Nigeria’s 2023 elections

DIESEL has become a local symbol of the global energy crisis and Nigeria’s expansive economic woes. The astronomical rise in the price of diesel, the fuel that powers a large part of the industrial, commercial, and domestic activities in the Nigerian economy, has sent chills and ripples throughout the economy, from manufacturing giants through medium-sized enterprises and small-scale organisations to individual homes that rely on it for power because of non-existent or epileptic electric power supply.

Diesel’s stronghold on Nigeria’s economy is seen from gigantic diesel- powered generating plants that turn the industrial machines in Nigeria through the trucks used for long-distance haulage of industrial and finished goods to small devices used by small-scale enterprises. The demand for diesel is inelastic as there are virtually no substitute products in the short run; therefore, a change in price does not have a devastating impact on demand.

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Producers and consumers bear the brunt of the diesel price increases. The price rose from about N260 per litre late last year to over N850 in some parts of Nigeria currently, and this has put unprecedented stress on the economy, threatening its ability to produce goods and services. The debate about the cause of this scourge is raging.

Some claim that it is because of the global energy crisis occasioned by the Russia-Ukraine war. The impact of the global energy crisis combined with local structural defects and deficiencies in the Nigeria energy mix, where although we are a large crude oil producer, we still import diesel and other petroleum products from abroad, have a lot to do with the rising prices.

This opens Nigeria up to supply-side shock, especially during global crisis, and Nigeria is not importing enough diesel to meet local demand, which invariably forces the price of diesel up. In the short run, our local refining capacity is low because our national refineries are almost comatose. There is hope in the medium to long term that private refineries coming up around the country will increase local refining capacity. 

The immediate impact of the hike in diesel prices can be seen in the stranglehold it is having on the Nigerian economy. The increase in production and distribution costs for goods and services due to the high price of diesel is passed on to consumers, leading to hyperinflation.

Prices of goods and services are going over the roof, worsening an already grim poverty situation.  With the increase in prices, demand for goods with high demand elasticity plummets, which has a devastating effect on small-scale businesses that produce these goods and services and sometimes put them out of business. Other macro-economic impacts include the potential of increased lending rate by banks which would affect local prices; besides, savings will suffer as people struggle to satisfy their basic needs with dwindling disposable income. 

The social consequences of the harsh economic realities are enormous to contemplate. Soaring food as a result of rising fuel prices would ultimately lead to inflation. This will further lead to high cost of living and lower standard of living. The last time the world suffered a food-price shock as we have now, it helped set off the Arab Spring, a wave of uprisings that ousted four presidents and led to horrific civil wars in faraway Syria and Libya.

The “EndSARS” brouhaha is still fresh in our minds. Government has to protect the economy and alleviate the pains of the problem of the high price of diesel. There is a vital strategic linkage between the diesel price hike and the movement of other variables in the economy. We must acknowledge that the Russian-Ukraine war will continue in the immediate to probably medium term. The demand for diesel will continue to increase, given the electricity providers’ poor power supply to both commercial and private users. Nigeria needs the energy to power its industrialisation in a world working hard to jettison carbon energy for clean and renewable energy.

It is time for a significant policy shift by the Nigerian government on oil. We need to start signing an array of sweeping executive orders and policies to create an energy mix fit for Nigeria’s growth. This policy shift should have short-term, medium-term, and long-term outlook. The short-term focus should be on solving the current diesel price crisis. As a matter of urgency, out of compassion and concern for the people’s welfare,  government must tackle the high prices of diesel  and other related items like cooking gas and gasoline, which directly impinge on mass welfare to avoid the economic quagmire it is throwing the country into. Government should consider placing an embargo on VAT, Duties, and other forms of taxation on diesel immediately. Improved supply of diesel will significantly reduce supply-induced price increases. This includes provisions for more importation of diesel and intervening in the local distribution to most parts of the country to avoid shortage of the product in the country..

Another short-term measure is to support electric suppliers to increase power supply to small, medium, and large-scale companies and, if possible, offer discounts on electricity tariffs to manufacturers. This will immediately reduce the demand for diesel and invariably impact the product’s price. Government should help affected businesses by offering tax holidays, grants and subventions to the small companies on the verge of collapse due to the impact of high diesel prices on their production cost.

In the medium term, government should revive our moribund national refineries and increase their capacity to refine crude oil locally. It should encourage the proliferation of modular refineries to complement the quantity of diesel and petrol produced by government and private refineries. Government should turn Nigeria into a net exporter of refined petroleum products, including diesel, rather than exporting crude oil.  In the long run, government should plan for a post-carbon energy era. Sustainable and renewable energy is the future. I will suggest that government develops a new institutional mechanism for managing the funds from this last stage of rapid oil transition revenue.

It should localise the Paris Climate propositions, tax the fossil fuel industry, and use the funds to implement our energy transition before we can revoke permits for new and old oil fields and convert our government’s fleet of vehicles to electric power. We need an ambitious proposal that will drive net-zero greenhouse gas emissions across Nigeria’s economy by 2035 while not jeopardising the overall economic health.

This situation of diesel price hike provides Nigeria with pains and opportunities. The ‘pains’ are excruciating and biting hard. People, companies, and organisations are struggling with the crippling effect of high energy prices, from petrol and gas to diesel. The economy is in a meltdown.

Something needs to be done and done fast. But this time provides us the opportunity to get it right. To create policies and actions that will help with the energy crisis now. And in the future, offer energy solutions to grow our economy. That is why the forthcoming election is crucial. We must vote for leaders with the clarity of vision and capacity to tackle the energy crisis once and for all.

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