IMPACTS OF PETROL PRICE INCREASE ON NIGERIA ECONOMY
PETROL price increase according to Onwioduokitanda and Adenuga (2012) would have the following negative effects: -
Increase in cost of production:
Removing PETROL subsidy while at the same time devaluing the naira would result in increase in the cost of production for the few companies that are still existing. This would lead to more job losses (as the companies would be forced to down-size in order to survive) in addition to the unavoidable increase in the cost of the companies’ products is the increase in the cost of providing services Removal of PETROL subsidy would make nonsense of the proposed 2012 budget estimates because the astronomical inflation arising from subsidy removal would not have been factored into the budget. It will certainly cost much more to construct a kilometer of road or a borehole for example when subsidy is removed. In actual fact, simple photocopying paper would cost much more post subsidy removal than is the case now. So how can anyone convince us to expect more dividends of democracy when PETROL subsidy is removed?
Increase in the cost of transportation: Everybody appreciates the fact that when motorists pay more for PETROL, the transport fare increases. This has been the case even when the increase is only marginal. In the particular case where the cost of PETROL is expected to double, the increase in transport fare will be astronomical. This will in turn affect everything else – school fees, house rent, just name it.
Increase in cost of living: In addition to school fees, house rent, etc. the cost of every item of food will astronomically increase with removal of PETROL subsidy and, for all sane people, this is where the trouble is. When poor people are unable to eat because they cannot buy roasted corn or yam (which they usually eat as meal) as is bound to happen when PETROL subsidy is removed, there will be no peace in this country. This is a fact we must accept and it is one reason why the implications of all policies must be rigorously scrutinized before decision is taken. For any responsible government this is enough reason to jettison the idea of PETROL subsidy removal.
Increase in corruption: Removal of PETROL subsidy and devaluation of the naira would render the salaries received by civil/public servants at all levels inadequate. The tendency is that corruption, which the government has proved incapable of fighting, would increase. This has always been the case and there is no reason why this will not happen now. I make bold to say that removal of PETROL subsidy would not guarantee the construction of refineries by private companies for two reasons. First, if marketers (and this includes the companies that have been licensed to build refineries) import PETROL and sell on the basis of the bogus PPPRA template when subsidy is removed, nothing will encourage them to build refineries. This is because they will make much more money through importation than they would by refining crude oil. Secondly, constructing new refineries would cost much more when PETROL subsidy is removed and the naira devalued. That will also be a disincentive to building new refineries.
3.6 Impacts of PETROL price increase on the Balance of Payment
The relationship between PETROL subsidy removal and the balance of payment is a negative one. This means that subsidy removal is not good for Balance of Payment (BOP) of Nigeria. From the above explanation of the negative effects of PETROL subsidy removal, it is clear that increase in PETROL pump price has an adverse effect on the standard of living of the people, since PETROL is essential for the transportation of major Nigerian commodities, such as Agricultural produce and other market products. Increase in PETROL price usually has serious macroeconomic effects throughout the globe, which may adversely affect economic growth and could lead to inflation and large swings in term of trade, with important balance of payments repercussions. This study reviews the immediate effects of the higher food and PETROL prices on the balance of payments of net importers of these items, on overall inflation, and on poverty, within Nigeria.
It is also clear that each time there is an increase in the pump price of PETROL the value of naira depreciates, which in effect, affect the purchasing power of the Naira, hence, a higher level of financial instability among Nigerians. The upsurge in the pump price may lead to an increase in poverty level hence posing a challenge to the long term vision of reducing poverty in the country. The balance of payments is badly affected because the inflation that results from PETROL subsidy removal can discourage foreign investors because the naira would not have any value again. Hence, there is capital flight and Nigeria would experience unfavourable balance of payments.
Again, importers of all kinds of goods especially capital goods would incur more financial burden to import few goods. And the foreign countries would spend less to trade with Nigeria which makes them record favourable balance of trade and Nigeria recording unfavourable balance of trade.Finally, the situation is made worse when the local demand outweigh (more than) aggregate supply. This is true of high rate of consumption. This would lead to high demand for foreign goods both consumer and producers goods and intermediate goods with attendant unfavourable balance of trade.
Effects of Recent increases in prices of PETROL on economic growth in Nigeria
The Federal Government of Nigeria on January 1st ceased to subsidise petroleum In Nigeria, for decades Nigerians have enjoyed low gasoline prices, Now that this benefit has ended, what are the economical implication other that the popular planed protest by various groups such as labour, occupying Nigeria and PETROL subsidy, on the nation?
The Government of Nigeria would have to consider these effects now or deal with it In the near future. The growth of real (inflation-adjusted) GDP will reduce if the price of petrol is to stay as is. In addition, the rise in petrol price and the certainty of uneven prices across all 36 states of the federation, will add anywhere from 3 to 5 percentage points to consumer price inflation for 2012.Households’ income and spending will both be affected by the rise in petrol prices. The value of minimum wage compensation will depreciate further (assuming it is finally at N18, 000) combined with the increase in inflation. At the same time, the average household’s annual spending on energy goods and services will rise by about N75, 000, and their saving rate dropped sharply.The fall in the saving rate, will erode about half of Nigeria's present middle-class citizens and further dampen the negative effects that higher prices would ordinarily have had on the economy in the short run. Consumer spending will be diminished greatly over the next few years, as citizens try to adjust and build up new savings.
Business must pay attention to energy efficiency and create an active corporate energy strategy
Corporations and non-energy producing firms are not left-out and will be indirectly affected by the energy price hike, affecting their bottom line. It is well documented that the Nigerian power industry barely supports 20 percent of the Nations needs; Corporations in turn will push their losses on consumers. On the other hand, the profits of energy producing companies will increase sharply. Most energy using industries will be able to pass on the higher costs of energy to their customers as it’s seen on the streets of Nigeria today.GDP is expected to largely rebound from its shortterm losses since majority of Nigeria's revenue is from the sale of oil, although the shift in oil prices is likely to keep the level of GDP over the next 5 years lower than it would have been otherwise. In addition, Nigerian standard of living will be depressed to a greater extent than will GDP.
CONCLUSION
Based on the findings, the paper concludes that the economical effects, without auguring for or against subsidy removal are negative. The Government of Nigeria would have to consider these effects now or deal with it In the near future. The growth of real GDP has reduced because of the hike in the price of PETROL in Nigeria. In addition, the rise in petrol price and the certainty of uneven prices across all 36 states of the federation, will add anywhere from 3 to 5 percentage points to consumer price inflation since 2012 to date 2014.Households’ income and spending have both been affected by the rise in petrol prices. More so the value of minimum wage compensation will depreciate further (assuming it is finally at N18, 000) combined with the increase in inflation. At the same time, the average household’s annual spending on energy goods and services will rise by about N75, 000, and their saving rate dropped sharply. The fall in the saving rate, will erode about half of Nigeria's present middle-class citizens and further dampen the negative effects that higher prices would ordinarily have had on the economy in the short run. Consumer spending will be diminished greatly over the next few years, as citizens try to adjust and build up new savings.
REFERENCES
Abang I. S. et al (2012). Enlightenment to the Impact of PETROL Subsidy Removal In Nigeria.
Afolabi, J. 1999 “The Oil Price of Hike Blunder”, Newswatch, January 18, pp. 8– 16.
Allwell, O. (2012). State and Local government subsidy reinvestment program www.punchang.com retrieved April23, 2012
Central Bank of Nigeria 2003: Annual Report and Statement of Account, Vol.12, CBNPublications.
Central Bank of Nigeria (2005): Economic and Financial Review, Vol.14, CBN
Food and Agriculture organization (2012) FAO bulletin 2012.
Gyoh, S. (2012) Nigeria The case against PETROL subsidy and the argument for deregulated petroleum sub sectorhtt//awarenessfor. Retrieved March 19, 2014.
Gbadamosi, Kupolokun&Oluleye (2007). “Deregulation of the Nigerian DownstreamOil sector”. AbujaLukman, R. llJ88.
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