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Data, diesel, grains: How Ukraine, Gaza wars affect Nigerians

Data, diesel, grains: How Ukraine, Gaza wars affect Nigerians

The Russia-Ukraine and Israel-Gaza wars are sending shockwaves through the Nigerian economy, pushing up the price of everything from data to diesel and bread.

The Russia-Ukraine war, which started on February 24, 2022, has shown no signs of nearing its end, fuelling volatility in the global crude oil market.

Last week, a drone attack forced the Kuibyshev oil refinery in Russia’s Samara city to shut down its refining unit CDU-5, slashing half of its capacity, according to two industry sources who spoke to Reuters on Monday.

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The shutdown of Russian oil refining capacity in the first quarter, triggered by Ukrainian drone strikes hitting at least seven refineries, totals approximately 4.6 million tonnes (equivalent to 370,500 barrels per day), constituting roughly 7 percent of the total capacity.

These developments alongside the ongoing geopolitical tension in Gaza, a region on the eastern coast of the Mediterranean Sea, have put a dent in the economy of import-reliant Nigeria, the biggest producer of crude in Africa.

This global trend has a direct impact on diesel prices in Nigeria, a net importer of refined petroleum products. According to the National Bureau of Statistics, the country imported 3.2 billion litres of diesel in the first nine months of 2023, up 23.9 percent from the same period in 2022.

The average pump price of the product jumped from N311.98 per litre in February 2022 to N1,257.06 last month, according to the NBS, indicating a 302.93 percent increase in two years.

Rising pump prices of diesel in the country have left many businesses in a state of conundrum, choosing between shutting down operations and rationing resources, especially as the country’s power woes linger.

BusinessDay’s findings revealed that the price of diesel has exceeded N1,700 per litre, which is delivering a crippling blow to Nigerian businesses already struggling with chronic power outages.

“From March 2022 to the date of this note, retail diesel price has consistently exceeded the expected open market price (OMP), reaching a peak of N540 per litre in May 2023 before adjusting downwards to N261 per litre in Sept. 2023,” said Kaase Gbakon, a senior energy economist based in Canada.

According to him, this differential is still at a level not seen in the past 100 months for which the data sourced from the NBS is available.

“The expected OMP has been estimated using CBN exchange rates, while marketers struggle to access forex, or may indeed source forex at higher, parallel market rates. Using higher forex rates will shrink the differentials above the expected OMP (and deepen the losses, too),” Gbakon added.

This phenomenon has also continued to impact the cost of diesel for Nigeria’s telecommunication providers. For example, as of 2022, the country had 127,294 base stations powering the telecom needs of over 200 million subscribers in Nigeria, according to the Nigeria Communication Commission (NCC).

Industry data show that mobile telecommunication operators use an average of 40 million litres of diesel per month to power telecom sites. In 2021, before the Russia-Ukraine war, the cost of powering telecoms services was estimated at N141 billion.

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Telecommunication companies spent about N319.11 billion in 2022 and N429.43 billion in 2023 on fuelling base stations. This is as diesel prices soared in 2022 and remained at an elevated level in 2023.

Diesel price rose from N288.09 per litre in January 2022 to N1,126.69 per litre in December 2023, according to NBS data.

However, in January and February this year, the price further increased to N1,153.01/litre and N1,257.06/litre respectively, pushing telcos’ diesel spending to N96 billion.

The base stations of most operators are outsourced to infrastructure companies such as IHS and American Tower Company.

These companies use a mix of diesel and renewable sources to power the base stations. A change in diesel prices automatically affects infrastructure companies’ costs. Costs are transferred to the telcos, who must then adjust consumer prices.

Impact on internet cost

The impact of the diesel price hike was felt on the cost of business operations. However, to cushion the effect, telcos have been clamouring for an increase in tariff to cushion the effects of an economic downturn, multiple taxation and high operating costs, among others.

In 2022, the Association of Licensed Telecom Operators of Nigeria (ALTON), the umbrella body for telecommunication operators, asked for upward reviews in voice calls, short message services and data costs by 40 percent.

It proposed that the price of calls be increased from N6.4 to N8.95, and the price cap of SMS from N4 to N5.61.

According to the NCC Subscriber/Network Data Annual Report, the operating costs of telcos in Nigeria rose from N1.66 trillion in 2021 to N2 trillion in 2022.

ALTON reported that the rise in the operating costs was on the back of diesel price hike.

The impact on grains

Wheat is Nigeria’s third most-consumed grain, driven by its rapidly growing population of 213.4 million. The country produces only 1 percent (63,000 metric tonnes) of the 5-6 million yearly wheat consumption.

Ukraine accounts for 16 percent of global grain exports. It sold about 57 million tonnes of grain to foreign buyers in 2019 and 2020. The war has limited Russia’s exportation deal on the Black Sea, affecting countries like Nigeria that depend on the country for their wheat needs.

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In 2021, before the war, Russia and Ukraine accounted for 31 percent of wheat imports into Nigeria. The constraints that the war has placed on these supply channels have led to increased prices of by-products such as bread, which, according to the United States Department of Agriculture, millions of people consume.

The Russia-Ukraine crisis has obstructed the supply chain and escalated the cost of wheat importation.

Ukraine is the world’s ninth-largest producer and fifth-largest exporter of wheat.

In 2021, Nigeria imported durum wheat worth N1.29 trillion, but its imports declined to N941.53 billion in 2022.

In the first quarter of 2021 before the Russia-Ukraine war, Nigeria imported N86.75 billion worth of durum wheat from Russia. Its imports dipped 39.4 percent to N52.53 billion in the fourth quarter of 2023.

However, due to Russia’s exportation policies influenced by the war, Nigeria has turned to the United States, Lithuania, Canada and others, to meet its wheat needs.

Nigeria imported durum wheat worth N753.6 billion in the first nine months of 2022, a 16.1 percent decline compared to N898.2 billion worth of durum wheat importation during the comparable period in 2021.

In 2022, the country imported its wheat needs from other countries after policies that prohibited Russia from exporting to foreign countries were implemented. Year-by-year, wheat importation declined 27.31 percent in Africa’s largest nation in 2022 (N941.56 billion) compared to 2021 (N1.3 trillion).

However, in 2023, Nigeria imported 1.1 trillion metric tonnes of durum wheat from Poland, Canada, Latvia, Lithuania and Russia, surging by 100 percent compared to 2022 (without importation from Russia).

Durum wheat is a class of wheat with a higher protein and gluten content than other common wheat varieties. It is often called semolina flour, pasta flour, or macaroni flour. It is the most popular choice of flour for making many varieties of pasta.