The Impact of the Fuel Subsidy Removal so far on the Nigerian Economy
Workers stay back at home today after one working week of occupying the streets in the country following the withdrawal of subsidy on petrol and its reduction back to N97 by the Federal Government. This has led to the Nigerian economy losing about N720billion till date and may be more if activities do not go back to the way they were before.
During this period, business activities were completely shutdown with exception to the Nigerian Stock Exchange (NSE) where trading was remotely done and the official market of the foreign exchange (forex) where the Central Bank of Nigeria (CBN) managed minimal transactions on Monday and Wednesday.
Outside that official circle, Cost of transportation has risen especially the inter-state transports which has increased by about 120%. Transporters complain about the non-availability of fuel and the queues at petrol stations, while inter-state passengers cry about the outrageous increase in fare. This has lead to the increase in goods and services all over the nation. For instance, in the informal sector for example, tomatoes, pepper and other perishable goods that have been prepared for sale to other parts of the country perished.
These and other activities have ripple effects on financial and economic indicators that may have re-shaped the direction of the country’s economy.
The decision of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) to shutdown oil production could have cost the country billions of naira if they had also joined in on the strike action.
On the indicators that may have been affected by the strike, analysts from various schools of thought have divergent views about how the strike would have affected the nation’s foreign reserve position. One school of thought was of the opinion that with the low level of economic activities throughout the week, little foreign reserves might have been used and as such, Nigeria’s foreign exchange reserves would have grown reasonably. The other school argued that the strike action could not have prevented Nigeria and its corporate bodies from engaging in international trade.
Statistics at the central bank website revealed that the nation’s foreign reserves position improved slightly before the strike action. According to it, the country’s foreign reserves stood at $32.92 billion at the end of business activities in 2010 (December 30, 2011). But the amount has since risen to $33.1 billion as at January 4, 2012.
On the direction of lending rates – both inter-bank and normal lending, analysts were unanimous that rates would generally resume on the upbeat after the strike.
There are more fears that the Naira could depreciate steeply after the strike because of accumulated foreign exchange demand. The fears are further heightened as analysts dread government’s assent to labour’s demand of N65 per litre, which would mean spending more foreign exchange in fuel importation and subsidy.
It is expected that there will be an upsurge in demand, even if it may be temporary in clearing the backlog.
On how much the country would have lost to the strike action based on researched data, the nation may have lost N144.64 billion daily to the strike.
The amount is premised on the fact that, the gross domestic product (GDP) – the total market value of all final goods and services produced in a country in a given year, which equals the total consumer,investment and government spending, plus the value of exports, minus the value of imports.
Currently, the GDP of the country stands at approximately $270 billion or N43.2 trillion. But it is believed that the informal sector of the economy also accounts for $60 billion or N9.6 trillion. Put together, the country’s combined GDP, according to Bismarck Rewane, chief executive officer of Financial Derivatives Company (FDC) Limited is in the neighbourhood of $330 billion or N52.8 trillion.
When the total market value of the economy is divided by 365 days, it then means that the country would lose about $904 million or N144.64 billion daily. And so for the five days of protest, the country’s economy would have lost the sum of N720 billion.
But Sanusi Lamido Sanusi, central bank governor argued that the total loss from the ongoing fuel strike in Nigeria would be $3.085 billion by the end of Friday.
He put the daily loss to the strike at $617 million, adding that it was having a damaging effect on the economy.
The strike, called by organised labour to protest the withdrawal of state subsidy on 1 January, raised the price of petrol from N65 naira ($0.4) per litre to at least 141 naira ($0.9), with a spiralling effect on the cost of goods and services.
Now the Federal government has reduced the price of petrol to N97.
WHAT HAPPENS NEXT TO THE FAITH OF OUR ECONOMY?