By Merit Ibe, Adanna Nnamani, Okwe Obi
The recent increase in the pump prices of Premium Motor Spirit (PMS) popularly known as petrol, by the Nigeria National Petroleum Company Limited (NNPC Ltd), from N586 to N897 will further weaken the economy by driving inflation up, causing business shutdowns, and pushing more citizens into poverty, economic experts have warned.
In separate reactions to the new pump prices of petrol, stakeholders, including the Organised Private Sector, the Lagos Chamber of Commerce and Industry, and small business owners, among others outlined the many negative implications of the recent price increase.
The interest groups advised the government to quickly return fuel subsidy, or provide alternative energy sources and transportation options to avoid the risk of completely driving the economy aground even as the new policy begins to take a painful toll on Nigerians.
Organised Private Sector, LCCI list implications
The organised private sector has lamented that the recent increase of fuel price by the Nigerian National Petroleum Corporations (NNPC) Limited will cause a surge in inflation rate.
The sector also viewed that expected minimum wage increase which is yet to be implemented will definitely be eroded by the higher inflation rate that will be induced by the increase in fuel price.
in its reaction, the Lagos Chamber of Commerce and Industry (LCCI) pointed out that subjecting Nigerians to a significant steep fuel price hike presents significant challenges. It emphasised the need for the government to balance fiscal responsibility with the economic impact on citizens, which it described as a complex task.
Director General of the chamber, Dr. Chinyere Almona reeled out the huge negative impact of the hike on businesses to include but not limited to poor supply and logistics, power generation, transportation and factory operations.
“The cost of doing business will skyrocket, prices of goods will rise, and some firms may shut down due to low demand in the face of weakening consumer purchasing power. Of course, this will be followed by job losses.”
Small business owners lament high cost of doing business
President, Association of Small Business Organisations of Nigeria (ASBON), Femi Egbesola, decried the high prices of commodities and rising inflation, stating that for the MSMEs sector, the way out now is focusing not on what government “will do for us, for we don’t have control over that but rather focusing on what we have control on, that is, what we can do for ourselves.”
He said the association has been building the capacity of its business community to be more innovative and creative with “our products, business and business models, diversify to basic needs products, particularly food and its value chain, work on standardization as it makes us more competitive particularly with the imported products.”
Egbesola is optimistic that the MSMEs community is determined to keep navigating the uncertainties with the clear goal and focus to survive, grow and scale.
“And with this new increase in the pump price of petrol, we don’t need a soothsayer before we know that inflation will brace up again. I foresee an above 10 per cent increase in inflation with this development. This is saddening in an economy where inflation and increase in prices is not commensurate with the workers and average citizens income.”
He noted that the expected minimum wage increase which is yet to be implemented will definitely be eroded by the inflation that the new pump price increase will cause.
“Still, critical sectors and infrastructure are yet to be fixed. Sectors like agriculture, food and its value chain, health, business environment, security and infrastructures like electricity, roads, etc.”
He noted that one would have expected a significant improvement on these before any hike in price of petrol, adding that for MSMEs, this increase is another big blow, as quite a number of small businesses are dead already.
Economists, others recommend what govt can do
Dr. Muda Yusuf, Chief Executive Officer of the Centre for the Promotion of Private Enterprise, acknowledged the difficult position of the Nigerian government on the issue, explaining that even at the current price of around N800 per litre, the subsidy burden is unsustainable.
“The reality is that this is a very difficult situation for the government and also for the NNPC. And I hope that, as citizens, we will show some understanding at this time. It’s a very, very tricky situation.
“Now, as we speak, even at the price of N600, N650, N700, the government was incurring a subsidy of almost 500 naira per litre. And if we had continued on that trajectory at the end of the year, the subsidy bill that the government would be incurring would be getting close to between 8 and 10 trillion Naira. The fact is that this is not sustainable.
Yusuf pointed out that the subsidy bill has risen to that level, because of the depreciation of the currency, because all the petroleum products we are consuming were being imported. Secondly, he said the relative price between the domestic price and the price in the sub-region, and especially our neighbouring countries, has widened considerably. He estimated that petroleum cost per litre in neighbouring countries is between 1,300 and 1,500 Naira equivalent per litre.
“We are subsidising the entire sub-region, even up to the Central African Republic. So that is the dilemma that the government is faced with. Even at this price of N800 or N800 plus, I’m sure there are still some elements of subsidy.
“I’m sure the administration has been struggling not to allow this price to increase. But I think it has stretched itself to the limit in terms of what can be fiscally accommodated. So, I think that is what has led to this situation.
“We all listened to the admission of the NNPC that it owes suppliers. So we are almost on the verge of bankruptcy as a result of this fuel issue. I know it’s not palatable for those of us who are citizens because many of us have also been pushed to the edge.
“We have been pushed to the limit because of the cost of living, the cost of operation. But this is an extremely difficult decision that the government needs to make.”
Proposing the way forward, Yusuf said: “In the meantime, I think the government needs to quickly roll out some fiscal policies to make it easy for the citizens to transit to other forms of energy.
“Use of CNG, use of LPG, use of renewable energy solutions like solar power, like wind power. We should roll out incentives that will make it easy for citizens to move on to these other energy solutions so that we have choices.
“We are too dependent on this fossil fuel, unfortunately. If we have a choice, it will be easier for us to manage this situation. They should make it easy for people to convert their equipment, their vehicles, to the use of other energy solutions.
“If we need to subsidize those accessories, those energy sources, let us subsidize it so that more and more of us can move away from this fossil fuel, from PMS and diesel. That, for me, I think is the way to go. But from what I can see, the government doesn’t have much choice in this matter.
“This is in addition to the challenges of logistics of distribution. That is also compounding the problem. Now, you have fuel landing illegally. How do you distribute it across the country? It is very expensive because the pipelines are not working. The rail system has collapsed. Most of these things are legacy problems. Although it’s very easy to put the blame on this administration, that will not be fair. These are legacy problems. If we have pipelines that are working, you can imagine the impact it will have on the cost of distribution of this product across the country.”
Yusuf also observed that if they put these products on the roads it could take up to two weeks for some of them to get to their destinations. “That has huge implications for cost. Of course, for the private sector, this is not palatable. The cost of transportation will further go up. And we have been talking about the cost of living. This also will further affect the cost of living. But I must say that it is a very, very difficult situation to manage.”
Adeola Adenikinju, Professor of Energy Economics and the Director of the Centre for Petroleum, Energy Economics and Law (CPEEL), University of Ibadan, also outlined the broad economic consequences of the federal government jacking up petrol prices.
Adenikinju noted that the increase, on the positive side, might reduce government spending on subsidies, thereby increasing government allocations to state and local governments.
He explained that “it could be that the amount that the government is spending on subsidies will fall, that will be more money for the government. So the government will have more money to share. So, due to the increased government revenue, FAAC allocation will go up.
“That will benefit the state and local governments. Also, all things being equal, it will lead to a reduction in the budget deficit because they have more revenue now.
“But in Nigeria, all things may not be equal, so the government may still continue to spend and borrow. But ordinarily, it would lead to more government revenue, and that will lead to a reduction in the government deficit. That is on the one hand. On the other hand, it also means that NNPC and marketers are able to cover their costs, because before, the price was below the market price and therefore, affecting the returns that marketers and government made.
“And then, it will also reduce smuggling, because now we are pegging the price very close to what people in neighbouring countries are selling. So it will most likely reduce smuggling.
The professor also reviewed the negative side of the hike in the price of petrol, pointing out that “it will lead to an increase in the cost of energy that will impact headline inflation. So, headline inflation is likely to increase.
“Prices will adjust. The economy will adjust. Prices will likely go up. This will also affect the real income of economic agents because your monthly income is the same, while you have an increase in inflation.
“That means that you will be able to buy lesser and lesser goods with the same amount of money. So people will become poorer because they have to reallocate their money from other expenditure items to be able to buy basic needs.
“Then it could affect businesses, because the cost of production will increase. So, more businesses will close down.”
He advised the government to reassess its economic policies, saying, “If I could advise the government, I would recommend further reducing the cost of PMS.”
Another economist and development expert, Aliyu Ilias, while expressing his dismay at the sudden price hike, noted that the increase will severely affect the purchasing power of many Nigerians.
“I think economically, it is going to have a very negative impact on the purchasing power of Nigerians. Transportation has already taken a toll on the cost of buying goods. But with this type of thing now, it is going to double because a place that used to cost N500 for transportation is now about N800 to N1000 now, and that will affect purchasing power,” Ilias said.
A political economist, Chinedu Obi, said the hike was unnecessary, given the promises of the government of crude oil sufficiency over the years.
Obi, who is the National Chairman, National Rescue Movement, said: “The money Nigerians are spending to buy fuel is unfortunate. It is even difficult to get the product. It is crazy for a country that has natural resources. Even at a point where we hear that the Dangote refinery is producing fuel, yet no fuel. It is disturbing.
“If anybody can explain Nigeria to you and you understand it then the explanation was not proper because everybody is tired of explanation. The annoying part is that nobody loses his or her job for this level of inefficiency.
You can imagine a few weeks ago, we talked about the hunger protest. Is this not aggravating the Nigerian situation? Is the increment not going to affect the situation of the country?
“I begin to wonder sometimes if our leaders are in the same country as us. Do they feel what the masses are feeling? Do they go to bed sleeping every night comfortably with their eyes closed and conscience intact that this is how a country should be run?
“Most countries of the world battle with natural disasters. All the issues we have here are man-made.
“Show me a country that has the kind of resources that we have and the citizens are queuing for fuel. It is really amazing. Anybody telling what I have told you is really not living in this country.
“If you live in this country and feel what I feel, you will know. The new minimum wage of N70,000 has not been paid to anybody. Some people are still finding it difficult to pay the N30,000 minimum wage that was the former minimum wage.
“Tell me in good conscience somebody who even earns less than the minimum wage can live with N70,000. In the last few days, people were stranded on the road because they couldn’t find vehicles to go home.”
National Coordinator of Human Right Writers Association of Nigeria (HURIWA), Emmanuel Onwubiko, argued that the development would prolong the suffering of Nigerians.
Onwubiko argued that there was no economic sense in the government’s decision, adding that the fuel hike “is antithetical to competitiveness, because that is not how market forces work.”
He wondered why Nigerians still find it difficult to get the product despite the incessant increment.
He asked the Nigerian Customs and Immigration officers to fish out those smuggling the products to other African countries.
Also, he warned against attempts by some cabals to sabotage the efforts of the Dangote refinery.
Onwubiko further argued: “Market forces are demand and supply. So, if the government said it has privatised the supply of fuel and allowed different stakeholders to come into it. Then it is not right for the government to just fix a price each time there is a problem.
“It is completely unacceptable. Since the government has always decided to moderate the price of fuel because of how sensitive the commodity is to a lot of Nigerians, the ripple effect it would have if it is not readily available, the government knows that it is completely unacceptable for the price of fuel to be so high the way it is now, and you expect that the cost of living to go down. It will not go down.
Will Dangote Refinery reduce the price of petrol?
The Lagos Chamber of Commerce and Industry is optimistic that the operation of the Dangote Refinery, which now produces petrol and diesel, offers a glimmer of hope, as the game-changing intervention could restore some stability to the oil and gas sector, which has been grappling with significant distortions this year.
Advocating for a more sustainable approach, the chamber called for the development of additional local refineries to process the crude for local consumption, noting that potential export across Africa is the way forward.
“This long-term strategy is crucial for the stability and growth of our economy.”
As an immediate intervention, the chamber suggested that it would be beneficial for the Port Harcourt Refinery to commence operations alongside production from the Dangote Refinery. Given the current challenges with importing refined fuel, relying on local production may be the most viable option at this time.
“We recommend sustaining local supplies, with the expectation that demand will eventually align with supply, leading to equilibrium pricing across various sources.”
Aliyu Ilias, a development economist expressed hope that the Dangote Refinery may stabilize fuel prices in the future.
“In the long run, the Dangote Refinery could potentially lower prices. However, the refinery cannot fix prices. It is only the Federal Executive Council and the NNPC that can determine that. This indicates that Dangote is unlikely to sell at a lower price. If it could, they would invite marketers to purchase. As it stands, prices are expected to exceed 1,000 naira, which is why they are urging the government to reinstate subsidies to ease the burden on Nigerians.”
On the potential for the Dangote refinery to provide succour, Muda Yusuf says, the only hope is that with the coming on board of the Dangote Refinery and possibly other domestic refineries, the Nigerian state would be able to manage the situation better.
“At least not to allow this price to go beyond what has been put forward. And if the situation improves, then maybe the price can even be further moderated,” he stated.
Emmanuel Onwubiko, national coordinator of HURIWA, agrees that Dangote is one of the answers to the problem. He added that: “it may not be our final answer, but it will help. One of the fuel answers is not to sabotage the Dangote Refinery. It should be protected as a national heritage. Anybody who is talking monopoly is talking rubbish. Some investors have invested their money and it is working. They should allow Dangote to supply fuel.
“They should also supply crude to Dangote in line with the mandate given by the President and allow Dangote to pay in naira so that the value of the naira will shoot up.”
But contrary to widely held views, Prof. Adenikinju of the Centre for Petroleum, Energy Economics and Law (CPEEL), University of Ibadan said that the Dangote Refinery cannot bring down the price because they will sell at international prices. “So, whatever is sold at the international market, you convert it in naira, and that is what we will be paying. Because it is not our refinery and Dangote is a businessman, he has to make a profit.
To mitigate the adverse effects on the population, Adenikinju recommended that the government implement compensation measures.
He advised that: “Government should offer compensation because anywhere you do subsidy removal, you must also take care of the poor. And then, the government should also provide an alternative transportation system. The government has been promising they will do that, but they have not been doing that. You have to have some sort of income support programme that you will use to support the income of the workers.”
Similarly, Chinedu Obi, a political economist said: “I see the capacity of the Dangote Refinery. If they are not using the naira to buy crude, they can now produce locally and we will not have cause to import.”
