The Nigerian economy has struggled for decades due to fiscal irresponsibility, government waste, local capacity utilization, excessive inflation, and low labour productivity.
Many have tried to remove it from the cesspit, but most stop at lip service and conceptualization without bravery. Ex-President Muhammadu Buhari regretted the difficulties that held the economy prisoner for eight years but lacked the political courage to address the most difficult ones.
Bola Ahmed Tinubu, the new president, might be accused of many things, but he showed guts in his short days in charge.
In his inauguration speech, he condemned the political situation and ended the controversial PMS subsidy, shocking the nation. He also plans to fight oil firms to solve the second leg of the petrodollar nemesis—dwindling output.
For decades, Nigeria’s petroleum industry has contributed abysmally to the gross domestic product (GDP), contributing 5.67 percent in 2022 compared to 7.24 percent in 2021. The sector, which had accounted for close to 70 percent of the nation’s revenue, contributed 41 percent.
The Bola Tinubu-led administration is boldly revamping the downstream sector, which has fared poorly this year due to oppressive regulation.
Despite the odds, most stakeholders have differing opinions on the president’s plans, citing fear of monopoly, unclear policy implementation, lack of holistic alternatives, profiteering, poverty, insecurity, energy transition, weak consumer protections, and high governance costs.
On Wednesday, the Nigerian National Petroleum Company Limited (NNPCL) announced a new price template that raised the pump price of Premium Motor Spirit (PMS) from N195 per liter to N557 per liter to signal downstream industry deregulation.
Despite being a large oil producer, Nigeria has imported most of its petroleum products for decades, draining its income and foreign currency.
The Nigeria Extractive Industries Transparency Initiative (NEITI) reported that PMS imports cost $74.39 billion, or N13.697 trillion, between 2005 and 2021.
The 2005 subsidy was $2.6 billion (N351 billion), according to the NEITI report. It paid $1.99 billion (N257 billion) in 2006 and $2.176 billion (N272 billion) in 2007.
The research also noted that subsidy payments more than quadrupled in 2008 and 2010 and peaked in 2011 at $13.52 billion (N2.11 trillion). It fell to $3.34 billion (N654 billion) in 2012, 2013, 2014, and 2015.
In 2017, subsidy spending dropped to $473 million (N154 billion). Payments rose to $3.88 billion (N1.19 trillion) in 2018 and $3.58 billion (N1.43 trillion) in 2021. Nigeria has spent N805.7 billion yearly, N67.1 billion monthly, or N2.2 billion every day in recent years.
Subsidies and a poor downstream sector are a falling knife in an economy with numerous negative indices, excessive debt, high inflation, an acute infrastructure deficiency, and high unemployment.
The downstream petroleum business includes refining, storage, marketing, and distribution. The sector supports petrochemical, construction, agricultural, and industrial enterprises. The sector is robust and a big cash producer for most oil-producing nations, but Nigeria’s is in disarray.
Subsidizing infrastructure, local industry, and output appears more economically sound than subsidizing consumption. Experts warn that downstream sector regulation limits industrial capacity, normalizes refined product imports, and places a tremendous economic burden on the country.
Stakeholders feel the deregulation was rushed to please investors, especially because the Dangote Refinery would start pumping petroleum in two months.
The government must now explain why the previous administration used $800 million for palliative care. The new government denies knowing of the loan’s readiness.
The Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), which regulates downstream businesses in Nigeria, likewise kept mute. Deregulation has several drawbacks.
Section 206(2) of the Petroleum Industry Act (PIA) states: “The authority shall have the power to monitor the bulk sale of petroleum products and may publish market-based prices to ensure that the transactions are conducted in such a manner that transfer pricing between the supplier and wholesale customer is undertaken on a transparent, arms-length basis.”
Section 205(1) of the Petroleum Industry Act 2021 also states: “Subject to the provisions of this section, wholesale and retail prices of petroleum products shall be based on unrestricted free market pricing conditions.”
Industry participants said the existing subsidy scheme was supposed to terminate by June, a month away, and that the public may be shortchanged.
Tunji Oyebanji, former chairman of the Major Oil Marketers Association of Nigeria (MOMAN), said marketers are unaware of how the Federal Government will handle the coming deregulated market and foreign exchange crisis.
We want a clear strategy to involve all parties. I consider this crucial. Will we import other items after subsidy removal? We must know before the subsidy is discontinued. Importing requires an order. NNPC imports must be disclosed. Oyebanji said everyone must agree.
Prof. Adeola Adenikinju, a University of Ibadan energy economist, said price increases would cause short-term suffering.
“However, in the medium term, we should expect new investments flowing into the sector to create new refineries, depots, etc. that will create jobs and revenues for the government,” Adenikinju added. Like telecom liberalization in 2002, additional investors would lower prices.
Oil and gas governance specialist Dauda Garuba said deregulation of the downstream industry is overdue, “especially as subsidies only work in the cities and for a few fat cats that feed on them,” but the present trajectory is uncertain.
“What is unusual about the deregulation is that it is coming in less than a month, which we have all set our minds on. Since NNPC Limited is Nigeria’s single fuel importer, it shouldn’t set prices.
Garuba suggested the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) should control its filling stations. Because petrol impacts everything in Nigeria, Garuba said the decision will hurt most Nigerians, especially small and medium-sized enterprises.
Energy expert Ademola Adigun said that Nigeria’s minimum wage of N30,000, which can only buy about 60 liters of PMS and evaporates within a week for a worker who drives 40 kilometers to and from work, would increase the demand for salary increases.
Expect inflation. Salary increases will be demanded. The unions will negotiate why pricing should be established in a deregulated market is my greatest question. Markets should set prices.
Diesel-based manufacturing. The effect is small, but other things increase it. Salary and pay pressure will increase. Private sector workers protest. Trade unions should announce the strike. We’ll all suffer in the near term. “But we will survive as we adjust gradually,” he said.
Adigun stated that the NMDPRA and Consumer Protection Council must improve to safeguard consumers. He claimed NNPCL’s foreign exchange preference will hurt the market, and all businesses need an equal playing field.
Dr. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE), claimed subsidy reduction will release N7 trillion into the federation account, lower the budget deficit, and reduce debt.
The unsustainable subsidy scheme and restrictive regulatory environment make private investment in our petroleum downstream industry challenging. Subsidy reduction reduces distortions and boosts investment. Private investments in petrochemical, fertilizer, and petroleum refineries would increase.
A post-subsidy regime would allow pipeline, storage, transportation, and retail developments. Private capital would export refined petroleum, petrochemicals, and fertilizers. He promised good jobs.
Yusuf said: “Immediate and short-term options include wage reviews in public service, the introduction of subsidized public transportation schemes across the country, and reductions in import duties on intermediate products for food-related production to moderate food inflation.
“In the medium to long term, there should be accelerated efforts to upscale domestic refining capacity, driven by private investments, and accelerated government rail transportation investments to ease the logistics of fuel distribution across the country and domestic freight costs.”
Like the oil sector, the government is racing to restore financial stability. Tinubu announced Monday that the new policy will unify currency rates. That is comparable to the CBN’s three-year-old policy, which experienced political obstacles.
If achieved, the government can increase volume and dollar inflow. Black market rates are 60% higher today. Last year, it reached 100% for the first time since civil rule, against the IMF’s recommendation of 5%.
Tinubu’s “housecleaning” may allow the CBN to attract foreign exchange remittances through the official window without incentives or refunds.
“I, however, do not subscribe to the idea of setting up a single-digit rate for consumer lending and mortgage rates,” Dairy Hills Limited CEO Kelvin Emmanuel said of the plan. Instead of subsidizing mortgage and consumer-backed direct intervention subsidies, the Central Bank should decouple inflationary drivers to lower MPR to a single digit.
Experts say Tinubu’s goal of higher GDP rates in Nigeria is achievable, provided the administration has the determination to implement its economic program.
A cross-section of Nigerians also indicated that policy creation is not the problem, but policy execution is. The new president pledged to increase GDP growth and eliminate unemployment in his inauguration speech.
The president said he would implement budgetary reform to stimulate the economy without inflation and an industrial policy that would use all fiscal measures to promote domestic manufacturing and reduce import dependency.
The president also pledged cheaper power for companies and households. “Power generation should nearly double, and transmission and distribution networks should improve,” he said. We encourage nations to establish local sources.”
The World Bank warned last year that Nigeria must make critical business-unusual choices to avert a situation in which up to 80 million working-age Nigerians will not have a full-time job by 2030 and 23 million more will live in severe poverty.
Muhammad Akaro Mainoma, a professor of accounting and finance and former Nasarawa State University Vice Chancellor, said the economy will recover if the administration keeps its promises. He called the next president’s gasoline subsidy reduction a crucial step.
Prof. Mainoma stated, “Yes, we know that we need to take some hard decisions to grow the economy, but there is a lot the government can do to mitigate the effect. Food and transportation need government intervention.
“If the government is going to help, two things are very essential: let the government provide transportation so that those in the transport sector will not increase their fares beyond the reach of ordinary citizens, which will also push food prices in the market higher. To lower prices, the government should supply food.
Fuel subsidy reductions and exchange rate harmonization are expected to help the economy recover quickly.
Arc Kabir Ibrahim, National President of the All Farmers Association of Nigeria (AFAN), claimed that addressing monetary policy concerns that weaken the currency was one of the new president’s greatest measures.
“The naira’s weak purchasing power causes inflation,” he said. I’m delighted the incoming president said he’ll change monetary policy to support the currency. Things will normalize when the naira’s buying power improves.”
Indeed, dependable and inexpensive power powers homes, companies, transportation, and healthcare in every economy. Electricity is crucial.
As the world electrifies, sustaining infrastructure and resource sufficiency gets harder. The president knows Nigeria’s economy needs power to grow. Poor follow-ups ruined previous agreements. Can Tinubu succeed again?
Power analyst Lanre Elatuyim said that resource adequacy and resilient transmission and distribution networks can connect all consumers, regardless of community or socioeconomic status.
During peak consumption, meeting electricity demand may be difficult. Infrastructure and resource sufficiency matter here. Unlike before, the power investment template now lets states engage in the full value chain. Experts say states need the correct incentives to move their fingers.
Elatuyi said enormous expenditures in distribution networks and mini-grids in rural regions where bigger grids do not reach promote power accessibility.
He stated that energy use is always changing, making resource adequacy difficult to achieve.
He also noted that reliable power distribution requires strong infrastructure. The analyst said generating electricity at least cost from diversified generation resources is the path to power affordability, depending on the pricing mechanism and how generation resources are dispatched in real time.
“Customers must pay to flow revenue within the power value chain, and regulation must be in place to ensure fairness and transparency,” he added.
As the purpose of any power system is to provide dependable, accessible, and inexpensive electricity to customers, the expert stated that the two may be attained at the same time if an optimal balance is struck.
“The current administration can achieve the two if focused; the goal of any government and regulator is accessibility and affordability in the power sector, but the challenge is how to ensure that in policy and market design,” he added.
Adding that increasing generation and more diverse generating resources require suitable infrastructure for transferring and distributing power to customers,
“When half of the generation portfolio is open-cycle gas turbines, then it is difficult to expect cheap electricity,” he stated.
Depending on pricing processes and data, tariffs should be cost-reflective. He urged price transparency, saying there is not enough data to assess whether tariffs are cost-reflective.
