Posted by News Express | 24 July 2022 | 467 times
With the Russia-Ukraine war in its fifth month, Nigerians are feeling a harder pinch with the scarcity of energy sources, wheat and fertiliser, over what importers attribute to logistics issues, as well as a worsening foreign exchange (forex) scarcity.
The inflation rate is also rising, as well as a stretch in the over N41.6trillion debt servicing, which has exceeded revenue generation.
According to the World Bank, “We see an elevated risk of recession over the next two years, reflecting the greater potential for the geopolitical tumult, stubbornly high inflation that reduces households’ real disposable income, and central banks’ intense focus on fighting inflation first, which raises the risk of financial accidents on top of the sharp tightening of financial conditions already seen.”
Global monetary tightening to stoke further inflationary pressure
The recent surge in United States (US) inflation to 9.1 per cent has substantially increased the probability of a 100bps hike in interest rates later this month.
This happens as the US dollar has already experienced significant appreciation in value this year in response to previous rate hikes.
The dollar recently reached equal parity with the Euro for the first time in two decades as recession fears and rising rates continue to fuel a rush for the greenback.
The surge in dollar’s value comes at the expense of other currencies, especially those from emerging markets and developing economies (EMDE’s).
Nigeria, being an import-dependent country, is heavily reliant on the import of commodities priced in dollars. As the value of the dollar rises and these dollar-priced commodities become more expensive for holders of other currencies, such as the naira, high incidents of imported inflation will arise and weigh on the spending power of domestic consumers.
Diesel, petrol prices at rooftop amidst subsidy rise
As the Russia-Ukraine war continues to cause a global disruption in the supply value chain, the price of diesel is nearing N900 per litre in Nigeria, rising from N300 in March this year. The high diesel prices have affected various sectors, including the banking sector as banks in recent times issued notices stating that some of their branches would close by 2pm due to rationing of diesel.
“We used to buy a truckload of diesel when it was at N270, but now, we buy in drums because of the fluctuating market price, and even the suppliers do not take orders ahead again, they prefer to supply as it is,” said Mr Jerry Ifijen, a supervisor at a furniture industry in Abuja.
In the petroleum industry, tanker drivers were also caught in the fire as the high diesel prices affected their movement of petrol from the coastal areas, especially in Lagos, to Abuja and other inland areas.
The National Association of Road Transport Owners (NARTO) had pushed for a rise in the bridging claims paid by the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA). That was raised by N10, from N25 per kilometre to N35. However, this has not addressed the constraint as several stations remain shut, without the product.
Petrol price, which has been at N165 nationwide with stable supply, also hit the rock in late February after a major supply of adulterated petrol that caused wide disruptions in supply. As the war set in, the scarcity of the product worsened in March and has gone beyond expectation with fuel stations selling at over N200 in states. Just last week, marketers jettisoned the N165 official rate and set N185, which had caused the queues to cease, especially in Abuja.
However, on Tuesday, the marketers paraded another template that shows segmented prices across the geopolitical zones, with petrol selling officially between N169 and N189, while pushing up the wholesale price from N148 to N165 at the depots. Despite this, the queues seem to have resurfaced in Abuja, with scores of stations out of the product at the weekend.
The crisis has also led to a rise in the price of aviation fuel that now threatens the survival of the industry.
Given that aviation is critical to the survival of businesses and any economy, the sector has suffered the most with the astronomical rise in the price of Jet A1, which was said to have been largely caused by supply chain disruption occasioned by the Russia-Ukraine war.
As at the time of filing this report, aviation fuel price had hit N830, and there are fears that it could hit N900 in the next few days, which the operators say could put additional pressure on their costs.
From N200 last year, the price of aviation fuel, a critical component of safe flight operations, has virtually hit the ceiling. From N400 to N500 and N600, it is now over N800, and the operators said the supply was epileptic.
The Airline Operators of Nigeria (AON), in a recent statement, explained that the Jet A1 crisis, “which began in late February and deteriorated further from March to May, has further worsened and currently threatening the ability of airlines to continue operations.”
“The price of Jet A1 rose suddenly from N200 in December 2021 to over N400 per litre in February. Today, the price has skyrocketed to over N800 per litre,” it added.
According to the AON, in addition to the continuous rise in the price of aviation fuel, “supply is at best, epileptic and unpredictable at several airports across the country, thereby causing flight delays and even cancellations, as airlines queue for fuel at airports across the country.
“To say the least, airlines are in a ‘life and death’ struggle to secure the foreign exchange they urgently need to acquire spare parts to ensure the regular routine and scheduled maintenance of aircraft.”
Wheat, fertiliser materials scarce as bakers strike
The Russia-Ukraine war has also affected the importation of raw materials for fertiliser and other agricultural commodities, which experts said may be threatening the food security of Nigeria and other countries.
The director-general of the World Trade Organisation (WTO), Dr Ngozi Okonjo-Iweala, recently in a BBC interview, warned that Nigeria and many African countries may face food crises due to the war in Ukraine.
She stressed that Russia was the biggest exporter of fertilisers, wheat and maize to many African countries, and that the prices of the two grains had gone up by 62 and 36 per cent respectively since the beginning of the war.
The WTO boss said the price of soya beans had inflated by 29 per cent, while noting that the cost of purchasing fertilisers globally had gone up by 300 per cent as a result of the ongoing war between the two European nations.
Between 2017 and 2021, Nigeria’s imports from Ukraine included ‘milk preparations,’ wheat and maize seed, whole wheat, mackerel, herrings, blue whitings, other fish products and vaccines imported from Russia.In April, Nigeria had to import emergency supplies of potash from Canada after the country’s inability to get the fertiliser from Russia due to the impact of western sanctions against Russia.
Reuters reported that the managing director of the Nigeria Sovereign Investment Authority, Uche Orji, said, “Russia was unable to deliver, so we bought a spot from traders in Canada. The Canadian High Commission in Nigeria helped start the conversation with producers.”
The Nigeria Sovereign Investment Authority (NSIA) negotiates imports of raw fertiliser materials like potash as part of the Nigerian government’s programme to develop its capacity to produce blended fertiliser.
Orji said Nigeria had enough potash inventories to cover 40 per cent of blending demand and bought three cargoes of Canadian potash, which should arrive by May. Normally, the country takes five Russian cargoes a year.
This week, the Premium Breadmakers Association of Nigeria (PBAN) declared a strike over the rising cost of production. Suppliers of wheat said the commodity often coming from Ukraine and Russia for Nigeria had been highly constrained with less local capacity to meet the demand.
Bakery owners said the price of flour had always been on the high side, from local manufacturing firms like Honeywell and Crown Flour. This, they said, had also added to the price.
DMO warns of tougher times as petrol subsidy rises
The Debt Management Office (DMO) has also warned of tougher times. In its just-released Debt Sustainability Analysis (DSA) 2021 report, the DMO said foreign exchange (forex) rate shock, rising interest rate and other crises could push Nigeria’s debt to Gross Domestic Product (GDP) ratio by 4.8 per cent to 30.9 per cent this year.
The DMO said unless actions were taken to grow revenue and wholly implement the Petroleum Industry Act (PIA), the naira may crash up to 50 per cent to the dollar in 2023.
According to the latest DMO debt report, “The real exchange rate shock, with the depreciating naira exchange rate to the US dollar by 50 per cent, the maximum historical movement observed over the past 10 years will increase the total public debt-to-GDP ratio to 30.9 per cent and 30.5 per cent in 2022 and 2023, compared to 26.1 per cent and 25.8 per cent in the baseline.”
Highlighting some of the challenges, the DSA stated that the shocks include primary balance, real GDP growth, real interest rate, real exchange rate and combined macro-fiscal shocks.
For instance, it said the real Interest Rate Shock had an increase in interest rate by 200 basis points (bps).
This will increase the debt service-to-revenue ratio to 29.3 per cent and 32.1 per cent in 2022 and 2023, rising from the baseline projection of 28.7 per cent and 31.5 per cent. Already, inflation in June hit 18 per cent point and is expected to be higher this July, with an attendant rise in food inflation, and commodities.
The report also recommended strengthening the implementation of the Strategic Revenue Growth Initiatives to raise revenues, the PIA implementation to attract investments in the oil and gas sector, and sustained implementation of the National Development Plan (NDP), 2021-2025 for speedy economic recovery.
The DSA report also prioritised rationalising of expenditure by focusing on priority spending on the growth-enhancing sector of the economy.
Equally, on Thursday, the federal government muted a N6.72trillion subsidy for petrol for the 2023 fiscal year after budgeting N4.19trn for 2022. This is N2.53trn higher than the current petrol subsidy figure, expected to roll till May next year.
The Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, while presenting the 2023–2025 Medium Term Expenditure Framework and Fiscal Strategic Paper (MTEF and FSP), said government may pay the N6.72trn for the full year 2023 to be provided by the Nigerian National Petroleum Company (NNPC) Ltd on behalf of the federation, or remove subsidy by mid-2023.
She said if government paid the N6.72trn, there would be nothing to share from oil proceeds by the federal, states and local governments next year, but if it stops the subsidy by mid-next year, only N3.36trn would be spent to fund subsidy in the 2023 budget, leaving something for the governments.
The subsidy payment has been a controversial issue in Nigeria, and in spite of global crude oil price rising to over $100 a barrel, the country is yet to benefit from it as the government said the higher proceeds had been eroded by the increasing subsidy on petrol.
Nigeria imports petrol mostly from refineries in Antwerp, Belgium, and with global logistics and crisis, and local forex issues, the cost of petrol import has risen, forcing the NNPC to increase subsidy payment.
What govts can do to triumph
Various experts have made suggestions on what governments can do to tackle the economic crisis caused by the Russia-Ukraine war.
In his submission, a Lagos-based financial analyst, Abiola Rasaq, said the inter-dependence of countries brought about vulnerabilities, especially for a country like Nigeria, which is heavily dependent on the importation of food, clothing, shelter, technology and virtually everything the citizens consume.
He said, “The federal government generated less revenue compared to its debt service cost in the first four months of the year, a strong signal of the fiscal realities masked by cosmetics.”
Rasaq also raised concerns about inflationary pressure, which would persist for some time because it is more than what a simple reduction in money supply, or raising the interest rate as done by Central Bank of Nigeria (CBN) recently can fix.
On the way out, the financial expert said, “It’s important to plug the low hanging fruits, including blockage of leakages and enhancement of productivity through comprehensive multi-sector reforms, but more important is the need for a social reorientation toward savings and investment culture, with a view to cutting down consumption of luxuries, which has been a drain on the fragile current and capital account of the country.”
Speaking with our correspondent, an economist, Dr Austin Nweze, said the problem was worsened by the failure to decentralise the global economy. He said no one envisaged the war between Russia and Ukraine, and when it happened, the whole economy went into turmoil.
He said for Nigeria to survive, it should begin to look inwards and depend less on importation.
“What the government has been trying to do indirectly is to cause a demand shift from kerosene so that it can be used as a component of aviation fuel. That’s why today, kerosene is expensive and even costs more than the aviation fuel itself.
“So to survive is to begin to look inwards, not to depend on imports. We should be able to produce what we consume, and it is not too late if not for the greed of the leadership. Everyone is depending on Dangote to come up; and completion date has been extended,” he said
The president of the Lagos Chamber of Commerce and Industry (LCCI), Asiwaju Michael Olawale-Cole, said the war painted a gloomier outlook for global economy, especially Nigeria, for obvious reasons.
He said the most sustainable solution was for the government to boost local production of hitherto imported staples to levels that would meet local demand.
“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 in the long term.
“We should also target Trans-Saharan and European markets with the ongoing construction of the Ajaokuta-Kaduna-Kano gas pipeline, popularly known as the AKK Gas Pipeline.”
The general secretary of the Food and Beverages Association of Ghana, Mr Samuel Aggrey, at a recent Food and Beverage West Africa trade show in Lagos, urged heads of African countries, Nigeria inclusive, to strengthen policies that would make the continent a producing one in the wake of the war between Russia and Ukraine, which has impacted negatively on global economy.
The Centre for Promotion of Private Enterprise (CPPE) in its 2022 first quarter economic review, stated, “If crude oil price remains at the current levels and petrol price remains fixed, the country may be teetering on the brink of bankruptcy.
“Current subsidy payment regime is simply not sustainable. The deregulation dialogue needs to urgently resume to save the economy from further deterioration,” the chief executive officer of the Centre, Muda Yusuf stated.
Any positive expectation from the war?
A few countries are sensing long-term growth opportunities from the crisis. Specifically, Africa’s natural gas could reduce Europe’s dependence on Russian energy.
Several other countries could similarly benefit from Europe’s energy diversification, including Senegal, where 40trillion cubic feet of natural gas was discovered between 2014 and 2017 and where production is expected to start later this year.
Nigeria, already a supplier of Liquified Natural Gas (LNG) to several European countries, is also embarking with Niger and Algeria on the Trans-Saharan Gas Pipeline to increase exports of natural gas to European markets. (Daily Trust)
No comments yet. Be the first to post comment.