 2020

Monday, February 24, was my first day at work after three weeks of being sick (not with Covid-19) and off from work. Coincidentally, my team published a report on the same day about the effects of coronavirus (COVID-19) on Nigeria’s economy. I was quite proud of their efforts. After looking at the raw data they compiled, I immediately went shopping for face masks.
That moment of panic-buying might have proven unjustified thus far. But at the time, it was the natural reaction to a highly infectious disease that has continued to spread across the world, sending people into isolation and quarantine. By Friday, February 28 when the first COVID-19 case was reported in Nigeria, the reactions of consumers and sellers confirmed my team’s report.

Prices of face masks (also called surgical masks) in Lagos shot up by up to a factor of eight from the ₦12,000 I paid a few days earlier for a packet of 20 masks. Many Nigerians, especially on social media, took exception to this price gouging. But the profiteering went beyond face masks to food items as consumers moved to stock up on food.

Based on data gathered for the SBM Jollof Index, a composite index that tracks prices of the main ingredients for Nigerian staple foods, the quantity of garri that was sold for ₦130 before COVID-19 outbreak now goes for ₦180 in Bodija and Oja Oba markets in Ibadan, Oyo State, while yams that sold for ₦1,500 are now ₦2,500.

The Consumer Protection Council (CPC) was flooded with complaints of overcharging. In fact, stockpiling and the ensuing price gouging was reported across the globe for items like hand sanitizer, toilet paper and other emergency supplies as cities and towns prepared to go on lockdown.

At the heart of it all, panic-buying is a type of herd behaviour, which describes how individuals in a group act as a collective and think in a similar fashion. The phenomenon derives its name from how a large group of animals of the same type flees from danger. Animals – such as cattle, wolves, or migratory birds – possess a sophisticated form of social organisation. Panic-buying as a herd behaviour is usually observed during bad events such as a looming natural disaster, demonstrations and general strikes.

There have been many episodes of panic-buying in contemporary history. Following Germany's default on its reparations payment to the Allies under the Treaty of Versailles that was signed at the end of World War I, a debt crisis and the 1922-1923 German hyperinflation occurred. The crisis led to the collapse of the German mark, a run on the banks and panic-buying, precipitating one of the worst hyperinflation episodes in history. A loaf of bread, which cost around 160 marks at the end of 1922 in Berlin, was selling for 200 billion marks by late 1923. The panic-buying of metals, gold and oil on international commodity markets followed the September 11 attacks in the United States.

Pandemics have also caused their share of panic-buying. I remember dramatic scenes from the SARS (Severe Acute Respiratory Syndrome) outbreak of 2002-2004. Several rounds of panic-buying of various food products took place in Shenzhen, Hong Kong and other cities. The 2009 flu pandemic also led to the depletion of food stockpiles around the world.

Black swan events have consistently demonstrated mankind’s capacity to make a run on the banks and the markets. And in any capitalist society, sellers are often too eager to use such events and the herd mentality that drives people to go on panic-buying as incentives to make "obscene" profits. Many sellers have used the COVID-19 pandemic to do the same. But ironically, price gouging backfired this time around in the United States, the most capitalist country in the world.   

Amid an outcry that millions of people across the US were searching in vain for hand sanitizers and masks while some others were profiting from the public health crisis, Amazon, eBay, Walmart and other major e-commerce platforms suspended the accounts of thousands of their sellers who were overpricing the items.

The New York Times reported that two brothers, Matt and Noah Colvin, were stuck with 17,700 bottles of hand sanitisers and other supplies they had stockpiled after Amazon removed their listings due to the retail arbitrage. In the end, they had to donate the items to a local church and first responders.

The late Anthony Bourdain said Nigeria has a "go-go, unrestrained capitalism completely out of the control of the government." With no one to check them, Nigerian sellers have this time exploited every opportunity of herd behaviour to create artificial scarcities and raise prices of items, whether they are masks, hand sanitisers, petrol or food items. Nigerians who need these items usually have no choice but to pay the exorbitant prices.

Another form of panic-buying in Nigeria occurs when there is a possibility of a currency crisis. The negative outlook on the global economy caused by the impact of COVID-19 has pushed crude oil prices below $30 per barrel at the international oil market, putting the naira under further pressure. Increased speculation in the foreign exchange market last month led the Central Bank of Nigeria (CBN) to move the naira's official exchange rate to the dollar at N360 from N307 and moved the exchange rate at the investors and exporters window from N360 to N380 per dollar.

Currency crises tend to display herding behaviour as foreign and domestic investors convert a nation’s currency into physical assets (like gold) or foreign currencies when they realise the government might face a debt crisis. Whether the effects of the panic-buying on the economy would be severe or mild in the short-run would depend on coherent policy responses to the COVID-19, which has caused two fatalities and infected over 130 people in the country as of March ending.