Nigeria bites economic reform bullet. Stable prices of basic foodstuffs make measures bearable

Samuel Sholoye, a Lagos taxi driver is unhappy. Since the Second Tier Foreign Exchange Market (SFEM) - a government plan to create a more realistic exchange rate - was introduced last September the cost of spare parts and maintenance for his aging yellow Peugeot 504 has more than doubled.

Nigeria's small but powerful middle class - Army officers, civil servants, businessmen - has been hardest hit by the government's economic austerity plan. Prices of imported luxury goods such as stereo sets and video recorders and refrigerators have gone way up.

The first weekly auction of foreign exchange brought a 66 percent devaluation of the currency, the naira. The posh lifestyle of many Nigerians accustomed to cheap imports plummeted. ``But devaluation was long overdue. They knew it was coming and there was no option,'' one observer says.

Many analysts of Nigerian affairs had forecast a sharp increase in inflation as traders and manufacturers sought to maintain profit margins by hiking prices. ``Instead Nigerians stopped buying. They couldn't afford the new prices,'' an economist explained. ``Nigeria has changed from a seller's to a buyer's market.'' People who hoarded food and consumer goods, expecting to make a killing after devaluation, have been saddled with huge stocks. Even basic items such as soap are piling up as people buy less expensive substitutes.

Some observers had predicted there would be political turmoil. But so far, inflation has risen only slightly, and forecasts of political turmoil have proved unfounded.

A major reason why devaluation and the economic reforms have gone smoothly is that the cost of basic foodstuffs such as cassava, yams, and maize has remained stable. And good harvests have left markets full.

The transport industry has been the hardest hit by the devaluation and other economic reforms, including reduced protection against imported vehicles. And observers warn that rising transport costs could push up food prices and accelerate inflation.

Air travel used to be remarkably cheap because of the overvalued naira. But since SFEM, international air fares have increased by 94 percent. The huge disparity in the price of tickets bought in Lagos and abroad has resulted in fraudulent cross-border ticket sales and losses of ``tens of millions of dollars,'' according to an airline representative in Lagos.

Perhaps those who have lost most are the northern Muslim Alhaji traders, civil servants, and others who made immense fortunes through the former import licensing system. Import licenses were one of the main forms of political patronage during the last civilian regime, overthrown by a military coup three years ago.

The licenses enabled importers to obtain scarce foreign exchange and bring in goods cheaply at the overvalued official exchange rate. The goods were sold at huge profits on the local black market because of an acute shortage of most imported items. Under the new system, licences are automatically issued to successful bidders at the weekly foreign exchange auctions.

The increased number of food imports that are banned under the economic reform - live poultry, eggs, vegetables, rice, and maize - is likely to lead to a change in eating habits. The government clearly hopes these bans, combined with higher producer prices and improved supplies of agriculture materials and services will make farming more attractive.

Mr. Blackburn recently returned from a lengthy assignment in Nigeria.