Nigeria’s headline inflation rose by 10bps to 15.70% in February after a marginal decline in January, with the monthly price index rising from 0.16% to 1.63% due to the increase in diesel prices.
The cost of diesel, the major fuel for haulage, jumped by more than 150% within a three-month period, between January and March. Nigeria, an oil-dependent economy has been experiencing fuel shortages since the beginning of February.
One reason for the shortage is due to the rejection of a batch of imported petrol that contained too much methanol that made it unsuitable for domestic usage.
Although Nigeria is a net exporter of crude oil, and should benefit from rising commodity prices globally, the country is a net importer of the refined product. As such, businesses across the country that rely on imported diesel and petrol to fuel generators in lieu of reliable power from the grid are struggling to manage their business, with many running below full capacity.
Airline operators doubled fare prices last month to offset some of the cost, while members of the Manufacturers Association of Nigeria (MAN) say they are struggling to keep their doors open.
“It is getting extremely difficult to produce and I don’t know how we are going to cope because 70% of industries run on diesel [but] diesel has gone up to N730 per litre,” Lanre Popoola, a southwest chairman of the Manufacturing Association of Nigeria (MAN) told reporters last week.
The cost of buying the fuel jumped to N730 ($1.75) per litre in March, from N288 in January this year, while the price of petrol skyrocketed to as high as N250 per litre (from the official price of N162), in some parts of the country due to scarcity.
Foreign exchange issues
Dwindling foreign exchange reserves are also to blame for rising rates of inflation in Nigeria, say some analysts.
“The lack of foreign exchange availability makes it difficult to access funds for import,” says Olatunde Dodondawa, an energy analyst from Lagos state.
“And even if you are able to access the cash – due to supply chain issues – it isn’t all that easy to import refined oil products in any case,” he says.
Dependent on oil exports for foreign exchange, Nigeria has been struggling to shore up dollar reserves for the last decade as oil production has faltered. Meanwhile, policies implemented by the Central Bank of Nigeria (CBN) have not been able to stem the decline of Nigeria’s foreign exchange reserves.
Nigeria’s Federal Inland Revenue Service (FIRS) announced in the beginning of March that it will give local businesses an extra month to settle all outstanding dollar debts in naira, given dollar scarcity in the country.
Nigeria’s foreign exchange crisis, as well as the Russian-Ukrainian war, point to a need for the country to diversify exports, says Dr Michael Olawale-Cole, president of Lagos Chamber of Commerce & Industry (LCCI).
“In preparing for the reality of our near future, we urge the Federal Government to take seriously the completion of projects like the Trans-Saharan Gas Pipeline, a planned natural gas pipeline from Nigeria to Algeria. With this, we can explore the opportunity of exporting gas to Europe.
“We should also target Trans-Saharan and European markets with the ongoing construction of the Ajaokuta, Kaduna, Kano Gas Pipeline, popularly known as AKK Gas Pipeline. Arising from the calamities of this war, Nigeria can explore emerging opportunities to earn huge foreign exchange inflow in the medium to long-term,” he says.
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