Nigerian businesses relying heavily on diesel for their operations are facing tougher times as the average retail price of diesel has risen above N1,000/litre from N870 last month.
BusinessDay observed that filling stations along Ikorodu road, Lagos, sold at various prices between N920 and N1115 per litre last week Friday. At TotalEnergies, it was sold for N1115; AP, N920. NNPC at Kingsway Alfred Rewane Road, Ikoyi was dispensing it at N920.
Experts attributed the increase to the recent implementation of a 7.5 percent value-added tax (VAT) on imports of diesel by the federal government, the ban on the export of diesel fuel by Russia, and the sharp decline of the naira against the dollar.
“The importers have been complaining about the exchange rate and that if caution is not exercised, it will rise even further,” Abdulkadir Mustapha, the Independent Petroleum Marketers Association of Nigeria’s spokesperson in Borno State, said.
He said that diesel was selling for N1,030 per litre in some fuel stations in Delta State. “Although the product is sold in markets all over the nation, access to it is complicated by price.”
The federal government said on June 19, 2022 that it had commenced the implementation of the 7.5 percent VAT on diesel imports into the country by Nigerian Customs Service.
“I have no idea what sort of business will be conducted as a result of the increase in diesel prices. There is no way manufacturers can cope because more businesses will go down or be unsustainable,” said Femi Egbesola, national president of the Association of Small Business Owners of Nigeria.
He said that the price increase makes it impossible for businesses to plan, which is enough to scare away investors. “That is the reason why so many businesses are closing.”
According to BusinessDay research, the retail price of diesel is anticipated to increase to N1500 per litre in the coming days due to the depreciating naira and rising international oil prices.
“The price of diesel will top N1500 due to geopolitics in the international oil sector and Nigeria’s foreign exchange crisis,” a top official of one of the oil marketers using the alias Abigail Rice told BusinessDay.
In response to Russia’s decline in diesel exports as a result of Western sanctions, Rice said, “They are punishing everyone in the world.”
According to Sola Obadimu, director-general of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture, “Anything imported may likely experience a price change if foreign exchange rates change. And that’s what I believe is happening with the diesel situation.
“And it is usually better if prices of inputs are stable because every year, every manufacturers’ concern is to do budgeting of how much they expect to spend in the year for recurrent and capital expenditure, how much they expect to produce at what unit cost, how much they expect to make in income, how much they expect to make in terms of surplus and project what they may likely give out as dividends to shareholders.”
But when prices change too rapidly, it affects all these plans and the businesses have to adjust quickly, Obadimu said.
The Central Bank of Nigeria in June merged all segments of the foreign exchange market into the Investors and Exporters window, and reintroduced the willing buyer, willing seller model.
The naira has continued to depreciate against the dollar and other major foreign currencies since then.
The official exchange rate increased from N463.38/$ to N747.76/$ as of Friday. At the parallel market, the naira depreciated to N1,000/$ from 762/$.
The high cost of sourcing FX was one of the major factors that pushed Nigeria’s inflation rate to an 18-year high of 25.80 percent in August from 24.08 percent in July, according to the National Bureau Statistics.
Higher prices dropped business activities for the third straight month to 50.2 in August, the lowest in five months, from 51.7 in July, according to the latest Purchasing Managers’ Index report by Stanbic IBTC Bank.
The latest aggregate Manufacturers CEO’s Confidence Index of MAN also shows that manufacturers’ confidence in the economy dropped to the lowest in nearly two years in the second quarter.
The index declined for the third straight quarter to 52.7 points in Q2 from 54.1 points in the previous quarter.
The challenging macroeconomic issues impacted on the manufacturing sector as its growth rate slowed to the lowest in three years. According to the NBS, the real GDP growth of the sector stood at 2.2 percent in Q2, the lowest since Q2 2020.