• Monday, June 24, 2024
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BusinessDay

Nigeria: A paradox of lack amid plenty

Economic crisis: Triple blow for Nigerian families

Nigeria is a mixed economy whose production and revenue economics continue to provoke puzzling thoughts about the truth in the system of investment and rewards.

Indeed, real outcomes in today’s Nigeria continue to belittle the country’s rich oil abundance and energy resources advantage.

Heralded as the largest economy in Africa, the 29th largest in the world by nominal GDP, and the 26th largest by PPP, Nigeria’s lower-middle-income economy has remained a pity story as millions of countrymen and women continue to remain subdued, often languishing in extreme impoverishment and lack despite the vastness of the nation’s endowments.

Yes, Africa’s largest economy has been customised to operate at greatly sub-optimal levels beyond the derivatives of its natural resource endowments. This can be verified from the country’s inert industrial atmosphere driven by visionless leadership.

However, Nigeria’s inefficient production and supply structure has made it impossible to take advantage of this price uptick; instead, the nation has slipped into a regime of exalted prices and subdued living standards.

With over 606 oil fields – 360 on-shore and 345 off-shore assets -, over 3,000 kilometres of pipeline running through the Niger Delta region and linking 275 flow stations to several export facilities across the country, Nigeria’s abundance in oil (10th largest in the world) and gas reserves (top 10 globally) have not translated into sufficient levels of petroleum production and gas supply.

Read also: Scarcity pushes average petrol price to N170/litre

Unfortunately, the country’s level of energy illiteracy has undermined its perceived position as a world energy powerhouse.

Recent events expose the country’s energy shortcomings vis-à-vis global perception and expectations. Exacerbated by the ongoing Russia-Ukraine malaise and the corresponding political and economic sanctions, global crude oil and gas prices have spiked. For the first time in a long while, international crude oil prices have crossed the $100 per barrel mark, reaching as high as $130 per barrel within the week.

However, Nigeria’s inefficient production and supply structure has made it impossible to take advantage of this price uptick; instead, the nation has slipped into a regime of exalted prices and subdued living standards.

While the pump price of petrol (PMS) in the country have reached N200 per litre in recent times, changes in diesel prices have recorded a more alarming difference. In the first week of March 2020, Automotive Gas Oil (AGO) or diesel prices have shot up over 113 percent from N225 per litre to N545 per litre. Around the same time in Abuja, pump prices ranged between N440 to N460 per litre. Currently, per litre diesel costs about N700 at the pumps.

The existing price hike that prevails in the domestic petrol and diesel markets has been blamed on current global instances, recent supply of adulterated petrol into the country, naira depreciation which has pushed up the cost of importation and the difficulty by businessmen and importers in accessing foreign exchange for their raw material imports.

These, combined with the country’s abysmal generation and supply of electricity, have led to a heated domestic economy as rising food and energy prices continue to eat deep into Nigerians’ shallow pockets.

Businessmen mostly use diesel in industrial and manufacturing plants which utilise the resource to power their heavy-duty generating sets since electricity supply by the government cannot be relied upon.

Also, the priced resource is used as fuel by heavy-duty trucks for transportation and by machines that work on large farmlands. Therefore, higher production costs will be incurred as diesel price increases.

Since 70 percent of Nigeria’s industrial and manufacturing activity rely on diesel to power various utilities, it becomes difficult to produce in this era of heightened prices.

This price impulse has generated the expected macroeconomic response in almost every economic sector. For instance, road transit and airfares have ballooned in the road and air transport sector.

While road commuters lament the increases in fares owing to the current situation, the airline industry has also been hit, as providers of airline services lament the scarcity of aviation fuel. Domestic flight tickets have now reached a N50,000 ($120) flat rate for a one-way trip. This contrasts with the $80 charge for the same trip a month ago.

Nigeria’s inability to provide for its increasing population amid human and non-human resource abundance is a puzzling tale. With sizeable crude oil deposits sitting at various reserve banks poorly traded at source and the inability to efficiently transfigure the resource into diversified value-added materials for domestic and international consumption, Nigeria’s unique 21st Century economics is one which may never be understood but should serve as a special case study in various ivy league institutions and business schools all over the world.

As grim as the situation appears to be, all is not lost particularly in the long-term. One sure way of turning the situation around is to overhaul our current oil policy.

Specifically, we are advocating a situation in which value-addition will hall-mark the industry and as such the price of diesel and other derivatives will be reduced, such that the industries and manufacturing outfits will be able to function better. Once this is done, the paradox that is inherent in this narrative would have been largely neutralised.