Chikodi Okereocha, Muyiwa Lucas and Lucas Ajanaku
Experts have warned of the grave dangers the tottering economy portends for national survival. They say if urgent steps are not taken, the economy runs the risk of grinding to a halt.
From manufacturing, oil and gas, telecoms sector, the story is the same.The Russian invasion of Ukraine since February 24, last year that has led to full-scale war has added salt to the injury.
Manufacturers appear to be worse hit by the skyrocketing price of energy in the country. The Manufacturers Association of Nigeria (MAN) has expressed serious concerns about the implications of the over 200 per cent increase in the price of Automotive Gas Oil (AGO), otherwise known as diesel, on the sector and by extension, the economy.
MAN Director-General Segun Ajayi-Kadir said the increase of over 200 per cent in the price of diesel was exerting untold hardship on manufacturing.
He warned that such hardship would lead to the closure of many industries, leading to reduction in capacity utilisation, further decline in Gross Domestic Product (GDP), large scale unemployment across 76 sub-sectors and increase in crime rate, among others.
Ajayi-Kadir also expressed fears that the situation would lead to a further decrease in foreign exchange earnings from the manufacturing sector, as high cost of production feeds into export commodity prices.
He also said it would force a sharp reduction in government tax revenue occasioned by drop in sales, lower profitability, as lesser quantum of disposable income would be available to purchase manufactured goods.
The MAN DG further warned that the over 200 per cent increase in price of diesel would have a reverse-multiplier effect on the nation’s manufacturing sector, as cost of production escalates and the headways already made in the sector are grossly eroded.
He listed other unsavoury implications of the skyrocketing price of AGO to include negative spiral effects on every sector of the economy, resulting in hyperinflation, lower productivity and turnover; depressing trickle-down effects on productivity, unemployment and standard of living of the citizenry.
Ajayi-Kadir also warned that the situation would lead to uncontrollable incidences of insecurity with dangerous implications for economic and social well-being of over 200 million Nigerians.
The MAN boss said in the short term, the disruption occasioned by the invasion of Ukraine by Russia would continue to ruffle the global energy space and upset the supply of petroleum products, thereby causing persistent increase in the price of refined petroleum products, including AGO.
“In the long run, it (the Russian invasion of Ukraine) will result in enormous increase in the prices of other manufacturing input like wheat, maize, fertiliser and the raw materials.
“And by the time the current domestic reserve of manufacturing input is exhausted, in the face of acute shortfall in supply, we are afraid that the prices of manufactured products will soar,” the MAN chief warned.
He said this is so because ironically, the economy is dependent on import of refined petroleum products, including diesel and other vital manufacturing raw materials and there are no sufficient alternatives.
Members of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) also lent their voices to the growing outcry over the soaring price of diesel and other petroleum products.
The Chamber said it was extremely concerned about rising prices of petroleum products particularly diesel and aviation fuel and their far-reaching implications for the overall economy.
NACCIMA National President Ide Udeagbala anchored the Chamber’s fears on the fact that the use of these products is entrenched in the production and transportation processes of the public and private sectors.
“We expect rising inflation, a further erosion of the purchasing power of the population, and redistribution of wealth that plunges more of the population below the poverty line,” Udeagbala said.
He, however, said the hike in prices of petroleum products, particularly diesel and aviation fuel was very possibly effect of the on-going conflict in Europe, precisely the Russia-Ukraine war.
Indeed, experts have linked the rise in the price of diesel to the increase in the price of crude oil in the international market, due to the Russia-Ukraine war and of course, the fall in the value of the local currency, the Naira.
According to them, Russia is an oil-producing country, while refined petroleum products come from Ukraine and other Western European countries. But Russia’s invasion of Ukraine is said to have distorted global financial and energy markets, causing oil prices to soar above $100 per barrel. It’s the highest since 2014.
With Nigeria’s receipt from oil accounting for about 90 per cent of its earnings, it is hardly surprising that the distortion in the global oil market is affecting Africa’s largest crude producer.
Udeagbala, however, expressed worries that the distortion in the global oil market has been made worse by the lack of domestic production to meet demand despite the existence of refineries in Nigeria.
The impact of skyrocketing and punitive energy costs is also affecting the telecommunications sector. Already boxed to a corner by the situation, Mobile Network Operator (MNOs), usually referred to as Tier 1 operators, have requested a 40 per cent hike in the Mobile Termination Rates (MTRs) for both voice calls and Short Message Service (SMS) usage.
In a document addressed to the Nigerian Communications Commission (NCC) seeking the increment in end-user tariff, the operators, under the auspices of Association of Licensed Telecommunications Operators of Nigeria (ALTON), lamented that energy cost which constitutes 35 per cent of its operating cost (opex) has risen astronomically.
The document entitled: ‘Impact of the Economic and Security Issues on the Telecom Sector’, signed by Gbenga Adebayo and Gbolahan Awonuga, Chairman and Head, Operation, read in part: “We wish to bring to the kind attention of the NCC the impact of the economic and security issues on the telecommunications industry.
“The telecommunication industry has been heavily financially impacted following Nigeria’s economic recession in 2020 and the effect of the ongoing Ukraine-Russia crisis. This has resulted in an increase in energy costs (which constitute an appreciable 35 per cent of ALTON members’ operating cost).’’
“Consequently, the cost of diesel required to power operators’ towers, base stations and offices rose by a staggering 23 per cent from N225 per litre in January 2022 to over N750 per litre in March 2022.
“Additionally, the introduction of new lines of fiscal obligations via the recent Excise Duty of five per cent on telecommunications services further exacerbates the burden of multiple taxes and levies on the sector.
“As the Commission may be aware, the power sector under the supervision of its Nigerian Electricity Regulation Commission (NERC) … in November 2020 undertook a review of the electricity tariffs to cater for the economic headwinds reported above.
“In view of the foregoing, ALTON considers its expedient for the telecommunications sector to undergo periodic cost adjustments through the Commission’s intervention in order to minimise the impact of the challenging economic issues faced by our members.”
According to statistics by the NCC, as at last December, the total base stations owned by mobile telecoms operating companies increased to 38,123 from 36,998 in December 2020 across all states of the federation, representing an increase of 3.04 per cent from the previous year.
NCC also said total opex of the MNOs increased from N1.395billion in 2020 to N1.658,235billion at the end of last year. This, it said, illustrates an increase of 18.74 per cent from the figure reported in 2020.
The Group Managing Director, Nigerian National Petroleum Company (NNPC) Limited, Mr. Mele Kyari, has put the obvious situation in the country’s oil and gas sector in perspective when he said: “There is no single refinery working at the moment in the country.”
The Committee is investigating the increase in prices of diesel and cooking gas, with Kyari painting a pathetic picture of the sector and by extension, the country when he said “the refineries will not come back tomorrow. There is a process going on. We have decided to do a quick fix for Warri refinery.”
For the discerning, the NNPC helmsman’s submission is a key factor that has led to the high cost of buying diesel locally. Although, the sale of diesel has been deregulated over a decade, never has its price hit the roofs as it is presently. From selling at N290 per litre at the beginning of the year, it now costs about N850 per litre.
Marketers of the product have never stopped raising the alarm over the excruciating cost of diesel. For instance, the Natural Oil and Gas Suppliers Association (NOGASA), at a recent news briefing, warned that the cost of the commodity might rise further to N1, 500 per litre, if urgent measures are not taken to address the situation.
The National President, NOGASA, Bennett Korie, explained: “It is not that the fuel is not there, but the cost of bringing it to the stations is too high. We know that the crisis between Ukraine and Russia has contributed badly, but the importers of the product are not buying foreign exchange at the official CBN rate to import diesel.
“Everybody is going to the Black Market to get dollars to import their products and so you expect the price of diesel to be high.”
Korie, however, warned that should government cut down on the rate at which it spends foreign exchange on petrol imports, it would free up forex for other businessmen who import diesel to bring in products at low prices.
Stakeholders have suggested ways of getting out of the mesh of economic quagmire.
In light of the gravity of the precarious situation that Nigeria found itself in and the looming dangers ahead, Ajayi-Kadir said: “Government should, as a matter of priority, develop a National Response and Sustainability Strategy to address challenges emanating from the ongoing invasion of Ukraine by Russia.”
He also wants the government to issue licences to manufacturing concerns and operators in the aviation industry to import diesel and aviation fuel directly to avert the avoidable monumental paralysis of manufacturing activities arising from total shut down of production operations and movement of persons for business activities.
The MAN chief further said manufacturers and independent petroleum products marketing companies should be allowed to also import AGO from the Republic of Niger and Chad by immediately opening up border posts in that axis in order to cushion the effect of the supply gap -driven high cost of AGO.
He also wants the removal of Value Added Tax (VAT) on AGO as instant stimulus for immediate reduction in price and expedite action in reactivating or privatizing the petroleum products refineries in the country.
According to him, there is also the need to restrict the export of maize, cassava, wheat, food related products and other manufacturing inputs available in the country, and also grant concessional forex allocation at the official rate to manufacturers for importation of productive inputs that are not locally available