Implications of Nigeria's Consumption Expenditure Pattern - PFI Capital Limited

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Monday, June 08, 2020 / 11:00 AM / PFI Capital Limited / Header Image Credit: PFI Capital Limited 

 

The latest consumption expenditure data from the NBS shows that Nigerians spent N40.21 trillion on food and non-food items in 2019, of which expenditure on food consumption outside of home was highest (11.43% of total consumption expenditure) followed by expenses on transport (6.44% of total consumption expenditure) and consumption of starchy roots, tubers and plantain (6.28% of total consumption expenditure). The urban areas recorded N19.11 trillion in total expenditure of which 51.52% was spent on food items. In the rural areas, N21.09 trillion was recorded as total expenditure of which 61.29% was spent on food items while the remaining 38.71% was spent on non-food items.


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With a real GDP of N71.34 trillion in full year 2019, and total consumption expenditure of N40.21 trillion, it indicates that consumption expenditure contributed 56.36% to the real GDP of the country in 2019. For previous years, the consumption as a percentage of GDP has always been roughly 60%. The implication of this is that any factor that leads to shrinking of the disposable income of the citizens (which affects expenditure), will have more impact on influencing the GDP of the country than investment and government expenditure. It is also why downturn trends in the country are usually associated with distortion in aggregate demand more than distortion in government expenditure and private investment. In regional terms, total consumption expenditure in the North was N14.96 trillion compared to N25.24 trillion in the South. The higher consumption expenditure in the South than the North reflects geographical inequality of income distribution.

 

Figure 1: Top 10 Items by Household Consumption Expenditure (N'Bln)

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Source: NBS, PFI Capital Research

 

Nigerians spent N22.78 trillion on food items in 2019. Even though the percentage of total household expenditure spent on food items in 2019 is low (56.65%) when compared to the 60.2% level in 2009/2010, it still shows that Nigerians earn less to the extent that majority of what they earn goes into the consumption of food items. The income level is low to the extent that the citizens have less (43.35%) to spend on other essential items in 2019. Available data also showed that among the 194 countries of the world, Nigerians spend the most on food items. It therefore does not mean that Nigerians eat too much. Rather, it implies that discretionary income is low, which is why Nigerians are not great savers.

 

In 2019, a total amount of N17.43 trillion was spent on non-food items and this represents 43.35% share in the total consumption expenditure. The data further shows that Nigerians spent 10.71% more on health than they spent on services including telecoms. In naira terms, N2.46 trillion was spent on health while N2.22 trillion was spent on services including telecoms in 2019. Also health expenditure ranks higher and is a priority in the Northern region than in the South. For instance, health expenditure ranks 1st in non-food items in the North-Central, North-East and North-Western region of the country, while it ranked 5th in the South-West, 4th in the South-South and 1st in the South-East. Hence a high ranking for health expenditure in the North, compared to the South, indicates the prevalence of diseases in the North due to high rate of poor hygiene.


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Furthermore, the rural areas spend more on food than non-food items. Food expenditure constitutes 61.29% of their total expenditure compared with 51.52% in the urban areas. This it is an indication of more developed societies focusing more on non-food than food expenditure as income is high enough to afford other necessities to boost their quality of life. Notwithstanding, the fact is still that the income level is low enough for the citizens to prioritize food to take up a huge chunk of their consumption expenditure. It also implies that the lower consumption segments spend more on food than the middle and higher consumption segments combined.

 

In conclusion, the 2019 consumption expenditure pattern shows that the citizens' income is low to the extent that a larger part of it is spent on food items. It also explains the need to prioritize health and education which follows the Abraham Maslow's theory on needs hierarchy about man's quest for survival before other life aspirations. Lastly, the high consumption expenditure leaves room for low savings, which justifies the classification of Nigeria as a developing country.



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