“You will go mostly safely in the middle”. Ovid, 43B.C -17AD.

Last week, the focus was on the micro-economic impact of subsidy removal, in other words, its effect on individuals and the new choices the policy has thrown up for people whose lives have now become unsettled in many ways. This week, the attention turns to groups; specifically it addresses the low income group and the middle class.

History of Fuel Price Adjustments

Fuel price adjustments have occurred since the Gowon administration till the recent one. Below is a summary of prices and the increases from Gowon to Jonathan.

HEAD OF STATE      ACTUAL INCREASE    PERCENTAGE

Gowon                      6kobo-9.5kobo                 58.3

Murtala                    9.5kobo                                 —

Obasanjo                  9.5kobo-15.3kobo            61.1

Shagari                     15.3kobo                                 —

Buhari                      15.3kobo                                 —

Babangida               15.3kobo-70kobo             358

Shonekan                 70kobo-N5.00                 614

Abacha*                    N3.5 – N11.00                214

Abdulsalam             N11.00 – N20.00            82

Obasanjo                  N20-70                               250

Yar’Adua                  N70-65                               -8

Jonathan                   N65-141                           117

•Abacha first reduced fuel price from N5 per litre where Shonekan left it, to N3.25 before hoisting it to N11.00.

Because of the emotions of the moment, Jonathan has become public enemy number one. The fact is, in percentage terms, he ranks a poor fourth. The real champion was Shonekan whose 82 days in office was also the shortest – giving birth to 614% increase..

While in real terms, Jonathan’s increase is the highest, it is still far more benevolent than those imposed by Shonekan, Babangida, Obasanjo and Abacha. Nigerians have had the most sympathetic deals from Yar’Adua, Murtala Mohammed, Shagari and Buhari.

However, irrespective of the percentage increase, higher prices have followed and the higher the fuel price increase, the higher the general level of prices or inflation. There is always a correlation. Take car prices for an example.

On the eve of the Structural Adjustment Programme, SAP, I purchased a new Peugeot 504, A/C and all options for N14,680 from a dealer, Danjuma Tsokwas in Yola. It was deliberate because I didn’t need the car. But I wanted to demonstrate to my co-workers at North Brewery Limited, Kano how a good economist can predict the future to some extent.

Two weeks after the delivery, IBB announced SAP; ten days after, Peugeot Automobile Nigeria Limited, PAN, announced the new price of Peugeot 504. It was N48,500. But, I knew that was only the beginning. So I went and bought a Santana at N55,000 and parked it.

A year after, it was sold for N175,000. By the time PAN discontinued the 504 series, the car was selling for N2.7 million. From Babangida to Jonathan, fuel prices have increased 200 times; the price of cars has also increased about 185 times.

Obviously, car prices will also climb from 2012 and in the process drag the cost of doing business upwards – if not for anything else but the fact that depreciation charges must rise in tandem.

While big companies – Dangote, Oando, UACN etc, don’t need consultancy advice, the vast majority of small and medium scale enterprises who form the backbone of the middle class and employ the low class workers, definitely need help.

Those the federal and state governments want to empower will also need mentoring. There is only a thin line between going burst and surviving to fight another day. Economic analysts can make the difference. But they must be engaged before the full impact of N141 fuel is felt.

Indisputably, double digit inflation will follow the fuel price increase and the obvious first casualty of that is the 2012 federal budget which had projected single digit inflation. Most state governments will also find themselves requesting for supplementary appropriation by August or September.

Single digit or rigid budgets are no longer feasible. The only uncertainty left is with respect to the actual inflation for 2012 and the roll over to 2013 and 2014 because massive price increases of this nature remain with the economy for more than one financial year for reasons too numerous to mention but one example will illustrate the point.

Some rents were due and renegotiated last year based on prevailing prices. Multiple years rents of this nature cannot now immediately be renegotiated until the tenancy expires. For three and five years’ agreements, this would mean that the landlord is stuck until 2014 or 2016; meanwhile, he is subject to the higher prices which will follow.

On the other hand, as economists say, those tenants, whose rents will expire this year will bear the brunt of rent increases as landlords seek to beat inflation. The chart below summarises the situation completely.