Given what the Nigerian economy has been through since June 2023 sequel to the removal of decades-old petrol subsidy by the President Bola Ahmed Tinubu administration, the policy could be described as one with the most unexpected negative impacts. Unsurprisingly, like an albatross, the impetuous policy has turned an ignominious badge on the Government of the day; yet, the ‘ghost’ of fuel subsidy has kept looming large in the Nigerian polity. Every facet of life of the citizenry has been disrupted; with millions pushed down below poverty line unwittingly.
President Bola Ahmed Tinubu in his inaugural address on 29 May 2023, announced that “fuel subsidy is gone,” but this singular pronouncement and kindred policies of the Government have practically thrown the Nigerian economy into an abyss. Prior to the fuel subsidy removal, price of petrol (Premium Motor Spirit, PMS) was at about N185 per liter, but soon after the presidential fiat (fuel subsidy is gone), the price of the commodity literally jumped through the roof—standing at between N500 and N6oo per liter. In no time, this jump in the price of PMS drove up the prices of all goods, services and commodities to unprecedented levels.
As the prices of even the basic necessities of life (food, shelter, transportation, etc.) went beyond the reach of not a few Nigerians, inflation rate took a quantum leap—now standing at almost 26 per cent—the highest in about two decades. Concomitantly, the purchasing power of most people, standard or quality of life have deteriorated: translating into rising misery index for the citizenry. Coincidentally, as the ripple effects of the fuel subsidy removal were permeating the nooks and crannies of the life and livelihood of all Nigerians, the Tinubu administration also announced the floating of the Naira.
The Naira floatation (or unification of all exchange rates) promptly led to an unprecedented devaluation of the local currency vis-a-avis the dollar and other hard currencies. From an official exchange rate (at Investor & Exporter window) of N460/US$1 by end-May, the rate hit about N800/US$1 by end-August. In the parallel market, the exchange rate has since hit and crossed the N1000/US$1 level. The freefall of the local currency is yet on.
Even as these trends are evolving, rather than addressing frontally, the root cause(s) of fuel subsidy that had been draining trillions of Naira from our public till, the Tinubu administration elected to license more importers of PMS. Yet, it has been the complete dependence on (wholesale) importation of PMS for all local needs that warranted subsidy in the first place. A politic or perceptive approach to effective fuel subsidy removal would have been by proactively ensuring local refining or availability of PMS. In other words, the nation’s existing giant refineries (that have been lying dormant) should be re-streamed or privatized for improved capacity refining and management.
Alongside this, should also be the licensing and building of many modular refineries in line with global specifications and regulatory standards. The licensing of more importers of PMS, rather than addressing the fraud-ridden supply side of petrol, is unwittingly escalating the problems of the downstream oil sector. It is no brainer that the people being licensed to import PMS will keep sourcing dollar from the already ‘heated’ foreign exchange (forex) market. This joins in piling up pressure against the Naira—that has been on a tailspin—having already lost much value against the dollar.
The import of this scenario has been that as the licensees for PMS importation bring in the commodity at a high landing cost, its pump price is driven up. This is already playing out, as the importers procure dollars at very high exchange rate, they push to factor this into their selling price. And so, as the Naira freefall goes on ad infinitum, the prices of PMS at the pump must, all things being equal, keep rising. Indeed, acute forex scarcity has become a cog in the wheel of the PMS importation drive. Reports show that after the first batch of 27 million litres of petrol imported by Emadeb Energy in July, independent oil marketers have not been able to bring in a single drop of petrol. The national oil firm, the Nigerian National Petroleum Company Limited (NNPCL), has remained the sole importer of petrol.
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This NNPCL’s monopoly in the downstream sector has so far made a mess of the deregulation of the sector, giving NNPCL the power to continue to fix prices, and putting the country at risk of some rounds of fuel scarcity. The argument by Nigerian Midstream and Downstream Petroleum Regulatory Authority (MMDPRA) and NNPCL that other marketers were free to import petrol (as those who had applied for importation licenses had been given) does hold waters. The high and volatile exchange rate does not make business sense for marketers other than NNPCL to keep importing PMS.
Indeed, the National Controller Operations of the Independent Petroleum Marketers Association of Nigeria, Mike Osatuyi, is reported to have said that marketers were not importing petrol because of forex scarcity and the increasing price of crude oil at the international market. At this dead end, the NNPCL may have gone back to its ‘old game’ of ‘dual citizenship’ as an operator and regulator—a sole importer and price determiner! This could be why in spite of rising prices of oil in the international market (now at about US$95/barrel) pump price of PMS is ‘kept’ at N620 per litre.
It is noteworthy that the Dangote Refinery that has since been projected as the ‘saviour’ in terms of local supply of PMS has rather presented a forlorn hope to Nigerians. Commissioned in the last week of May 2023 by (then out going) President Muhammadu Buhari, the plant is yet to commence production almost four months after the ceremony. Indeed, reports indicate that the Dangote Refinery is most unlikely to be the solution to PMS supply problem in Nigeria. Its executive director, Devakumar Edwin told S & P Global Commodity Insights recently that oil refined in the facility would be bought in US dollars, not naira. He defended the decision by saying that the refinery’s location is in a free trade zone.
In the face of all these, when the Tinubu administration seems to be at its wits’ end, the International Monetary Fund (IMF) has voiced its unalloyed support and encouragement to fuel subsidy removal and forex rates unification. That is, the enthronement of full market forces in all pricing decisions in Nigeria. The IMF Representative in Nigeria, Ari Aisen, said in a Channels TV programme that the removal of fuel subsidies and unification of exchange rates must continue for Nigeria to reach macroeconomic stability.
However, given the results of these economic liberalization initiatives in the past four months, the Government from all indications, is overwhelmed by their negative impacts on the economy. Scarcity of foreign exchange is worsening; solution to PMS supply problem is nowhere in sight. Businesses are being forced into bankruptcy, while some have closed shop in Nigeria, and relocated to other climes. Even the apex bank—Central Bank of Nigeria—seems to be resorting to ‘unorthodox’ and esoteric methods in ensuring that the forex rate is kept at around N700/US$1—thereby throwing transparency to the winds. This, in all consideration, is not sustainable; neither does it inspire investor-confidence nor engender improved productivity.
Ironically, while the IMF is ‘encouraging’ the Government to sustain the painful reforms, practically all sectors of the Nigerian economy is gasping for breath. Today, neither the expected gains of the reform measures are being realized nor are the citizenry convinced the journey leads to ‘anywhere.’ This, in part, is why the Organised Labour (NLC and TUC) and their allies are still up in arms, several months after the reforms were put in place. Indeed, for the umpteenth time, ‘palliatives’ negotiations between the Government and the Organised Labour failed. Apparently, in order not to further ‘rock the boat,’ the CBN cancelled its Monetary Policy Committee (MPC) meeting that was to hold on September 25 and 26. Usually, the MPC parley come with critical updates on the economy; and also indicate the outlook.
As it is, Nigerians are at the moment left in the dark, as the Government shrouds in secrecy its handling of oil subsidy and Naira floatation. One thing that is obvious is that the Tinubu administration has not made any progress in enthroning the reign of market forces both in the forex market and downstream oil sector. On the contrary, the entire economy has been pushed further into the woods. Unfortunately!
- The author, Okeke, a practising Economist, Business Strategist, Sustainability expert and ex-Chief Economist of Zenith Bank Plc, lives in Lekki, Lagos. He can be reached via: obioraokeke2000@yahoo.com