Business
Fuel Hike: Price Hike’ll Transfer N5trn from Nigerians to Govt, Worsen Energy Poverty –Rewane
He also projected that the recent hike of petrol price would astronomically increase the number of Nigerian citizens trapped in energy poverty from 161 million in 2023 to 168 million in 2025 if the current price hike is not reversed.
Chief Executive Officer of Financial Derivatives Company Limited (FDC) and economist, Mr. Bismarck Rewane, has projected that the official recent hike in the pump price of petrol by 50.1 per cent, from N568 to N855 per litre, would take N5 trillion from Nigerian consumers to the government and heighten energy poverty.
He also projected that the recent hike of petrol price would astronomically increase the number of Nigerian citizens trapped in energy poverty from 161 million in 2023 to 168 million in 2025 if the current price hike is not reversed.
Mr. Rewane said that the price hike may strengthen the exchange rate of the naira, as liquidity decreased, but it “may instigate social unrest as citizens react in frustration.”
His latest projections were made last week in his monthly presentation at the Lagos Business School (LBS) Breakfast, titled, “All That Glitters are Not Gold.”
READ ALSO: Will Dangote petrol bring relief to Nigerians?
Nigeria Is Not Meant To Exist, A Collateral Damage And British Royal Niger Corporation -Burna Boy
Fuel: Reverse Petroleum Price Hike Now, Rep Minority Caucus Tells FG
The Economist said that the as the Dangote refinery begins production of petrol it will offer relief to consumers by addressing the supply challenges, but price of petrol in Nigeria will be determined by the global price of crude oil.
In his words, “The macroeconomic and welfare impact of the new price of petrol, now adjusted to N855 per litre from N568 per litre, implies that N5 trillion is withdrawn from consumers and transferred to government,” he said.
He pointed out that this can lead to re-inflation in September as logistics cost escalates and consumer demand suffers a decline due to income squeeze, while “energy poverty could quicken to 76.3 per cent (168 million) in 2025 from 71 per cent (161 million) in 2023.
“Exchange rate could strengthen as liquidity decreases and fiscal deficit declines as government revenue increases.”
“The petrol production by Dangote refinery will offer relief to consumers by addressing the supply challenges, guarantee the quantity and quality of refined products, but not the price, as no producer will sell below its production cost”.
As a result, “domestic price of petrol depends on the global price of oil, smuggling of petrol to the ECOWAS region will reduce as Dangote Refinery can sell directly to those countries.”
He projected that “Nigeria’s demand for PMS will stabilise at 35 million litres per day.”
Rewane noted that the macroeconomic impact of the Dangote refinery will basically include increase in petrol supply, elimination of petrol queues at fueling stations, improvement in quality of petrol product, increased GDP aggregate output, improvement in balance of trade, and bolstering of employment opportunities in the economy.
He faulted analysts’ expectation of an end in monetary tightening after 850bps increase in Monetary Policy Rate (MPR) stating it might be unrealised, as the new increase in petrol price and its inflationary pressure might hinder the Central Bank of Nigeria (CBN) from reducing rate.
In his words, “The petrol price spike will renew inflationary pressures. Therefore, analysts’ expectations for a slash in interest rate will have to wait till January 2025.
“Fiscal policies are also needed to tackle structural inflation drivers, such as insecurity, infrastructure deficiencies and import dependence.”
“Sectors that expanded in Q2’24 are mainly labour inelastic sectors”, while labour intensive sectors that lagged during the period increased by 8.69 per cent, from 32 in Q2’23 to 36 in Q2’24.
The Economist made a comparative analysis of sectorial growths between Q2’23 and Q2’24, stating that manufacturing slowed to 1.28 per cent, from 2.20 per cent; agriculture slowed to 1.41 per cent, from 1.50 per cent; construction slowed 1.05 per cent, from 3.27 per cent; real estate slowed to 0.75 per cent, from 1.70 per cent; and trade slowed to 0.70 per cent, from 1.31 per cent.
As a result, there is “reduced employment opportunities, slower economic growth, supply chain disruptions, increased import dependency and rising inequality and investment deterrents”.
Rewane added that if there will be increase in electricity generation to 6000MW, from 4000MW, within the next three to six months it would lead to a quantum leap in power supply stability.
Stressing that the improved power generation and supply on Nigeria’s economy would attract Foreign Direct Investment (FDI) inflows, enhance economic stability, encourage higher industrial output and job creation that would lead to GDP growth, as a 1000MW increase will lead to 0.5 per cent in GDP.
He said not only that improved power generation and supply will attract Foreign Direct Investment (FDI), it would also afford consumers reliable access to electricity, decreased cost of generator use, improved comfort and quality of life and more disposable income for other needs.
Rewane concluded that increased supply of electricity would enhance investment opportunities, reduce cost of production, boost investor confidence in the broader economy, increase productivity, and improve productivity for small businesses as well.