Petrol Price Hike: A Major Economic Burden on Nigerians
The recent hike in the price of petrol in Nigeria is poised to transfer an estimated N5 trillion from Nigerian consumers to the government. According to renowned Nigerian economist, Mr. Bismarck Rewane, the price of petrol has skyrocketed by 50.1 percent, moving from N568 to N855 per litre. This hike, while seen as a potential relief for government finances, will have significant consequences for the average Nigerian, including heightened energy poverty, inflation, and social unrest.
Worsening Energy Poverty
Rewane predicts that the increase in petrol prices will exacerbate energy poverty in Nigeria, pushing the number of affected citizens from 161 million in 2023 to 168 million by 2025. This represents a staggering 76.3 percent of the population. With the cost of petrol affecting virtually every aspect of daily life—from transportation to electricity generation—many Nigerians will find it increasingly difficult to access basic energy needs. The rise in logistics costs due to the price hike will further squeeze consumer incomes, leading to reduced demand for goods and services, and deepening the economic struggles of the populace.
Potential Social Unrest
Rewane also warns that this significant price hike could trigger social unrest. As consumers face rising costs with stagnant or declining incomes, frustration may build among the population. The government's decision to remove fuel subsidies and allow market forces to dictate prices without adequate safety nets could lead to widespread dissatisfaction. The resulting economic pressure on millions of households might manifest in protests and civil unrest, as citizens react to the financial burden imposed by the government’s policies.
Dangote Refinery and Global Price Impact
One potential bright spot in this gloomy outlook is the commencement of petrol production by the Dangote Refinery, which Rewane notes could ease supply challenges and improve the availability and quality of refined products. However, the economist cautions that the price of petrol will still be determined by global crude oil prices. As a result, while the refinery might increase supply, it will not guarantee lower prices for Nigerians. The ability to sell refined petrol directly to neighboring countries may reduce smuggling, but it will not alleviate the financial strain on domestic consumers.
Impact on Inflation and Interest Rates
The petrol price hike will also likely have inflationary effects on the economy. Rewane anticipates that the new prices will contribute to inflationary pressures, particularly as transportation and logistics costs rise. This could delay any potential reduction in interest rates by the Central Bank of Nigeria (CBN), further stifling economic growth. Rewane predicts that hopes for a cut in interest rates will have to wait until January 2025, as the inflation caused by higher petrol prices keeps monetary policy tight.
Economic Realities: Masking by GDP Growth
Despite recent improvements in Nigeria’s GDP figures, Rewane contends that these numbers may be masking the true economic realities. He highlights that while the economy showed growth in certain sectors, this growth is largely due to the base effect, and many areas of the economy are contracting. According to Rewane, only 10 out of 46 economic activities tracked by the National Bureau of Statistics (NBS) expanded in the second quarter of 2024, representing just 27.74 percent of the GDP. Meanwhile, 25 sectors contracted, and 11 others slowed down. This contraction is especially concerning for labor-intensive sectors such as agriculture, manufacturing, and construction, which showed significant slowdowns.
A Contrast with Western Economies
In contrast to Nigeria, many Western countries have adopted policies that aim to mitigate the impact of rising fuel prices on consumers. Governments in these countries often provide direct financial assistance, subsidies, or tax rebates to help lower-income households cope with energy price increases. Moreover, Western economies tend to have more developed energy infrastructure and diversified energy sources, reducing their reliance on volatile global oil prices.
For instance, countries in Europe and North America have invested heavily in renewable energy, which helps stabilize energy costs over the long term. This investment not only alleviates the pressure on consumers but also reduces energy poverty. Moreover, social safety nets in these countries—such as unemployment benefits, healthcare, and housing assistance—help cushion the blow of rising costs, something that is largely absent in Nigeria’s economic policies.
The Consequences of Energy Price Policies
The Nigerian government's decision to allow market forces to dictate petrol prices, without adequate support for the most vulnerable citizens, contrasts sharply with the protective measures in place in many Western countries. As a result, energy poverty is likely to worsen, inequality may increase, and the economy could face prolonged inflationary pressure.
While the government will benefit from increased revenue, as Rewane notes, this will come at a significant cost to the population. Without a concerted effort to address structural challenges—such as insecurity, infrastructure deficiencies, and import dependence—the long-term consequences of these policies could be devastating for the Nigerian economy.
Conclusion: A Call for Balanced Policies
Rewane's analysis underscores the need for balanced economic policies that do not disproportionately burden the average Nigerian. While the government may achieve short-term fiscal gains from the removal of fuel subsidies and the rise in petrol prices, the long-term effects—ranging from increased energy poverty to potential social unrest—could be far more damaging.
Contrasting this with Western economies, where policies are in place to shield citizens from the full impact of rising energy prices, it becomes clear that Nigeria must prioritize protecting its most vulnerable citizens while pursuing economic reforms. If not, the projected N5 trillion transfer from consumers to the government will only deepen inequality, exacerbate energy poverty, and stall broader economic development
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