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On the fuel hike

By Adetokunbo Abiola

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Protests broke out in Osun State last week against the recent hike in electricity and petrol prices.
It was organized by the Coalition for Civil Societies, with protesters condemning the increase in electricity and petrol prices.
While the electricity hike is shadowy, the price of Premium Motor Spirit (PMS), otherwise known as petrol, has risen from N148 to N161 per litre.
Meanwhile, Nigeria Labour Congress (NLC) and Trade Union Congress (TUC) are consulting civil society allies and relevant organs of labour towards embarking on a strike over the hikes.
The President of NLC, Ayuba Wabba, on the price hike, said: “Clearly, the action of the Federal Government is most insensitive and an affront to the Nigerian people who are bearing heavy burdens of the COVID-19 pandemic.”
Also, the President of African Region of Public Service International (PSI), Peters Adeyemi, condemned the increment. Adeyemi recalled that in June 2016, the government had said it had made provisions for N500 billion intervention fund to take care of situations like this.
Why is government increasing the pump price?
The government has struggled to do away with fuel subsidies since the first quarter of 2020.
In March, the government announced that it would scrap subsidies on petrol and allow market forces to determine the retail price of the product.
It said fuel subsidies had drained billions of dollars from the Nigerian treasury over the past years, as the NNPC struggled to maintain supply as the sole importer of petrol.
It said rather than provide the ground for total deregulation, the government, through the Petroleum Products Pricing Regulatory Agency, would determine prices with its routine draft of price control template.
Apparently, the government has decided it would totally hands off from fuel subsidies.
Another reason could be the strained state of the federal government finances.
In May, the Federal Government announced significant changes in key parameters in the 2020 budget, cutting down its projected earnings from the oil and gas sector by 80 per cent to N1.1 trillion and also slashing its total projected earnings by 54.65 per cent to N3.9 trillion.
It projected the nation’s Gross Domestic Product (GDP) to contract by 3.5 percent year-on-year in 2020, while oil earnings is projected to also decline by 90 per cent.
Furthermore, it benchmarked Nigeria’s oil earnings on a crude oil output of 1.7 million barrels per day, 22 per cent lower than the initial projection of 2.18 million barrels per day in the 2020 budget.
It announced that a severe outbreak of COVID-19 in Nigeria could magnify the impact of low oil price and weaken domestic crude production, while it confirmed that payment of fuel subsidy had been eliminated.
The government noted that although similar challenges were faced in 2016, the impact would likely be severe as Nigeria currently has significantly lower fiscal buffers.
In additional to dwindling revenues, the nation is suffering from having to pay a lot of money on debts incurred.
The nation’s debt profile breached a new milestone, with the country’s debt service as a percentage of revenue rising to 99% in the first quarter of 2020, according to a report recently released by the Medium-Term Expenditure Framework and Fiscal Strategy (MTEF/FSP) of the Federal Ministry of Finance, Budget, and National Planning
According to the report, in Q1 2020, Nigeria incurred a total sum of N943.12 billion in debt service, while the federal government retained revenue was put at N950.56 billion, meaning the nation’s debt service to revenue is estimated to be 99% during the period.
According to the data, the country earned N950.5 billion in revenue compared to a prorated budget of N1.9 trillion, representing a whopping shortfall of 52%.
Oil revenue was N464 million, representing a shortfall of 30% when compared to the budget, while non-oil revenue was N269 billion, representing a shortfall of 40%.
Unfortunately, the government isn’t going to have it easy from majority of Nigerians, already pushed against the wall by the economic difficulties of the year.
Several economic indices related to the ordinary Nigerian are on the rise.
Prices of petrol have increased for three straight months, rising from slightly over 121 naira ($0.32) per liter in June to over 143 naira ($0.38) in July, 150 naira ($0.39) in August and 162 naira ($0.43) in September.
Last week, the Petroleum Products Marketing Company increased the ex-depot rate of petrol – the price at which it is sold to suppliers – to over 151 naira ($0.40) from 138 naira ($0.36), before slashing it down to 147 naira ($0.39).
On the issue of electricity, rises are projected to rise this month, even though a previous tariff hike slated for July 1 was halted by the National Assembly.
Power distribution companies had been asked to put off any tariff increase until the first quarter of 2021 due to “the current economic challenges in Nigeria, but now they are reneging.
However, consumers, except those receiving less than 12 hours of supply, will have to pay more for electricity starting from Sept. 1.
Meanwhile, according to the National Bureau of Statistics, the nation’s inflation rate rose by 12.82% (year-on-year) in July, compared to 12.56% recorded in June 2020, the highest rate recorded in 27 months since March 2018, when inflation was 13.34%.
The composite food index rose by 15.48% in July 2020 compared to 15.18% in June 2020. This represents 0.30% increase compared to June figures.
Also, on a month-on-month basis, the food sub-index increased by 1.52% in July 2020, up by 0.04% points from 1.48% recorded in June 2020.
The rise in the food index was caused by increases in prices of bread and cereals, potatoes, yam and other tubers, meat, fruits, oils and fats, and fish
An increase in inflation rate means that fixed income individuals have less purchasing power, and their ability to afford the same quantity of goods and services has reduced significantly.
Also, with the rise in price of goods and services, consumers may be more inclined to try and purchase more quickly before prices rise further, which could have a negative effect on prices of goods and services.
Still, from the National Bureau of Statistics, Nigeria’s unemployment rate as at the second quarter of 2020 is 27.1%, indicating that about 21,764,614 (21.7 million) Nigerians remain unemployed.
Nigeria’s unemployment and underemployment rate (28.6%) is a combined 55.7%, which doesn’t portend well for the nation.
It indicates that one in every two Nigerian in the country’s labor force is either unemployed or underemployed.
The total number of Nigerians who are unemployed or underemployed exceeds the population of 35 of Africa’s 54 countries. Among young Nigerians aged between 25 and 34, the largest bloc of the labor force, the unemployment rate currently stands even higher at 30.7%.
Already the World Bank predicts Nigeria’s fragile economy is set for its worst recession in four decades, as the effects of the coronavirus pandemic continue to manifest.
It will be interesting seeing how Nigerians will respond to the fuel hike by the federal government.

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