Spike in Diesel Prices: The Impact on Nigerian Manufacturers and the Road Ahead
In Nigeria, diesel prices have recently skyrocketed, with numerous potential economic consequences at hand. Various factors, including governmental policies and forex market dynamics, have contributed to this hike.
1. The Escalating Price of Diesel
Recently, the price of diesel, or Automotive Gas Oil (AGO), has soared to between N900 and N950/litre in several Nigerian states. A combination of Nigeria’s foreign exchange crisis and the new 7.5% Value Added Tax (VAT) on diesel has driven this significant rise.
Did You Know? Before the introduction of the 7.5% VAT on diesel, the cost stood at around N650/litre.
2. What Led to This Price Surge?
- Foreign Exchange Crisis: The inability of oil marketers to acquire US dollars has hindered their capacity to import diesel, leading to rising costs.
- Introduction of VAT: As per a report by VON-femmesetvilles.org on June 20, 2023, the Federal Government started implementing a 7.5% VAT on diesel. This policy was corroborated by officials from the Nigeria Customs Service and the Federal Inland Revenue Service in Abuja.
3. The Voices of Concern
Benneth Korie, the National President of the Natural Oil and Gas Suppliers Association of Nigeria (NOGASA), provided some insight:
| Before VAT | After VAT |
|---|---|
| N650/litre | N900-N950/litre |
The Dollar Crisis
Korie elaborated on the intertwined nature of the diesel price and the scarcity of dollars. He emphasized:
“The government must address this dollar situation. If unchecked, it could lead to further economic destabilization.”
Refineries: A Potential Solution
Korie also highlighted the importance of rejuvenating Nigeria’s refineries to decrease reliance on imports, stating:
“Our refineries can be fixed by our engineers. Once operational, they can significantly reduce pressure on our limited dollar resources.”
The Road Infrastructure Woes
The deteriorating state of roads, especially the Port Harcourt-Warri road, has further complicated matters. With approximately 500 tankers stuck due to its poor condition, the consequences are severe:
“Our trucks have been immobilized for weeks. If roads remain unattended, petroleum supplies to various regions, including Abuja, might halt,” said Korie.
4. The Manufacturer’s Plight
The aftermath of these price surges directly impacts the manufacturing sector:
The Textile Industry Perspective
Hamma Kwajaffa, the Director-General of the Nigerian Textile Manufacturers Association, expressed grave concerns:
“With escalating energy costs, several textile businesses might shut down. These companies need to maintain profitability.”
The Broader Manufacturing Sector View
For George Onafowokan, the CEO of Coleman Technical Industries Limited, the elevated diesel prices equate to increased production costs. He encapsulated the sentiments of many, stating:
“Each rise in diesel price amplifies costs for everyone. For many Nigerian businesses, especially manufacturers, it’s an ongoing challenge.”
Onafowokan appealed for the government to act decisively, stressing:
“Beyond providing relief to the populace, the government must support the businesses that employ them, particularly manufacturers.”
Conclusion
The soaring diesel prices in Nigeria pose significant challenges for its economy, particularly for manufacturers. While the government’s policy decisions are instrumental in shaping the future, comprehensive solutions encompassing forex management, infrastructure development, and refinery revitalization are essential to stabilize the situation and ensure sustained economic growth.