Prominent Nigerian economist and Chief Executive Officer of Financial Derivatives Company Limited (FDC), Mr. Bismarck Rewane, has projected that the latest increase in the pump price of petrol by 50.1 per cent, from N568 to N855 per litre, would take N5 trillion from Nigerian consumers to the government and heighten energy poverty.

Rewane also predicted that the new price of petrol would increase the number of Nigerian citizens trapped in energy poverty to 168 million in 2025, from 161 million in 2023.

He added that though the price hike could strengthen the exchange rate of the naira, as liquidity decreased, but it “may instigate social unrest as citizens react in frustration”.

Rewane made the projections last week in his monthly presentation at the Lagos Business School (LBS) Breakfast, titled, “All That Glitters are Not Gold.”

He stated that commencement of petrol production by Dangote refinery would offer relief to consumers by addressing the supply challenges, but price of petrol in Nigeria would be determined by the global price of crude oil.

“The macroeconomic and welfare impact of the new price of petrol, now adjusted to N855 per litre from N568 per litre, implies that N5 trillion is withdrawn from consumers and transferred to government,” he said.

According to him, this can lead to re-inflation in September as logistics cost escalates and consumer demand suffers a decline due to income squeeze, while “energy poverty could quicken to 76.3 per cent (168 million) in 2025 from 71 per cent (161 million) in 2023.

“Exchange rate could strengthen as liquidity decreases and fiscal deficit declines as government revenue increases.”

Rewane said the start of petrol production by Dangote refinery “will offer relief to consumers by addressing the supply challenges, guarantee the quantity and quality of refined products, but not the price, as no producer will sell below its production cost”.

Therefore, the “domestic price of petrol depends on the global price of oil”, but “smuggling of petrol to the ECOWAS region will reduce as Dangote Refinery can sell directly to those countries”, he said.

Rewane added, “Nigeria’s demand for PMS will stabilise at 35 million litres per day.”

He said the macroeconomic impact of the Dangote refinery would include increase in petrol supply, elimination of petrol queues, improvement in quality of petrol product, increased GDP aggregate output, improvement in balance of trade, and bolstering of employment opportunities in the economy.

Rewane stated that analysts’ expectation of an end in monetary tightening after 850bps increase in Monetary Policy Rate (MPR) might be unrealised, as the new increase in petrol price and its inflationary pressure might hinder the Central Bank of Nigeria (CBN) from reducing rate.

According to him, “The petrol price spike will renew inflationary pressures. Therefore, analysts’ expectations for a slash in interest rate will have to wait till January 2025.”

Rewane added, “Fiscal policies are also needed to tackle structural inflation drivers, such as insecurity, infrastructure deficiencies and import dependence.”

He said the current statistical data on the country’s GDP numbers might be masking the economic realities, and projected that the outlook for third quarter (Q3) 2024 remained cautiously optimistic.

Rewane attributed the higher GDP growth to base effect, as he revealed that the Q2 economic conditions were poor as “business activities and other sectors were contracting simultaneously in a retail-driven economy”.

He said In Q2 2024, of the 46 activities tracked by the National Bureau of Statistics (NBS), only 10, representing 27.74 per cent of the GDP, expanded during the period, while 25 and 11 activities monitored in the NBS report, representing 54.35 per cent and 23.91 per cent, respectively, slowed down and contracted.

He stated, “Sectors that expanded in Q2’24 are mainly labour inelastic sectors”, while labour intensive sectors that lagged during the period increased by 8.69 per cent, from 32 in Q2’23 to 36 in Q2’24.

Comparing sectorial growths between Q2’23 and Q2’24, Rewane pointed out that manufacturing slowed to 1.28 per cent, from 2.20 per cent; agriculture slowed to 1.41 per cent, from 1.50 per cent; construction slowed 1.05 per cent, from 3.27 per cent; real estate slowed to 0.75 per cent, from 1.70 per cent; and trade slowed to 0.70 per cent, from 1.31 per cent.

He said the economic implications of the above were “reduced employment opportunities, slower economic growth, supply chain disruptions, increased import dependency and rising inequality and investment deterrents”.

Rewane also said increasing electricity generation to 6000MW, from 4000MW, within the next three to six months was expected to lead to a quantum leap in power supply stability.

According to him, the impact of improved power generation and supply on the economy would attract Foreign Direct Investment (FDI) inflows, enhance economic stability, encourage higher industrial output and job creation that would lead to GDP growth, as a 1000MW increase will lead to 0.5 per cent in GDP.

He said it would also afford consumers reliable access to electricity, decreased cost of generator use, improved comfort and quality of life and more disposable income for other needs.

Rewane stated that increased supply of electricity would enhance investment opportunities, reduce cost of production, boost investor confidence in the broader economy, increase productivity, and improve productivity for small businesses as well. (THISDAY)

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