Have you ever made a purchase you thought you were sure about, only to get home a few hours later and wish you had kept your money instead?
That unpleasant feeling is known as Buyer’s Remorse. You might experience it after buying something as negligible as a fancy shoe or as costly as a car or even a piece of land.
But it makes no sense. I mean, you are a rational and forward-thinking person and must have made certain considerations before handing over your cash. So, why feel bad about it afterwards?
Yes. Sometimes it could be that the purchase was made impulsively – You saw it, liked it, and without a second thought paid for it. But what about those times you were confident you had thought it over? Yet you regretted your decision after inking the deal.
So what really causes Buyer’s Remorse?
Although you had little or no doubt when you made your choice, you could go through a period of post-purchase rationalization. You weigh the downsides of your purchase against its benefits and ask yourself whether you truly made the right decision:
- Do I really need this item? Could I have used the money for something else?
- Was the dealer truly honest with me?
- Could I have made a better bargain?
Perhaps you begin noticing shortcomings in the quality of the item or you discover a better alternative you previously did not consider. Once there is the slightest room for doubt, you will have buyer’s remorse.
Should you find fault in your judgment, the intensity of your regret will depend on the effort and commitment you put into the purchase – How much you spent, whether the item is something you will use for a long time, how much you will have to pay to return the item (if you can return it at all), and so on.
How to prevent Buyer’s Remorse
Whenever you are about to make a purchase, two forces come into play:
- The approach sentiment
- The avoidance sentiment
The approach sentiment makes you want to pay for that item because doing so will make you happy at that very moment. The avoidance sentiment, on the other hand, makes you cautious. It is the small voice in your head that tells you not to do something you would later regret.
The sentiment that is more dominant at the time will determine your final decision and the likelihood of buyer’s remorse. None of these sentiments could be said to be negative or positive in themselves. It all depends on your ability to balance them out.
The one that presides is often the one that is more in line with your goals. For instance, the approach sentiment will take the front seat if your goal while making the purchase is to take advantage of a limited offer. Maybe the price is lower than you expected or perhaps the item is attractive and you long to have it not minding the cost.
But let’s say your goal is to save costs. You don’t want to buy the item and discover that it’s cheaper somewhere else. In such a case, the avoidance sentiment will be more dominant.
So how do you make healthier choices?
1. Ask questions
Before you commit your cash, you may want to ask someone you trust to weigh in on your decision. You might have missed something that the person will easily point out to you.
Asking questions will make you more confident and eliminate any chances for buyer’s remorse. You become certain that you considered every possible angle and there’s no way you could be wrong.
Even if the person does not agree with you, at least you get to ignore or heed their advice. That process alone will strengthen your judgment and you won’t feel any remorse after making the purchase.
2. Know when to say No
There is truth in the saying: Less is more. That you fancy something doesn’t necessarily mean you should buy it. Prevention is better than cure. Sometimes it is good to just walk away. Reducing your propensity to consume is a good decision for your wallet.
3. Spend on things you love
Even if you tend to splurge, spending on things that give you joy will never lead to buyer’s remorse. Why? Because you have the mindset that the item is worth every kobo.
4. Don’t buy stuff, buy experiences
Buying material items have a higher probability of causing buyer’s remorse. There are several other alternatives that can make you wonder if you have made the right choice. The more the number of alternatives, the greater your psychological stress.
But when you focus on experiences instead, there will be little opportunity for buyer’s remorse. Experiences are unique and not interchangeable.
5. Don’t buy on impulse
Buying on impulse could be a straight road to after-purchase remorse. A good way to avoid making bad decisions is to step away from the spot. Give yourself enough time to think it over and consider all your options.
A sense of urgency should always raise a red flag. If you are itching to have it, then you probably shouldn’t. That could be a sign that your judgment is biased.
Sometimes though, buying something on the spot could be the best decision you’ve ever made. It depends on recognizing your presiding sentiment and making sure that you are not merely being emotional. Getting emotional over a purchase should be a No.
What if you are already feeling Buyer’s Remorse?
Allow yourself to appreciate whatever it is you have bought. Rather than beat yourself up about it, take it as a learning opportunity, so that you won’t make the same mistake in the future.
Another thing you can do is to earn more money. If money wasn’t such a scarce resource, buyer’s remorse would not exist. So, the best way to get over it is to increase your earning potential.
Will the world of business change for good?
Since the ravaging COVID-19 pandemic, here are four ways the world of business has changed.
This pandemic has rewritten the future of business and from the looks of things, this sector will never be the same again.
There have been vast changes from the adoption of new technologies to the redefining of business strategies to keep companies operational. If you are still in doubt about these changes, here are four ways of how the world of business looks like now:
1. Virtual meetings
Though bad, the pandemic has served as an equalizer. How has it succeeded in doing this? Before, large companies had an advantage over small companies because they have more staff, particularly salespeople who meet with customers in person. With the health authorities discouraging close contact, both business dimensions (big or small) have been forced to leverage virtual sales meetings to market their products. Virtual meetings have now become the new normal and are bound to here to stay for a while. The advantage of virtual meetings is that they are economical hence they will keep your sales budget at a lower threshold. While sales still require a certain level of expertise, smaller firms can now also afford to make use of virtual platforms to make their marketing pitch to their audience. Given how technology is growing, virtual meetings continue to evolve, sales approaches may just change for good.
2. Working remotely rise
While previously people still worked remotely, at the moment, there is a rise in pandemic-induced remote workers and this number will continue to go up. However, it is going to be in the form of hybrid models where the staff is going to split their time between billing hours in the office and at home. Working remotely will have an impact on urban economies in that as more people work remotely, there is going to be less demand for restaurants, shops, bars, or other services that cater to the needs of commuting workers. Even then employees and companies will save a lot more on personal expenses and office space respectively. There is also going to be a reversal of patterns as more skilled and educated professionals will move to rural settings as opposed to before. Such a shift will be possible because of the availability of clear communication channels among people. At the moment, staff can share large files in zip formats that enable everyone to receive the same file folder. Sharing single files containing multiple documents will enable the compression of large files into small documents.
3. Improved customer management
The pandemic has forced people to reinvest ways of interacting with customers. While other sectors in business such as strategy, differentiation, delegation, communication, training, and execution will remain the same, customer relationship management has been changed forever. Businesses are now more dependent and reliant on their digital presence. At the moment, if you lack presence on any of the available social media accounts, you are losing big bucks. Social media also reinvented itself such that it can link users with your website and blogs. It can also help your site rank high on search engines enabling customers to find you with ease. The usage of social media will continue to go up given that some business has been born from these platforms. You will need an effective customer relationship management plan in case you didn’t have one previously to handle your newly identified customers.
4. Business radicalization
COVID 19 provides a chance for rapid business changes to occur. In 2008 when the world experienced a financial crash, it was predicted to the end of capitalism. Over a decade later, most of the capitalistic financial institutions are still in place. So, while there are elements that cannot be changed in business, after the pandemic, most organizations will need to embrace radicalism in ways that were not inconceivable two decades ago. This means that schools of business have a vital role to play in incorporating the new business strategies learned during this pandemic in their curricula. Apart from teaching strategy, finance, and marketing, business schools will have to incorporate radical measures such as cultural, ethical, and societal issues in their curricula.
Given that the pandemic is still here with us, it will continue to shape the business world in ways that have never been seen before. If you are in business, the ideal thing to do is keep an open lest you will be forced to shut your business operations!
A summer of higher food prices, limited room for monetary policy
Nigeria is facing a more fundamental supply shock, which alongside the rising transport costs is likely to drive higher food prices.
Headline Inflation has assumed a new pattern over the last three months, primarily driven by pressures in the food basket, reflecting a shock to crop cultivation from covid-19 restrictions and border closures.
In addition, more recent developments in currency markets, where the Naira has weakened, as well as the increases in petrol prices following the removal of blanket subsidies have underpinned inflationary expectations.
Looking ahead, sizable increases in electricity tariffs which came into effect in September as well as continuing fuel price pressures could see inflation head towards 14% levels in Q4 2020. Given the supply-side driven nature of the inflationary bout as well as the recent pivot to unorthodox monetary policies (which include liquidity tightening measures via CRR debits), it is likely that the CBN will ignore these numbers and persist with its current stance.
Nigeria’s inflation surged in August with the CPI rising 13.22% y/y (July: 12.8% y/y), the highest level since April 2018, largely driven by pressures in the food basket, where prices climbed 16% y/y (July: 15.48% y/y) while the core index (which includes energy prices) decelerated to 10.5% (July: 10.1% y/y). On a monthly basis, the inflation climbed by 1.34% over August (July: 1.25%) — the highest monthly number since June 2017.
Pressures in Food, Utilities and Transport are driving the rising inflation numbers
Disaggregating the inflation numbers, three segments stand out (Food, utilities aka Housing, Water, Electricity and Gas and Other Fuels, HWEGF and Transportation) as central to the pick-up in inflation, as they accounted for ~80% of the variation in the monthly CPI print.
Food was central and I shall set out my thoughts on the drivers later in this report, but on the latter two, pressures are linked to pick-up in fuel prices following the removal of subsidies in March which has seen fuel prices rise by 15% over the last two months.
Figure 1: Component analysis of monthly inflation
Source: NBS, Authors Calculation
A combination of weaker farming activity, Naira weakness and covid-19 lockdowns are behind the uptrend in food inflation
Looking at food inflation, the big pressures came from the farm produce component which accounts for over 90% of food inflation. August usually marks the start of the main crop harvest season in Nigeria which peaks in September-October and as such in normal years, monthly inflation peaks in July and decelerates thereafter.
However, in 2020, monthly farm produce and food inflation readings over the last three months are at levels not seen since 2017 which would suggest factors hurting the supply side. Indeed, most grain and tuber crop prices are moving towards five-year trend levels.
Figure 2: Component Analysis of Monthly Food Inflation
Source: NBS, Authors Calculation
In 2017, my thesis then was that a sharp Naira depreciation drove heightened exports of Nigerian farm produce into the wider sub-region, forcing an upward adjustment in domestic prices.
In 2020, in addition to the sharp shift in the FX rate as well, the sense from reading on-ground sources like FEWSNET is that Covid-19 movement restrictions hurt the flow of labourers from neighbouring countries during planting season.
Accordingly, field surveys are indicating that the area under cultivation for most grain and tuber crops is lower than levels in prior years which is pointing towards a subpar crop harvest for 2020. As such, Nigeria is facing a more fundamental supply shock, which alongside the rising transport costs is likely to drive higher food prices.
The price pressures are likely to be steep in urban centres as is evident in the spreads between rural and urban inflation which have widened since the border closures. Thus, in a departure from prior years, when regional supplies from neighbouring countries moved through the border to temper these pressures, existing blockades imply that limited relief is forthcoming.
Solving the price runaway for food items clearly involves a combination of allowing targeted food imports or at least re-opening the borders to allow regional food trade flows to resume. However, Nigeria’s economic managers appear to be on the other side of this fence.
Figure 3: Rural and Urban Inflation
Source: NBS, Authors Calculation
But money supply growth has been restrained by CRR debits in the banking sector
The textbook monetary policy response to accelerating inflation is to raise interest rates to induce a shift away from consumption towards savings in a bid to force inflation to within a target level. This pre-supposed inflation was driven by an expansion in money supply often through credit growth. A look at developments on this front would rule this out.
As at the end of July 2020, annualized growth in monetary aggregates was mixed with strong growth in M1 (+33%) and M2 (+27%) relative to M3 (+10%). The muted growth in M3 relative to the narrower measurers of M1 and M2 reflect declines in OMO bills (- 72%) after the CBN elected to proscribe non-bank domestic investors from its sterilization securities sales.
This resulted in a drop in OMO bills from NGN8trillion at its peak in November 2019 to NGN3.5trillion in July 2020. As these monies flowed unhindered into the banking system, they spurred an expansion in Demand Deposits (+42% and Quasi-Money (+24%). Although these should ordinarily stoke concerns, a look at the monetary base (M0) throws up evidence of how the CBN has still managed to sterilize liquidity: via the cash reserve requirements.
Specifically, bank reserves have expanded at an annualized pace of 132% to NGN11trillion at the end of July or by some NGN4.8trillion – which is more than double the quantum of growth in Naira terms in M3 (NGN2trillion). Effectively, as many have argued, the entire move to outlaw access for non-bank (and tacitly banks) was essentially targeted at zero cost liquidity sterilization. Thus, while there has been growth in money supply from maturing OMO bills, the concurrent expansion in monetary base via CRR debits has effectively drained the financial system of excess liquidity.
From a more structural perspective, money supply growth is often driven by two sub-parts: net domestic assets (NDA) and net foreign assets (NFA). The CBN’s use of CRR debits has ensured that NDA growth over the first seven months of 2020 has been subdued (+1.3% annualized) relative to a faster expansion in net foreign assets (+54%) following the surge in FX borrowings with the IMF loan. In simple terms, the liquidity deluge from OMO bill maturities have been managed away.
Figure 4: Growth in Money Supply
So what gives?
In the near term, my suspicions are that the CBN is set to follow the global trend of ignoring the inflation numbers, which suits its ‘home-grown’ philosophy, that has underpinned a spate of interventions across a host of sectors.
These interventions have resulted in the CBN directing credit towards certain sectors (manufacturing, renewable energy, gas-to-power, housing, agriculture etc) at single-digit interest rates in a bid to stimulate activity. In combination with the Loan-Deposit Ratio (LDR) policy as well as the arbitrary nature of the CRR debits, which are well above the 27.5% target number, the CBN has been able to force banks to boost loan volumes as a coping mechanism in the face of collapse in net interest margins from lower rates on government securities.
Though sceptics remain over the efficacy of supply-side policies on stimulating production among other unorthodox policies such as offering better rates for offshore investors relative to onshore investors, the CBN’s recent policy of lowering minimum savings rate has provided a strong signal of its direction: there will be no reward for risk-free anymore.
Will this work or not? We will have to wait to find out. But interest rates are likely to remain lower for sometime.
And 3 more things…
- Changing the definition of core inflation: Presently, Nigeria defines core inflation as headline inflation less farm produce, which reflected historic stability in fuel prices due to the existence of subsidized regime. With the removal of subsidies and 30-day averaging period, fuel prices now move from month-to-month implying higher volatility. Now is the time to change the definition of core inflation to exclude farm produce and fuel in line with the theoretical meaning. Looking back, the spread between headline and the true core definition which the NBS publishes suggests maybe we should not have tightened policy as aggressive as we did in 2016-17 by focusing communication on the true core number. Economic policies should focus on more lasting structural drivers than transient one-off shocks like fuel & electricity price hikes which tend to have disinflationary base effects afterwards.
- Adopting a more meaningful inflation target: In Nigeria, that target level for inflation is defined as 6-9% for the headline number. Given the weight of food inflation (55%) in the CPI numbers as well as elements without recourse to monetary policy (like fuel and electricity prices), some (including myself) have argued that the 6-9% target for headline is meaningless. In countries which pursue inflation targeting, the target is more refined with preference for demand-side inflation metrics like core inflation, wage inflation or personal consumption expenditures. Nigeria needs to adopt something similar.
- Explicitly incorporating FX into Nigeria’s monetary policy reaction function: In theory, the core mandate of central banks is price stability, but this does not preclude the pursuit of other objectives. In the US, the Fed has a dual mandate that explicitly includes unemployment. I believe a proper explicit mandate for the CBN is one that requires that it optimize a reaction function of price stability and an export competitive exchange rate. The price stability mandate should entail lowering some measure(s) of inflation (preferably ‘core’ demand side measures) towards a target band defined as conducive for consumption and welfare in Nigeria over a medium-term period set as 2-3 years. This allows to evaluate the efficacy of monetary policy and provides a good feedback loop. On the other factor, given the importance to policymakers we need to include that the CBN target a competitive exchange rate. The idea in mind is a variant of what obtains in Singapore, wherein the nominal exchange rate must coincide with a REER level that ensures that Nigeria’s non-oil manufacturing exports are competitive. This way, we resolve this obsession for nominal exchange rate stability. Balancing both items and ensuring better communication are the ultimate goals for monetary policy.
Figure 5: Trends in headline and core inflation
Source: NBS, Authors calculation
Nigeria’s high recurrent costs, low revenue and escalating debt numbers
Nigeria continues to face issues of poor revenue generation and a lack of will to efficiently manage its expenditure.
In the recently released Q3 2020 debt report by the National Bureau of Statistics, the total public debt was N32.22trn as of 30 September 2020, with local debt making up 62.18% of the total public debt in the period while external debt made up 37.82%.
This is similar to the country’s debt structure in the same period of 2019 when domestic debt made up 68.45% of total public debt and external debt made up 31.55%. Whilst debt to GDP ratio remains within the acceptable threshold, we are increasingly concerned about the nation’s ballooning debt service to revenue ratio.
Recall that the Federal Government of Nigeria following a series of revisions to the 2020 appropriation bill arrived at a fiscal deficit of N4.98trn. Based on the finance ministry data, an aggregation of debt monetization (N2.86trn) and New borrowings (N3.28trn) was used to finance the deficit.
The 2021 appropriation bill forecasts a budget deficit of N5.60tn which would be financed mainly by borrowings of N4.69tn, privatization proceeds of N205.15bn and project linked bilateral & multilateral loans of N709.69bn. The country’s financing structure is of concern when one considers that the budget is tilted more towards recurrent expenditure than capital expenditure and raises questions on the sustainability of the current fiscal practices.
The significantly higher recurrent component of the budget continues to drag the country’s economic growth, resulting in poor infrastructural development. Spending more on capital projects can promote industrialization, improve local purchasing power and help the federal government’s diversification drive.
Nigeria continues to face issues of poor revenue generation and lack of will to efficiently manage its expenditure. No significant cuts have been made to its overheads and statutory spending has continued to rise. Nigeria’s growing debt stock with little to show for it in terms of capital expenditure remains a major concern.
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