Nigeria, Africa’s biggest oil producer and member of the Organisation of Petroleum Exporting Countries, (OPEC), has suffered fuel shortages over the past few weeks.
Nigeria is about the only major African economy to experience frequent fuel scarcities complicating transportation and affecting economic activity, especially during the Yuletide.
President Muhammadu Buhari says his administration is working overtime to end the queues that have formed at gasoline stations throughout the country.
Why the shortage?
Part of the problem is that, despite pumping 1.8 million barrels of crude a day, Nigeria has to import almost all its fuel because of the appalling state of its refineries.
However, most countries in Africa do not have refineries. A bigger problem is that Nigeria caps gasoline prices, often at levels below retailers’ costs. The cap today is set at 145 Naira, or $0.40, per litre, which would translate to $1.52 per gallon. That makes the West African nation one of the 10 cheapest places in the world to buy petrol and compares to a global average of $1.12 and a U.S. average of $0.73 per litre.
Nations with cheap petrol prices
Turkmenistan $0.290 per litre
Kuwait $0.350 per litre
Iran $0.360 per litre
Algeria $0.370 per litre
Egypt $0.370 per litre
Ecuador $0.390 per litre
Nigeria $0.400 per litre
Bahrain $0.420 per litre
Syria $0.440 per litre
Qatar $0.510 per litre
United States $0.730 per litre
Has the price affected retailers and marketers?
The retailers and marketers apparently made more profit when the current cap was set, in May 2016. Back then, Brent crude traded at less than $50 a barrel. It’s since risen about 40%, to $68, making it more expensive for retailers to buy refined fuel.
Neither does it help that Nigeria bases the cap on its official exchange rate of 305 Naira per dollar, which few retailers can access, given that the market rate is almost 20% weaker at 360.
Many have to stop importing; leaving that job almost entirely in the hands of the state oil company, the Nigerian National Petroleum Corporation, (NNPC), and a task it is struggling with and was never designed to do on such a scale.
Despite being Africa’s top crude oil producer, Nigeria imports more than 80% of its petroleum products and it is the only major oil exporting country that imports the largest volume of petrol in the world because of its low domestic refining capacity.
A report released by the National Bureau of Statistics (NBS) has shown that Nigeria spent N2.596 trillion to import 24.4 billion litres of petroleum products consumed in the Country last year.
What can and is being done to solve the menace?
Maikanti Baru, the head of NNPC, and other Nigerian officials, including Emmanuel Kachikwu, Minister of State for Petroleum Resources, says they are clamping down on anyone hoarding fuel or selling it above sanctioned prices. They have ramped up the amount of product sent to depots across the country and called for Nigerians to cease panic buying.
They also say the shortages will be over soon and that increased demand in the run-up to Christmas was to blame, even when they earlier boasted of being ready for this. But one thing they and Buhari are adamant about is that prices won’t be increased.
Queues at service stations have eased in Lagos, the main commercial hub, and Abuja, the capital. But the shortages are still severe in many other cities, including Kano.
Could it cause damage to the economy?
Previous fuel crises were bad enough to hit Gross Domestic Product (GDP) and a bigger impact might be on inflation, given the resulting increase in transport prices.
President Buhari’s team met with officials on January 2 to figure out a long-term plan to prevent any future shortages, but he’s unlikely to find solutions in the absence of allowing fuel prices to rise at least until current efforts to revamp old refineries and investments in new ones start paying off.
Is raising the price of Petrol that bad?
Fuel prices are a hugely sensitive issue in Nigeria, given the poor state of schools and hospitals, many citizens feel that cheap fuel is about the only benefit they get from the government.
When Goodluck Jonathan, tried to end fuel subsidy and hike prices in 2012, nationwide protests crippled the Country, forcing him to backtrack. Buhari, who won elections in 2015 by appealing to Nigeria’s poor masses, increased prices the following year only after weeks of shortages forced his hand.
However, that is unlikely to happen again especially with elections coming up in early 2019 and his popularity already being dented by what many describe as a weak economy and rising unemployment.
