Economy

Nigerians groaning in pain, agony as higher fuel prices shrink incomes, worsen poverty

•Hike will shrink corporate earnings, stockbrokers warn

Less than 24 hours after the National Bureau of Statistics (NBS) released data about the June inflation, which rose to its highest in close to two decades, marketers of the premium motor spirit (PMS), yesterday, jerked up the price by about 25 per cent to N617 per litre without notice, throwing millions of Nigerians into panic.

 

The increase came less than two months after President Bola Tinubu, in his ‘subsidy is gone meme’, removed the age-long social scheme and declared the downstream sector deregulated, reports The Guardian.

 

The cost of commuting responded spontaneously, especially in urban areas, in some cases by as much as 50 per cent – demonstrating the instantaneous effect of fuel price on the prices of essential services.

 

Experts, including the former head of the NBS, had warned that subsidy removal could cause year-on-year (y/y) changes in inflation to 30 per cent in June. The projection came before the floating of the naira, which has caused an over 60 per cent rise in the exchange rate.

 

Amid widespread doubt about the credibility of the June inflation update on Monday, NBS explained that “the June consumer price index (CPI) numbers may not have fully captured the impact of the fuel subsidy removal and the unification of the exchange rate” as the data used stopped at the middle of the referenced month. The NBS added that the new prices would be seen in the numbers of the subsequent months starting from July.

 

The new fuel increase and steep fall of the naira in the past two weeks may have only added fresh fuel to the inflation concern, which stakeholders said could trigger social upheavals in the coming months. The situation could also compound the woes of the unemployed and private sector workers, whose demand for pay raise is extremely inelastic and kneecapped by the poor performance of the economy and high rate of employment.

 

The misery index, a metric that determines the overall economic performance of an average citizen, experts have also warned, could also spike in the coming months and undermine whatever long-term gains the ongoing reforms hold for the country.

 

The government has continued to dilly-dally on the implementation of palliatives to cushion the impacts of the planned subsidy removal, which the World Bank said could push as many as 7.1 million Nigerians into deeper poverty.

 

In the first five months of the year, according to the Nigerian Development Update (NDU), high inflation dragged about four million Nigerians into poverty. The report said the palliative would need to be expanded sufficiently to reasonably deflate the impact and return the economic status of millions of individuals affected to the pre-subsidy removal era.

 

Last weekend, the President was called out by millions of netizens over his plan to implement the monthly cash handout programme of N8,000 per household to 12 million households. There was an extensive debate about the real value of N8,000 for a household when a 50 kilogramme bag of rice sells for N40,000 or five times the amount qualified Nigerians would receive from the government monthly.

 

The debate is now complicated by the increase in the pump price of fuel. The Nigeria National Petroleum Company Limited (NNPCL) took the lead with all its retail stations in the Federal Capital Territory (FCT), Abuja dispensing at N617 per litre yesterday, while other marketers followed with a slightly higher price.

 

It was learned that the increase followed a meeting held by the players in the industry yesterday, to factor in the current crude oil price which was $78.47 per barrel as of yesterday as well as the floating of the naira, which has shifted exchange rate to about N800/$.

 

While some retail stations in the early hour of Tuesday sold at N540 per litre, they immediately shut down their operations to change their prices to N617/litre even as most stations in Abuja and Lagos were already thrown into long queues as most people rushed to buy at an old price but met disappointment.

 

While the masses struggle to accept the reality amid the floating of the Naira and rising inflation, they woke up, yesterday, to an increment of N77 for those living in the Federal Capital Territory. The total pump price of the product was selling at around N77 per litre about 11 years ago.

 

Insiders at NNPCL and Nigerian Midstream Downstream Petroleum Regulatory Authority (NMDPRA) said the marketers and the regulators were on the same page regarding the increase, although the basis upon which the current price was decided is not transparent.

 

Chief Executive of NMDPRA, Farouk Ahmad, had said NNPCL arrived at the previous pump price using an exchange rate of N650 to a dollar. The floating of the Naira changed the calculation. The exchange rate is now around N800/$ as oil prices hover at $79 per barrel.

 

The concerns for most stakeholders were that the pricing is not transparent as the market cannot provide details of the different components through which the N617 per litre was arrived at.

 

Besides, promises to revive local refineries and reduce the cost component of the product remained a mirage as inefficient haulage and operational expenses remained a burden for the consumers.

 

Energy scholar at the University of Ibadan, Adeola Adenikinju, said the development is not surprising, adding that the naira has depreciated in the last few weeks.

 

“In addition, crude oil prices climbed above $80 per barrel. The reality about tradable goods is that prices go up and down, nothing special. Prices of Garri go up and down as determined by market forces,” he noted.

 

He insisted that there was a need for more communication from the government, adding that early implementation of palliative and intervention programmes remained sacrosanct.

 

Energy Expert, Henry Adigun noted that the initial price of the pump arrived at by the NNPC did not align with market realities, adding that the national oil company had more access to the dollar compared to the other marketers.

 

“These are expected and not unnatural. Everything we adjust to the floating of the Naira,” he said.

 

Former President of the Movement for the Survival of the Ogoni People (MOSOP), Ledum Mitee, said the development remains sad and requires urgent intervention.

 

“There is no country in the world that does not subsidize the welfare of its citizens; we cannot be an exception. If what is reported as the National Assembly palliative is correct, it would be insensitive and unfair to the citizens and the President needs to intervene urgently,” he said.

 

A professor at the University of Cape Coast and energy expert, Wunmi Iledare, noted that the two factors affecting PMS supply are forex rate and international crude price dynamics, as such if the demand for PMS does not change, then the market clearing price has to go up.

 

According to him, inflation is not the reason for the rise in price of PMS at all, it is a contributor to rising inflation.

 

“What is at play here in the downstream market in Nigeria at the moment is that the market is imperfect. The power of a dominant firm in an oligopoly market structure creates market failures. It is a very anti-competitive market structure designed to maximize profit and minimize consumer surplus.

 

“This is where I continue to say subsidy removal does not imply the absence of price regulation in an imperfect market. The market has two aspects – demand and supply. The supply aspect of the PMS market among other non-price factors is affected majorly by forex and crude price.

 

“However, the market clearing price is highly dependent on demand, which consumers can influence as well through income allocation,” Iledare said.

 

He added that the dominant firm seems to be assuming the price-setting role to the extent that it also remains a monopoly importer.

 

Indeed, commuters in Ibadan, the capital of Oyo State, decried the unannounced increment, which now sees petrol sell at N585.00 at Olak Petroleum along the Lagos Ibadan Expressway. At NNPCL, it was sold at N617, whereas in other filling stations, the pump price was fixed for N700. This is even as several filling stations did not open at all and no reason was given for the closure.

 

The new pump price is higher than what the commuters who spoke with The Guardian yesterday claimed they paid for the same content on Monday. A woman, who simply gave her name as Tolulope, said: “I bought a litre of fuel on Monday for N520 hoping to top it up today but imagine the unannounced increment.”

 

Other commuters said petrol, which was sold between N500 and N510 on Monday, was suddenly adjusted to N616 at NNPCL stations in some parts of Ibadan.

 

At Ojoo bus terminus, transport fare was immediately increased from N3000 to N3600 from Ibadan to Lagos, whereas at Iwo Road Bus terminus, the fare for the same journey had been increased at the Challenge Terminus from N4100 to N5000. Transport fare within the Ibadan metropolis has also increased considerably following the pump price increment.

 

Some of them, who decried that Nigerians’ well-being and standard of living were being threatened, berated the government of President Tinubu, saying: “Its starting point was nothing commendable at all. It did not provide needed palliatives before removing the fuel subsidy.

 

“They however appealed to Mr. President to increase minimum wage, provide meaningful palliatives and fast-track them to cushion the hardship Nigerians face at the moment.”

 

From Ondo, the story was the same as fuel sold for N617 per litre, with residents claiming they were caught unawares.

 

According to commuters, taxi drivers, and business owners in Akure, the state capital, everyone is now faced with the daunting prospect of paying exorbitant costs, which they maintain will significantly impact their day-to-day activities and have severe repercussions for their livelihoods and means of survival.

 

Following the development, the residents called for urgent government intervention to address the situation and revert to the status quo so that everyone could breathe a sigh of relief.

 

A civil servant in the state, who works at the Ministry of Culture and Tourism, Monisola Oluwaranti, described the development as a grand plan to shut low-income earners out of the Nigerian economy.

 

According to her, with N500 per litre, survival has been difficult as a substantial portion of her salary is now consumed by fuel.

 

On his part, a business owner, Dapo Adeleye, who expressed outrage over the development, stated that Nigerians were anticipating the subsidy removal palliatives promised by the government, but instead, it was another round of hardship.

 

From Lafia, Nasarawa State, petrol prices hovered between N600 per litre and N537. This has prompted motorists and commercial motorcyclists, popularly known as Okada riders and tricycles to increase their fares, blaming the increment on the new pump price.

 

Consequently, the Nigeria Labour Congress (NLC) is threatening to pull out of the negotiation for palliative as a result of the PMS removal.

 

NLC President, Joe Ajaero, who stated this in Abuja, yesterday, berated the Federal Government for deliberately frustrating the work of the committee by not inaugurating it to begin work.

 

Also, an Assistant General Secretary of Congress, Chris Onyeka, has described the hike of petrol price from N537 to N617 as one of the evils of the removal of the subsidy.

 

He said: “This is one of the evils of the so-called removal of fuel subsidy. Now, the price is determined by market forces that do not have human faces. Nigerians are now left to face the high cost of energy.”

 

Ajaero said the organised labour movement will be forced to review its stand on the removal of petrol subsidies.

 

Ajaero added: “As a result, if the government does not want to stop these fortuitous actions that it is pursuing in the name of palliatives, we will be forced to constructively review our engagement with the government on this vexatious issue and take matters in our own hands.”

 

He added that NLC would not want to continue to be a part of the usual charade of committees with outcomes that are never implemented.

 

“We would not want to waste the time of Nigerians especially workers on Committees that have already been programmed to fail thus ignored. We do not want to provide a cover for the government to get away with the hardship it has imposed on the people. We do not want to legitimize impunity,” he stressed.

 

He revealed that despite having shown its readiness to commence work in the committees, the Federal Government, which convenes the meetings, is yet to inaugurate the National Steering Committee thus stalling the work of the proposed committees.

 

Ajaero insisted that if the government had wanted an expedited action which Nigerians want more, the best approach would have been to quickly inaugurate the committees and allow the committees do their work, saying up to this moment, nothing has been done except the continuation of the borrowing and subsequent allocation to those in government.

 

NLC said it is at sea as to why the Federal Government would seek to embark on the distribution of money before the conclusion of the work of the yet-to-be-inaugurated committees.

 

On the distribution of $800 million to 12 million poor households, NLC expressed doubt over the credibility of the data used to determine the poorest of the poor.

 

It said: “We reiterate that we do not have confidence in how the data for the never changing 12 million poorest households was generated nor do we have confidence in the mechanisms being pursued for the distribution of the cash transfers. The history of such transfers especially the school feeding programmes even while the children were at home due to the Covid-19 pandemic and the Trader Moni saga fills Nigerians with trepidation reminding us of the continued heist of our collective resources by those in Public office.

 

We have continually demanded that this register be made public but, it seems to have become an instrument of the occult shrouded in mystery and wielded by the grandmasters whenever opportunities like this present themselves.”

 

On the implications of the sudden development, Vice President of Highcap Securities, David Adonri, said the hike will increase the cost of doing business and further erode consumers’ purchasing power.

 

Aside from this, he pointed out that when the cost of operations is high, it would constrict corporate earnings and may eventually hamper dividend payout.

 

“It’s inflationary for the economy in general. It will further erode consumers’ purchasing power and constrict corporate earnings. For companies that enjoy elasticity of demand, they may be able to pass the extra cost to consumers and hence protect their profit,” he said.

 

However, he urged listed firms to devise strategies to manage their market risk, noting that prices of petroleum products are expected to fluctuate with the deregulation of the petroleum industry.

 

Managing Director and Chief Executive Officer of Cutix Nigeria Plc, Ijeoma Oduonye, said every sector of the economy would experience a hike in the cost of operations.

 

“Every sector will experience a hike in cost. The inflation rate will increase.

 

Poverty level will increase and a few more families can hardly put food on the table.”

 

On their part, the civil rights group, the Human Rights Writers Association of Nigeria (HURIWA) also condemned the hike, describing it as toxic, despicable and intolerable.

 

The group in a statement by its national coordinator, Emmanuel Onwubiko, predicted that Nigerians would soon start eating grass as edible due to economic hardship if they do not publicly protest peacefully and demand an immediate halt to the incessant hike in the price of petrol.

 

HURIWA stated that unless and until Nigerians become active citizens and embrace the constitutional challenge by peacefully protesting on the streets of Nigerian cities and townships against these sets of harsh economic policies which offend a plethora of fundamental rights provisions enshrined in the Constitution of Nigeria.

 

The group also accused President Ahmed Bola Tinubu of violating section 15 (5), which states: “The State shall abolish all corrupt practices and abuse of power”. And 16 (2) which states that: “The State shall direct its policy towards ensuring: (a) the promotion of a planned and balanced economic development; that the material resources of the nation are harnessed and distributed as best as possible to serve the common good; and that the economic system is not operated in such a manner as to permit the concentration of wealth or the means of production and exchange in the hands of few individuals or a group.

 

“The silence of Nigerians in the face of cocktails of toxic and elitist economic measures by the newly inaugurated President Ahmed Bola Tinubu will inevitably lead the masses to ‘economic Golgotha’ meaning that the next best meals Nigerians will resort to survive the devastating and excruciating absolute poverty is to eat grass like goats or cows,” the group added.

 

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