Petrol subsidies are effectively back on the NNPC’s cards following the sharp rise in crude oil prices after OPEC agreed to cut production by 1.2 million barrels per day, on November 30. This effectively means that Nigeria’s current ₦145 per litre retail price template for petrol, set in May is obsolete. “We suspect that the importers, or at least the NNPC, are taking the hit on their books as a result,” analysts at FBN Quest said in a December 2 note. This is because “the higher spot price clearly feeds into the costs of importers of petroleum products.” The price of Brent crude rose 6 percent to $53.53 per barrel as at midday on Friday, from $50.47 per barrel on Wednesday, when OPEC and Russia agreed to cut output to 32.5 million barrels daily, 34.7 percent of global oil demand. The landing cost of petrol in Nigeria is ₦122.03 per litre, while distribution costs take total cost to ₦140/$, according to data from the PPPRA. This template was reached in May, when oil prices traded at an average of $45 per barrel. But with crude prices rising by 17.7 percent to $53 per barrel from $45, the landing cost of petrol now exceeds the retail price of ₦145 per litre, calculations by independent analysts show.
The FG has banned the importation of vehicles into the country through its land borders. Wale Adeniyi, Nigeria Customs Service spokesman, stated that “the prohibition order covers all new and used vehicles”. Adeniyi also said the ban was pursuant to a presidential directive restricting all vehicle imports to Nigeria’s seaports only, adding that the order takes effect from January 1, 2017. “The restriction on the importation of vehicles follows that of rice; import of rice through land borders has been banned since April 2016. Importers of vehicles through the land borders are requested to utilise the grace period until December 31, 2016, to clear their vehicle imports landed in neighbouring ports,” Adeniyi said.
Lawmakers are expected to deliberate on a legislative framework which seeks to grant states the power to control revenues derived from minerals resources during the constitution review exercise which will commence soon. The bill, sponsored by Minority Leader, Leo Ogor during Wednesday plenary session, scaled through second reading on the floor of the House of Representatives. Ogor (PDP-Delta) emphasised the need to amend the Constitution with the view to empower the states to control of the revenues derived from all the mineral resources including oil, natural gas in, under or upon any land in the states of the federation. After a robust debate on the bill whose long title reads: “A bill for an Act to alter the Constitution of the Federal Republic of Nigeria, 1999, to vest the control of the revenues derived from minerals, mineral oils, natural gas in, under or upon any land in the states of the federation,” Speaker Yakubu Dogara referred it to the Special Ad-hoc Committee on Constitution Review, chaired by Yusuf Lasun for further legislative action. Ogor, in his lead debate, said the bill if passed into law will give impetus to government’s efforts to diversify its economy, as states will focus on areas where they have a relative comparative advantage.
President Muhammadu Buhari has accused the UN and aid agencies of creating “hype” and exaggerating the humanitarian crisis in north-eastern Nigeria in order to encourage more donations. A crisis in states severely affected by the Boko Haram insurgency has been escalating in Nigeria over the last 12 months. On Friday, the UN warned that next year, 5.1 million people would be likely to face serious food shortages if more aid to the north-east of the country does not arrive. Peter Lundberg, the deputy humanitarian coordinator for the UN in Nigeria, described the crisis as the worst on the African continent, appealing that without more aid, the situation is set to worsen. In an appeal for a $1 billion humanitarian response plan launched in partnership with the Nigerian government on Friday, Lundberg claimed, “the narrative on this humanitarian crisis can no longer be ignored. We are appealing to the international community to help us prevent the deaths of thousands of innocent civilians over the coming 12 months.” But Nigeria’s president has now accused the UN and aid agencies of deliberately exaggerating the situation in the north-east to increase the amount of aid. “We are concerned about the blatant attempts to whip up a non-existent fear of mass starvation by some aid agencies, a type of hype that does not provide a solution to the situation on the ground but more to do with calculations for operations financing locally and abroad,” the president said. Buhari accused aid agencies of giving the impression that the government was incapable of dealing with the humanitarian crisis.
- Earlier this year when the government claimed that subsidies had been removed, we pointed out that subsidies were actually not removed – that what happened in effect was only the price point moved, taking advantage of low oil price impact on landing cost. As predicted, the dollar exchange rate, as well as a recovery of oil prices, have increased landing cost and hence open market price is now above pump price. There are only two options to avoid a debilitating scarcity – do the politically expedient, but economically difficult thing of paying subsidies, or do the politically difficult, but economically expedient thing and liberalise petrol pump price as has been done for diesel. We urge the government to take the second option.
- The trajectory that the car-importation ban action will take, and the impact it will have, have already been charted by another product – rice. According to a 2015 PWC report, 410,000 vehicles were imported into Nigeria in 2014, 26% of them brand new. The figures for 2013 were similar, while estimates for 2015 are half that following the downturn. Preliminary estimates for 2016 indicate that the total imports are similar to those of 2015, despite the recession. Banning the importation of a product, whose demand cannot be met by domestic production, does not mean that the demand will go away. It only means that the price will go up, ensuring that there is greater incentive to take the risk to bring it in. The effect of this is that the enforcement agency, will open a new avenue of seizures and turn the enforcement into a racket and in the end the government would have achieved nothing beyond making life more difficult for Nigerians.
- The Land Use Act, an annexure to the supreme law of the land by virtue of s.315 has long enabled one of the unique oddities about Nigeria – the control of natural resources by the centre. An overburdened Abuja was bound to creak under the weight of being sole manager of all the nation’s resources. Furthermore, the advent of democratic rule coupled with the heady days of the oil price boom succeeded in reducing Nigeria’s states to collecting centres with an unsustainable dependence on monthly Federal Accounts Allocation Committee meetings in Abuja. The majority of them failed in those years to diversify their economies by developing human capital and levering on the substantial resources they possessed. The result has been powerful governors beholden to ostentatious living, bloated public work-forces, with its attendant wage demands – fully 80% of states owe salaries, and wretched living standards for ordinary people. If one of the effects of an increasingly biting recession is to make federal lawmakers foist real fiscal federalism – one of the pillars of workable federations everywhere – on Nigeria’s states, it will a benefit worth all the pain.
- SBM Intelligence has first hand observations of the IDP situation, and in fact published a report earlier in the year. Not only is the UN position accurate, we believe that it does not fully capture the situation – we daresay it is more dire. Unfortunately, the government seems to be more interested in managing perception as opposed to rolling up its sleeves to handle the crisis, much of which is rooted in the ineptitude of the agencies involved, rife corruption causing diversion of the food aid, and the still present threat of Boko Haram ambushes, which make the provision of supplies a risky undertaking. We urge the government to stop the posturing and deal with the issue, even if it means swallowing “national pride” and accepting all the help it can get from all over the world to tackle this.
SBM Intelligence’s forecast for 2017 will be published at 12 noon WAT on Friday, December 16, 2016.