By Nasir Aminu
The year 2022 is the last year of the government with 12 full months. It is the year that this administration is expected to deliver the bulk of its parting gift – legacies – before they dutifully hand over next year. The general public is struggling with persistent inflation. Businesses are struggling to survive. The government keeps vacillating on policies. From a macroeconomic perspective, the first half of the year is grim.
On the global stage, Nigeria has become more integrated and dependent on the international economies, which makes the country open to global shocks. For example, the spike in world energy prices is weakening the Nigerian economy more than ever. That is because Nigeria is an import-dependent economy in all aspects; the country is borrowing much more to finance its expenditure and its socioeconomic issues are making the environment less favourable for economic activities to prosper.
Nigeria is short of energy supply – a key input for producing goods and services. The country’s electricity transmission and distribution network – the national grid – collapsed for the sixth time since the beginning of the year. That means there is a persistent power supply outage for businesses, and they must use emergency generators as the main power source. Of course, the equipment requires diesel and other fuels to function.
Nigeria continues to import refined oil for local consumption as refineries remain dysfunctional. The annual total import of petroleum products is about $28 billion from countries like Netherlands, Benin, India and France. The country is importing half of its cooking gas from the US, Equatorial Guinea, Belgium, and Argentina, among others.
Energy retailers exploit the global energy price shock by hiking cooking gas and diesel pump prices. The government followed suit to hike petrol prices, but in a staggered manner, with little justification. A few pundits raised eyebrows on the issue, and protests against the price rise and regional fairness are expected. As energy costs skyrocket in Nigeria, manufacturers warn of higher product prices and imminent job losses. Private transport owners have announced a 25 per cent increase in fares for commercial trips on interstate routes.
Businesses are navigating through a considerable increase in overall input prices. The energy prices keep rising, transportation costs across and within states are surging, insufficient foreign exchange supply and the naira is at a free fall. Manufacturers are warning of higher product prices and imminent job losses. The Central Bank of Nigeria has increased the cost of borrowing by one per cent to curb the rising inflation. These high business expenses are being passed on to the final consumers pushing the selling price inflation higher.
The Dangote Refinery can adequately feed the domestic market if it begins operation as planned. Businesses will be relieved, as petrol, diesel, and cooking gas would be cheaper. The country will be less exposed to the global energy price shocks and we will begin to worry about food security. Exporting cheap crude and importing expensive refined crude oil products for consumption, albeit at a subsidised rate, will end. But, I do not expect the Dangote refinery to begin operation during the Buhari administration – which means fuel subsidy payment will continue – as the World Bank expects Nigeria to spend N6 trillion on fuel subsidy in 2022.
Fuel subsidy removal discussion has been raised several times this year, and the government keeps vacillating on it. Fuel subsidy has its cost and benefits. Minimising the impact of rising global oil prices on Nigerians has been the principle behind the subsidy since its inception in the 1970s. The indecision on the position to take on fuel subsidy is creating more economic uncertainty. Economic activities keep slowing down and are reflected in the country’s revenue source.
The 2022 first-quarter revenue report shows that the country has earned more revenues from corporations than from crude oil. However, the revenue from corporate income tax fell from the previous year. So, when considering Nigeria’s revenues, one cannot help thinking that there a few shortcuts for earning income. The country has used all the unconventional fiscal and monetary policy coupons to stabilise its economy.
The consequence of printing money, monetary policy, to finance deficits is evident – higher inflation. As of June 2022, the inflation rate – 18.6% – is at a 65-month high. The interest rate was raised to curb the rising inflation as the government sold bonds to reduce money in circulation. However, the July demand for bonds is low, which signals investors are less attracted to lending money to Nigeria. Tightening market liquidity is becoming difficult due to widening negative real return on the bonds. If the trend continues, the government will struggle to implement its high deficit budget of about N6 trillion.
The conventional policy is for the government to develop its sectors, and facilitate and coordinate an enabling environment for economic activity to generate more revenues from taxes. However, as this will be near impossible, the last option is to expect assistance from multilateral agencies like IMF/World Bank. And if it does not come through, the feared doom trap of another recession will only intensify.
Therefore, the incoming government needs to understand this precarious situation. They should negotiate with the electorate on a short-term policymaking approach to avoid further economic chaos.
Dr Aminu is a lecturer at Cardiff Metropolitan University
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