Why The Current Petrol Retail Sale Model Will Hamper Economic Growth and Development in Nigeria
Observing how premium motor spirit (PMS) is being dispensed and the way filling stations are springing up can give the impression that the business venture is worthwhile. PMS remains the fastest-selling goods in Nigeria. It sells faster than water. However, using the petrol sales business model for other businesses is capable of hampering business growth and the development of the economy.
Petrol happens to be a major source of energy generation in Nigeria. We currently do not have any credible alternatives (solar, wind, battery power generation) as they are all insignificant in meeting the energy needs of the people. If we look at the value chain reaction of unstable petroleum product pricing, we can agree that it can make even the most sophisticated planning model useless.
For a while now, we have seen the impact of fuel subsidy removal on the rise of all goods and services, even those that do not have a direct correlation to petrol. Once you are improving on raw materials you will need energy to process, store, transport, market, sell and conduct after-sales service. That is the height of the ubiquitous nature of petrol and its variants.
In the United States of America, you can walk into the filling station and dispense fuel into your tank. Despite the rising cost of fuel, there are other alternatives, and the United States of America is intentional about its energy mix. In the Saudi Arabia kingdom, fuel access is easy and just like in the United States of America, there is not much fuse like witnessing long queues for fuel or constantly fluctuating energy prices that alter business decisions negatively such as we currently deal with in Nigeria.
In Nigeria, we have a hydra-headed problem caused by our inability to manage our oil production. From exploration to sales, we have very limited local players in that space and have been unable to refine a substantial amount for the people of Nigeria over the last 30 years. Even with the recent operations of Dangote and the upcoming refineries by the Nigerian government, very little comfort is expected to be achieved judging by comments from the NNPC and experts in the field of oil and gas. Our crude is stolen at will and sold in the international market freely without any consequences. Suffice it to say that we kill or are liable to kill to access fuel. Yes, if we see how this commodity is being traded at the retail outlets and the utterances of the markets, one can conclude that the actions of the players are killing the Nigerian economy.
For a greater part of the fuel subsidy regime, we have been made to believe that subsidy claims favour only the poor and not the middlemen. However, since the removal of fuel subsidy, we have seen that the middlemen that is the marketers and other players are the ones that have been largely subsidized and not the populace. WHY DO I SAY SO? This is because the removal of subsidies has negatively impacted the citizens more than the marketers and retailers. All prices have gone up thereby reducing the purchasing power of the citizens. The impact of this removal has in no way helped the citizens.
The new government has faced several backlashes over the hastiness of fuel subsidy removal while the IMF and World Bank have hailed the actions as necessary and unavoidable. However, this alone has led to the loss of the value of the naira by close to 70%! The floating of the naira eventually leads to an additional loss of 20% making our Naira almost worthless. If we continue to thread this path of suggested economic reforms by international lending organisations, I make bold to say that the nation will soon slide into a recession that might take longer to exit unlike what happened in the last administration. Allowing an economy to enter about 4 periods of recession in the last 3 years will not do any good but untold harm.
Nigeria pays one of the lowest compensations in terms of wages. The citizens venture into all manner of activities just to get by and enhance the unlikelihood of corruption and corrupt practices to abate. Survival is critical for any human existence. If there are no pathways available for just living, people will thread the pathways of unjust living. Today, kidnapping and ritual killing as well as organ harvesting have become pervasive. We are sitting on a keg of gunpowder. What are the implications of these changes?
- Cheap power can lead to rapid industrialization. If we do not make cheap and affordable power available, our consumption will only be for survival and not for innovation. Without innovation, we cannot go the route of industrialization. There is a need to ensure that energy is available for all in the most affordable way. Most of the debt owed to the energy producers is by government institutions and unmetered individuals and households. There must be a massive metering of all households and a recapitalization by energy producers. The energy producers have not provided adequate power to justify an increase in tariff. With less than 5000MW YOY over the last 10 years, there is no justification for an increase in energy tariff. The producers have not shown enough capacity to provide energy for over 200 million Nigerian people.
- Power is a central component that can alter the value-chain production. If you look at the value chain of all sectors, energy plays a critical part. If all players in the value chain increase their cost of production and service delivery, the final cost will rest on the consumers. Without any increase in purchasing power, wages, and government intervention in the last 10 years these will lead to total impoverishment of the people. Today $1 is about N1,500.00 In 2021, $1 was N365.00. What this means is that very few people will be able to procure goods and services in quantities that will meet their needs. The producers will produce less at a higher price while the consumers will procure less at a higher price. This will harm development and discourage industrialization. A currency war does not help the Nigerian market in any way. Nigerians must be protected as we cannot compete yet with the likes of the United States of America, China, Japan and Canada who have at some point used currency devaluation to gain a competitive advantage.
- Nations must ensure competitive pricing of energy to foster the growth and development of its people. There is no gainsaying that Nigerians must enjoy the dividend of having petroleum in abundance. It will be a disservice to her people if we do not enjoy competitive energy pricing. We have imported all our fuel and made sure that our refineries are not working. Even as of today, only the Dangote refinery has been noted to be working even though there are modular refineries that we do not know who they sell to. The level of opaqueness in the oil industry is frightening and at the same time worrying. Something needs to be done about it before things get out of hand.
- Free market engagement without free market fundamentals is wishful thinking. The present situation in Nigeria requires the protection of local industries. We do not have a thriving industrial base to compete with any major developing country, hence we have witnessed dumping of all manner of products, goods, and services. It is alarming that Nigerians import toothpicks, table water and chilli pepper. We cannot strengthen local production if we allow indiscriminate import of everything. The government and the people of Nigeria must understand that they only can help the naira grow.
Way forward
- Redirect funding to energy and industrialization. This means the reallocation of government spending that will achieve far-reaching deliverables. It is time for the federal government to look at the budget again and redirect government spending. There must be spending cuts to areas that are not critical such as pilgrimages, unnecessary intervention within the sub-Saharan region and a drastic cut in government expenditures concerning wages and perks of office of all political appointees, and government officials. There must also be an increase in the wages of government workers and a law mandating an upward review of the minimum wage that cuts across the public and private sectors.
- Reduce importation of goods and services that are and can give a competitive advantage to the naira and intensify the production of cassava and maize to substitute wheat consumption. There must also be a disincentive to allow portfolio funding and investment as the major FDIs that the nation enjoys. Research has shown that these funds leave at the earliest opportunity and render gains in the money and capital market ineffective. We must be able to attract long-term funds to drive infrastructural development. FDIs should be available for infrastructural development, money market, capital market and energy production. There must be encouragement for private sector players to support infrastructural development.
- Agriculture funding must be increased in the current budget to 20% of the national budget. There is a likelihood of food scarcity and shortage due to the unabated crises of bandits, land communal classes, farmer-herders crisis, and climate change. Today, we have a food shortage coupled with low purchasing power. Encouraging agricultural revolution is a no-brainer for a purpose-driven government. One of the easiest ways to deal with hunger is to make farming appealing to everyone.
The need to review the actions of the government over the last 8 months has become expedient and necessary. The challenges brought by the removal of fuel subsidies continue to impact all areas of the economy. Since we do not have alternative energy sources and we have gradually moved people from firewood to gas, we must be intentional in ensuring that all these gains are not reversed. If we are serious about reducing carbon emissions, there must be a deliberate move of the government to manage the energy needs of its people. If everyone trades goods and services just as petrol is currently being sold, it is only a matter of time before we will run aground the economy.
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