Nigeria’s GDP dropped to 2.31% in Q1 2023
File: Market in Nigeria


There are strong indications that the present level of economic hardship plaguing Nigerians may be a a childs play compared with what lies ahead if the twin problem of high cost of energy and scarcity of foreign exchange remain unabated.

Increasing number of makers and providers of essential goods and services are looking the way of imminent upward review of prices as the only option to remain in business and sustain the quality of their services to their customers in the face of spiraling cost of production.

In the past two months, skyrocketed prices of petrol, diesel, aviation fuel, kerosene, and cooking and industrial gas have conspired with acute power blackouts amid higher tariffs to destabilise business and social activities across the country.

Operations of schools, households, hospitals, SMEs, transporters, and businesses are currently constrained by the steep rise in the cost of diesel, with a litre now selling at between N720 and N800 from N260 per litre in December 2021.

While the federal government continues to argue that prices of diesel, aviation fuel, kerosene and gas have been deregulated, analysts say as long as the naira continues to decline and Nigeria imports these products, prices will not come down.

On the international front, the prices of oil and gas have risen sharply after Russia invaded Ukraine on February 24. From under $80 per barrel in December, a barrel climbed to $130pb before decreasing 32 cents, or 0.3 percent to $104.39 a barrel on Friday after members of the International Energy Agency (IEA) agreed to join in the largest-ever United States oil reserves release.

President Joe Biden had announced a release of one million barrels per day of crude oil for six months from May, which at 180 million barrels is the largest release ever from the U.S. Strategic Petroleum Reserve (SPR).

Although the 2022 Budget benchmark for oil is $62pb, Nigeria is a major loser for failing to revive its four moribund refineries with installed capacity of 445,000 barrels per day. Despite being a major oil and gas producing country, Nigeria as a net importer of refined petroleum products, uses up huge resources to fund imports, with the national currency losing value daily.

According to the 2021 report of Organisation of Petroleum Exporting Countries (OPEC) , Nigeria exported petroleum products worth $27.73 billion in 2020, but imported refined imports worth $71.28 billion, leaving a huge deficit of $43.56 billion.

The Ministry of Finance says the government pays N150 billion monthly on petrol subsidies while other estimates put the figure at $7 billion annually.

Scampering for safety

The Manufacturers Association of Nigeria (MAN) whose members spend N100 billion monthly on alternative energy sources that add 40 per cent to costs, said, The direct implication of this trend is that Nigerians will feel the heat, as it is reflective through the high cost of goods in the market owing to the high cost of production.

Few days ago, bakers under the aegis of the Premium Bread-Makers Association of Nigeria (PBAN) said a harsh business environment triggered by rising energy costs and increasing forex rates has caused some of their members across the country to shut down their business operations.

PBAN President, Emmanuel Onuorah, expressed concerns over what he called the lackluster attitude of the government towards addressing the harsh operating environment faced by businesses.

He said, Companies are shutting down their businesses as a result of the increase in the price of diesel. Some of my members shut down (their business premises) again this week. So many other companies are closing down.

As we speak, operators in the sachet water business segment are on strike. Theyll likely increase the price of sachet water to N25 or N30. We dont even know where this thing is tending towards. Bigger companies are closing because of operating costs. Businesses are going under.

Onuorah revealed that wheat suppliers have suggested a possible scarcity of the product within the next two weeks, indicating that the price of bread may go up significantly.

Hospitals now have to ration diesel. Energy is the key. We understand that in two weeks time, there will be a scarcity of wheat and the millers will raise their prices to N30,000 or N40,000, he added.

Also, telecommunications services providers under the aegis of the Association of Licensed Telecoms Operators of Nigeria (ALTON), have said a tariff review for telcos services may happen if the rise in the price of diesel is sustained.

“We are actually in a very bad situation. And how this will play in end-user pricing requires us to follow the right channel, the regulatory procedure for conveying our complaint to the regulator,” ALTON Chairman, Gbenga Adebayo, said.

According to Adebayo, telcos will continue to ensure that there are no service disruptions in the nation. However, he added that there might be a need for a tariff review if the present diesel crisis persists.

“The diesel situation is a problem at this time. We are doing all that we can to ensure the business continues as usual in all cases every other circumstance,” said Adebayo.

“The assurance for the public is that there would not be a time of outage because of the current diesel crisis. What I cannot assure is that at some point there may not be a consideration for some form of tariff review. I cannot guarantee that it will not happen sometime in the near future. I cannot guarantee that.”

On Wednesday, the Senate asked pay-TV service provider, Multichoice to reduce the prices of its DStv and GOtv packages owing to the prevailing economic circumstances of the country. Multichoice had penultimate week increased the prices of its DStv and GOtv packages, citing inflation and rising cost of production.

“In light of the rising costs of inflation and business operations, we have had to review the price of our packages to keep delighting our customers with great entertainment, anytime and anywhere,” the company said in a statement.

The resolution of the upper legislative chamber followed a motion sponsored by Abba Moro, senator representing Benue south.
Nigerians are demanding that, rather than paying fixed rates for packages monthly, pay-TV service providers should introduce a subscription model which allows subscribers pay-per-view to enable them to match their TV consumption to subscription as it is with the case of electricity metering and mobile telephony, Moro said while moving the motion.

In event Multichoice chose to dare the Senate, its DStv package now cost: Premium (N21,000), Compact + (N14,250), Compact (N9,000), Confam (N5,300), Yanga (N2,950), Padi (N2,150), Business (N2,669), Xtraview + PVR access fee (N2,900). And the new prices for GOtv package will now be: Gotv Max for N4,150, GOtv Jolli for N2,800, GOtv Jinja for N1,900, GOtv Lite for N900.

Disturbingly, there are no signals that the nations forex crisis may be abating anytime soon. According to data from the Central Bank of Nigeria (CBN), Nigerians spent a total of $39.66bn on foreign education and healthcare-related services between 2010 and 2020.

The CBNs Balance of Payments report revealed that Nigerian parents and guardians paid about $28.65bn for their wards to study abroad during the period under review. It also showed that Nigerians paid $11.01bn for healthcare-related services in foreign countries.

The amount spent on these foreign services is almost equivalent to the current value of the countrys foreign reserves which stood at $39.51bn as of March 23, highlighting its high cost.

According to the report, the high cost of these services has drastically increased the demand for foreign exchange in the country, which has put a strain on the value of the naira to the dollar. The local currency closed at N417.00/$1 at the official market and N587.00/$1 at the black market on Wednesday.

Stemming the tide

Experts say to stem the steady fall of the naira against the dollar, the federal government should as a matter of urgency put an end to the festering crude oil theft, boost oil production and put in place necessary measures to aid local production and exportation of other goods.

The Chief Executive Officer of Cowry Asset Management, Mr Johnson Chukwu, said naira had continued to suffer a free fall because of weak foreign exchange earnings, due partly to the low crude oil production, crude oil theft and low export of goods.

He said, Its all about how much you spend on importation compared to how much you earn from exportation. We are not producing enough so we dont have enough resources to support the naira.

The immediate solution is to stop crude oil theft so we can make more revenue, and the long term solution would be to diversify our economy so that we can produce more exportable commodities or produce more of what we consume to limit our importation.

According to Chukwu, the CBNs interventions, like the closure of Abokifx and ban on the sale of forex to Bureau De Change, could not bring down the price because the current price was a product of demand and supply.

Also, the President, National Association of Chambers of Commerce, Industry, Mines and Agriculture, Ide Udeagbala, said critical infrastructure like power should be fixed to boost local production of goods, both for local consumption and export.

He said, The exchange rate could get to between N600 and N700 to a dollar with the way its going, as long as we are not exporting and we import almost everything.

However, how do we talk about production when there is no electricity? The national grid collapsed twice two weeks ago and people had to buy diesel at N700.

So, the solution is that we must produce enough for export to earn forex. Crude oil theft is also an issue. If we are expected to produce two million barrels per day and today we are at 1.4 million bpd, is it difficult to know why we are here?

In his intervention, the Chief Executive Officer, Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, said apart from addressing crude oil theft and boosting production, government should consider a flexible exchange rate policy regime, different from devaluation.

“This model would enhance liquidity in the foreign exchange market, reduce uncertainty in the forex market and enhance investors confidence,” Yusuf argued.

Also, it is a more transparent mechanism for forex allocation, it minimises discretion in the allocation of forex and reduces opportunities for round-tripping and other sharp practices.

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