• Tuesday, April 23, 2024
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BusinessDay

Weaker naira seen fuelling cross-border petrol market

Petrol cross border sale

Amid the further weakness of the naira against the US dollar, concerns are mounting that the price disparity between petrol sold domestically and in neighbouring countries is incentivising cross-border trade activities.

While the naira continued to depreciate, the West African CFA franc, a legal tender in Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo, has appreciated in value.

The Nigerian currency has continued a downward slide in the West African sub-region, trading at N2,282 per CFA1000 as at 3 pm on Monday.

BusinessDay findings showed the average current pump price for petrol in Nigeria is around N599 per litre due to government subsidies, while in neighbouring countries like Benin and Togo, the price is as high as N1,780 per litre.

“The weakening naira is definitely making petrol smuggling more attractive,” said Aisha Mohammed, an energy analyst at the Lagos-based Center for Development Studies, said. “With the naira’s value falling, the price of imported goods, including petrol, becomes more expensive in Nigeria. This creates an arbitrage opportunity for smugglers who can buy petrol here and sell it for a higher price in neighbouring countries.”

Many stakeholders said the porous Nigerian borders, spanning over 17,000 kilometres, make it possible for this illicit petrol trade to flourish for so long despite deliberate actions by security operatives.

A testament to this was the recent explosion accident in Seme Podji corridor of Benin Republic, in September 2023, verified by Al Jazeera, where not less than 34 persons reportedly died while over 20 who survived had varied severe burns.

The incident, it was reported, occurred at a warehouse where smuggled petrol from Nigeria is purchased by Beninese.

“I live not far from the tragedy,” Semevo Nounagnon, a local bike driver, told the AFP.

“I can’t really give you the cause of the fire, but there is a large gasoline warehouse here and cars, tricycles and motorcycles come from morning to evening.”

Alassane Seidou, Benin’s interior minister, said the “cause of the fire is smuggled fuel”, adding that the blaze left the bodies of the victims “badly charred”.

Across other neighbouring African countries like Cameroon, the retail price of petrol has risen above N2,145, driving up the smuggling of Nigeria’s petrol to them.

In Nigeria, the government is breaking its back to pay for subsidies.

“Disused water bottles of different sizes, gallons of varied shapes and bulks were used to buy and ferry the product. Some of the smugglers after buying the petrol in bottles or nylon, thereafter package them in sacks of different shapes and sizes as well as bags of varied sizes,” a petrol marketer who operates along the border told BusinessDay.

“This price differential is an incentive for smuggling, where petroleum marketers divert supplies across the numerous illegal border crossings into neighbouring countries,” Charles Akinbobola, analyst at Sofidam Capital, said.

Recent investigations into Nigeria’s petrol pricing dynamics have revealed a significant surge in the landing cost of petrol, attributed to the escalating black-market exchange rate.

Kelvin Emmanuel, CEO of Dairy Hills Limited, also affirmed that the government is still subsidising the product and, according to him, smuggling continues.

According to findings, at the prevailing black-market rate of N1,500 per dollar, the landing cost of petrol has soared to N1,009 per litre, marking a substantial increase from N720 per litre recorded in October 2023.

Mele Kyari, group chief executive officer of the Nigerian National Petroleum Company Limited, said in June 2023 that there was no credible data to ascertain the daily consumption of petrol in Nigeria.

Kyari said Nigeria’s porous land borders contributed to the smuggling of subsidised petrol to other countries, adding that the country’s petrol was being smuggled to Sudan, a country in North Africa.

“I don’t think there is any credible data on consumption but there is credible data on evacuation from the depots. They are very distinct,” Kyari said in an interview with Channels Television.

“Every truck that leaves every depot in this country is known – the truck driver and the planned destination of that product. We have these numbers (referring to trucks’ movement from depots).”

Apart from petrol, BusinessDay findings showed the recent naira devaluation, which is dampening the production capacity of many businesses in the manufacturing value chain, has also driven up foreign demand for some products.

“The currency depreciation is helping my business in terms of exports. When your currency is weak, your goods become cheaper which will make a country with a stronger currency to easily buy your products,” Paul Odunaiya, managing director/chief executive officer at Wemy Industries Limited, said.

He said one of the African countries that the company exports to is Mali. “The devaluation of our currency helped us to enter the market because of the CFA.”

George Onafowokan, managing director/chief executive officer at Coleman Technical Industries Limited, said manufacturers are looking at going into other countries to source for foreign exchange to remain in business.