BusinessDay

Telcos to factories: Nigeria’s diesel-run economy threatened

The sky-high price of diesel is roiling businesses from telecommunications companies to manufacturers’ factories, leaving the Nigerian economy under threat.

In Akure, the Ondo State capital, Horbit Food and Bakery Limited is feeling the pinch as it struggles to keep the lights on, after the cost of 500 litres of diesel it relies on to power its operations rose from N175,000 to N400,000 within months.

The bakery’s problem mirrors the challenge faced by hundreds of businesses that are struggling to keep their operations alive in the face of rising diesel cost and poor power supply from the national grid.

Hospitals, hotels, telecommunication companies and SMEs are groaning under the new reality where fuel costs now account for over half of their expenses since diesel prices moved from about N300 per litre in January to over N800 in June and looks set to hit N1,000 before the year runs out.

“Our operation is solely diesel-powered, from the factory to the supply trucks, to ovens,” said Olatunde Samuel, manager of Horbit Food and Bakery Limited.

Last week, the Manufacturers Association of Nigeria expressed concern about the implications of the “over 200 percent increase in the price of AGO on the Nigerian economy and the manufacturing sector.”

It said: “More worrisome is the deafening silence from the public sector as regards the plight of manufacturers. Four obvious questions that readily come to mind that are seriously begging for answers are – What can we do as a nation to strengthen our economic absorbers from external shocks? Should manufacturing companies that are already battered with multiple taxes, poor access to foreign exchange and now over 200 percent increase in price of diesel be advised to shut down operations?

“Should we fold our arms and allow the economy to slip into the valley of recession again? Is the nation well equipped to manage the resulting explosive inflation and unemployment rates?”

To remain in business, the logical option for the bakery is to raise prices but even that has a price. High inflation rate in Nigeria has eroded the purchasing power of millions.

“The association put up a uniform price for bread to curb the adverse effect of diesel price on producers,” he said. “One week in, its impact was nullified by higher diesel prices.”

Telcos in Nigeria are struggling to keep their base stations, powered with diesel, running. The Association of Telecommunications Companies of Nigeria (ATCON) recently wrote to the Nigerian Communications Commission (NCC) for approval to raise prices over the rising cost of diesel.

Ajibola Olude, executive secretary and chief operating officer at ATCON, said the current diesel price is affecting the operation of its members, adding that the association invited the NCC to initiate a study to verify the claims by its members.

“We cannot do anything until the study is carried out and shows that there is a need to review the price upward,” he said.

According to Olude, the high diesel cost is raising operational costs, and its impact is affecting their ability to retain staff and pay their workforce.

“It is obvious that the exorbitant price of fuel is affecting the activities of telecom operators but the laying-off of staff is not what will be done now. “However, if nothing is done, that will be the end-result,” he said.

There’s been no official guidance from major telcos on the extent to which this would reflect on margins, according to Oluwaseun Arambada, equity research analyst (banks and telcos) at FBNQuest.

“However, we should bear in mind that the sale of tower assets by telcos and the subsequent usage under a lease agreement could moderate the impact of the diesel price increase on margins,” he said.

For bakeries like Horbit to remain in business, managers are making difficult decisions to keep costs down, maintain quality output, and keep operations running.

Usman Imanah, managing director and CEO of Friska Farms Limited, said the operating hours of its firm have been reduced to mitigate expenses.

“Before now it depends on the demand for our product, there are times when we run the factory for 20 hours,” he said. “But we are doing 10–11 hours now to be economical in the use of diesel. Instead of diesel power being an alternative, it is now the main source.”

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