The reality today in Nigeria is that pump price of fuel which was selling at 195 Naira per litre before the swearing of the President and the removal of subsidy payments has become a worrisome talking point. Following the announcement of the removal, the pump price went up to N530 per litre, an increase of over 200 per cent.
Today, under two months, the price is now N617 in Abuja, but higher in most other cities in the Federation. In fact, I did see a headline that claimed that pump price in Ilorin, Kwara State is now N700! I have not bothered to corroborate this alarming, screaming and frightening announcement. Therefore these are interesting times to live in Nigeria considering the fact that increases in pump price of fuel have a holistic effect on prices across board in the economy and a terrible add on effect on inflationary spiral in the economy.
There is something that does not quite jive with the game in town; we were told that subsidy has been removed and that the prices have been deregulated. But the announcement that NNPCL has increased pump price of fuel is not in sync with the prevalent scenario. If we now operate in a deregulated market, it is no longer NNPCL that is in charge and indeed something is wrong with NNPCL making the announcement in the first place. Simply, it should just be announced, if at all any announcements were required that pump price of fuel has gone up to N617. May be because we are in transition and would surely get there as matters crystalize.
Therefore, the journey to a deregulated market, to say the obvious remains work in progress. It has been reported by the Regulator mid-stream and downstream that 66 Marketing Companies have been licensed to go into importation of fuel but ten companies have placed orders for delivery during the third quarter July/September, 2023. Three companies have received supplies. The goal is for NNPCL to stop importation leaving the marketers to take over. What is worrisome is that we have still retained the old mindset, procedures and processes while claiming to have deregulated. In a deregulated environment you will never see this level of quantum increase in one fell swoop. The rate of increase in pump price is alarming and could provoke protests which the country should better avoid. And this observation must be food for thought which should engage and arrest the attention of the authorities.
Labour Unions have sounded belligerent as we anticipate their response. Labour has lamented that the Government itself went to court to checkmate proposed industrial action but not respecting the status quo ante has gone ahead to increase the price of petroleum products. But the market does not respect such niceties and the note of caution we wish to sound here is that we must not continue to take public reactions for granted.
There is certainly a consensus in the land that the subsidy payments were not good and must be stopped. But the only problem is that we have not been sequential, deliberate and intentional as we did so. My preferred approach has always been that we should tackle this problem from its root cause. There will be no subsidy to pay if we stopped importation today. So, why not aim to stop importation in the shortest possible time. And this target is within reach with the Dangote Refinery inauguration waiting commencement of operations. We should have poured all efforts to ensure that this Refinery came on stream in the shortest possible time. We just received confirmation from the company that the indicated July/August commencement for the first products of the Refinery to hit the market is still on course.
As far as we are concerned, we see Dangote Refinery coming on stream as a game changer, which has the potential for making positive impacts on the fortunes of the economy with quick results. There is of course the argument from some quarters that the Refinery will not impact local pump price! That is the product of shallow thinking I must observe. Nigeria will supply crude for the Refinery in Naira and the Refinery will sell products to Nigeria also in Naira. Automatically the negative impact of exchange rates is out of the calculations. Other add on costs due to importation such as freight, insurance, demurrage will no longer apply. Even as we expect Dangote to sell to Nigeria at the going market rates in Naira, there is no way the pump price will not be drastically reduced.
We must also encouraged the modular Refineries to get serious with targeted incentives to commence operations. Though we have been assured that the maintenance of the Port Harcourt Refinery is almost completed, we remain convinced that there is no point allowing the local Refineries to continue to constitute drain pipes on the Treasury. We reached the firm conclusion that government does not have the capacity to keep refineries in operations profitably. Our well-considered recommendation will be to take them to the market for sale. But we must not continue to sit on our hands and just allow such low hanging fruits to go begging. We better get cracking on these recommendations.
We have been informed that what is responsible for the recent hike in pump price is that the price of crude went up recently from 70 to 80 dollars a barrel. And you say to yourself what an irony? A country that is the eight producer of crude in the world has its citizens groaning because its price went up! That has been the dilemma of the Nigerian situation. There is also the explanation that pump price must reflect the reality of the market; please interpret to mean the falling rate of exchange!
We compounded the problem by also attempting to remove multiple rates of exchange rate in our market. Although a laudable long anticipated objective but what about the problem of sequencing? What we have now done is to pile up pressure on our citizens which runs contrary to what should be the focus of governance. The misery index in a country with 130 million out of 200 million designated as suffering from multi-dimensional poverty and 54% youth unemployment rate should be to work to bring some succour and not otherwise as it is currently the case.
Once again the root cause of the multiple exchange rates in the country is a combination of lack of productivity to earn badly needed foreign exchange and the consequences of macroeconomic instability which is anathema to attracting foreign investors. There are of course a number imperatives we needed to address to make the Nigerian environment attractive; security issues, stability of policies, infrastructural bottlenecks, ease of doing business considerations; entry visa challenges, clearance experience at our points of entry, keeping inflation under control etc. It is not realistic to expect all of these to be handled in one fell swoop. But we must get cracking.
As should be expected there are far reaching consequences most of which are unpalatable. I don’t know how many of us appreciate fully the consequences of an inflation rate that is close to 23%! For a very long time the authorities have targeted and worried on attaining single digit inflation rate. But for now, we must admit that we have lost that battle. No doubt we have all felt the quick and sudden increases in the price of good and services which have negatively impacted the misery index in the land. I have not seen anything like the current galloping rate of price increases in the economy before!
It has just been reported that the Federal Accounts Allocation Committee will share a whopping amount among the tiers of government at the end of July, 2023 which stands at N1.9 trillion, which is over three times the amount of N 786.161 billion which was shared in June. And also over three times the N 655.93 billion that was shared in May. Although the actual value of this humongous amount has been eroded by the inflationary spiral, those at the helm must he held accountable. There must now be no reasons for non-prompt payments of salaries and pensions for instance.
An approval for palliative disbursement of 800 billion Naira to be made to 12 million households over an initial period of six months has been received even though the President has asked for review following the reactions of compatriots. There are issues with palliative payments in Nigeria in the past. It was not transparent. Do we have a Register in place? What scientific approach was applied for compilation of this Register if at all available? What is even more is that such payments don’t amount to much in addition to the consideration that such funds are usually misapplied by those in charge. It is better to concentrate on providing services and sundry reliefs which will ameliorate the suffering in the land.
The National Assembly in approving the Supplementary Budget approved for itself 70 billion Naira as palliative payments to its members as well as 40 billion Naira for the purchase of SUV cars. How sensitive do we think such decisions are in the midst of so much hardship? Well, Femi Falana, if I read him well, has gone to court to stop this measure from being implemented. But it is best to move to adopt some of the recommendations presented herein as the path we have now adopted is not the safe way forward.
Dr. Boniface Chizea, a retired banker, top Economics & Business Development Consultant is the CEO, BIC Consultancy Services, Lagos