Contrary to the notion that the removal of Nigeria’s much-talked-about petrol subsidy will lead to a spike in the country’s inflation rate, Bismarck Rewane, the CEO of FDC said West African countries without subsidies have much lower inflation than Nigeria.
“The belief that inflation will further increase inflation if we don’t subsidize is false. The fear of the unknown is what I can see there. They will scare you to an extent that you be willing to even delay the decision to remove it and when you come to it the next time, there is a probability that the situation may become worse,” Rewane said during a panel session at Coronation’s ‘Understanding Investment Risk and Return’ webinar on Thursday.
According to the CEO, Ghana’s inflation is at about 9 percent and they “buy petrol at $1.20.” At Nigeria’s official rate he said “we are buying it at about $0.20, whereas across west African countries, it’s on the average of $1.19 per litre. Look at the inflation rate across the region, the highest is here in Nigeria.”
Although it has slowed for the sixth successive month, Nigeria inflation at 16.63 percent in September is far above the Central Bank of Nigeria’s desired target of 6-9 percent. Projected to hit N3 Trillion in December 2021, petrol subsidy in Nigeria is costing the most populous nation in Africa the much-needed revenue to develop the country. If the projection is as expected, the interventions would surpass the $4 billion the government raised through a Eurobond in September.
Aside from losing money to petrol subsidy, Rewane said it is losing money as a result of some industry players that export the subsidised petrol to Nigeria’s neighbouring countries with the intention of importing it back into Nigeria to collect double subsidy. “You are in an open market, whether you like it or not people will take their goods and sell them in the neighbouring Benin Republic.”
According to him, it is not possible that Nigeria is importing 73 million litres of petrol daily. “With COVID-19 and all we are increasing petrol import from 30million to 50million and now 73 million litres per day. It tells you that people are importing petrol and then taking it out of the country, not only that, they are taking it out to bring it back again.”
Meanwhile, oil prices have hit multi-year highs in recent days to over $84 per barrel from the $70 price level they were when Mele Kyari, the group managing director of the state oil company, NNPC, put the petrol subsidy figure at N150 Billion monthly back in June 2021.
While Nigeria continues to channel huge resources to fund petrol subsidies, the country is now largely dependent on borrowing to finance its capital and recurrent expenditure annually. Nigeria’s widening budget deficit has pushed the country’s debt profile to jump 81 percent in four years to N35.465 trillion as of June 2021 from N19.636 trillion in 2017.
As of June 30, 2021, the Debt Management Office (DMO) says Nigeria’s total public debt amounted to N35.47 trillion (about 86.5 million dollars). The continuous payment of subsidies on petroleum products is likely to reduce the amount the government allocates to states and local governments as well as increase public debt, according to the Nigeria Economic Summit Group (NESG). The private sector-led think-tank and policy advocacy group say if the federal government continues to pay the subsidy on refined petroleum products; it could push Nigeria into a debt extension by the end of 2021.