Foremost Nigerian economist and CEO of Financial Derivatives Company Limited (FDC), Mr. Bismarck Rewane, has predicted that the recent 50.1% increase in petrol prices, from N568 to N855 per litre, will transfer N5 trillion from Nigerian consumers to the government and worsen energy poverty.
Rewane further forecasted that the rise in petrol prices will trap an additional 7 million Nigerians in energy poverty, increasing the number from 161 million in 2023 to 168 million by 2025.
While acknowledging that the hike could boost the Naira’s exchange rate as liquidity tightens, he warned it “may instigate social unrest as citizens react in frustration.”
In a presentation at the Lagos Business School (LBS) Breakfast event titled “All That Glitters Are Not Gold,” Rewane noted that the commencement of petrol production by the Dangote refinery would help address supply issues, but the price of petrol in Nigeria will continue to be dictated by global crude oil prices.
“The macroeconomic and welfare impact of the new price of petrol, now adjusted to N855 per litre from N568 per litre, implies that N5 trillion is withdrawn from consumers and transferred to government,” Rewane explained.
He added that this shift could cause inflation in September as logistics costs rise and consumer demand drops due to reduced incomes. “Energy poverty could quicken to 76.3 per cent (168 million) in 2025 from 71 per cent (161 million) in 2023,” he said.
Rewane also suggested that the naira’s exchange rate could improve as liquidity decreases and the fiscal deficit narrows with increased government revenue.
He commented that the Dangote refinery will relieve consumers by ensuring supply and quality, but stressed that no producer will sell petrol below production cost, meaning that the “domestic price of petrol depends on the global price of oil.” He also added that smuggling of petrol to ECOWAS countries will likely reduce once Dangote refinery starts selling directly to those nations.
“Nigeria’s demand for PMS will stabilise at 35 million litres per day,” Rewane predicted.
In discussing the macroeconomic benefits of the Dangote refinery, Rewane highlighted improved petrol supply, elimination of queues, and enhanced product quality. Additionally, he anticipated higher GDP output, better trade balance, and increased employment opportunities.
Rewane cautioned that hopes of ending monetary tightening after an 850 basis point hike in the Monetary Policy Rate (MPR) may be misplaced, due to the inflationary pressures brought on by the fuel price surge. “The petrol price spike will renew inflationary pressures. Therefore, analysts’ expectations for a slash in interest rate will have to wait till January 2025,” he said.
He stressed the need for fiscal policies to tackle structural inflation drivers, like insecurity, inadequate infrastructure, and heavy import dependence.
Rewane also noted that current GDP data might not fully reflect Nigeria’s economic challenges, projecting a cautiously optimistic outlook for Q3 2024. He attributed the higher GDP growth to base effect, pointing out that in Q2 2024, of 46 activities tracked by the National Bureau of Statistics (NBS), only 10 expanded, while 25 slowed and 11 contracted.
He stated, “Sectors that expanded in Q2’24 are mainly labour inelastic sectors,” while labour-intensive sectors saw slower growth, increasing by 8.69% from Q2’23 to Q2’24.
In comparing sectoral growth between Q2’23 and Q2’24, Rewane noted that manufacturing, agriculture, construction, real estate, and trade all slowed.
He explained that the economic consequences include fewer job opportunities, slower economic growth, supply chain disruptions, increased import dependence, growing inequality, and deterred investments.
Rewane also addressed Nigeria’s power challenges, stating that increasing electricity generation to 6,000MW from the current 4,000MW within six months could significantly improve power supply and benefit the economy.
He projected that a 1,000MW increase in power generation would lead to a 0.5% GDP growth, enhancing Foreign Direct Investment (FDI), industrial output, job creation, and overall economic stability.
Rewane concluded that improved electricity supply would afford consumers better access to reliable power, reduce generator costs, enhance quality of life, and leave more disposable income for other needs. He further predicted it would attract more investments, reduce production costs, and boost productivity for both large and small businesses.
