The Federal Government of Nigeria recently wrote the National Assembly to approve the sum of N2.557 trillion as a supplementary budget to fund subsidy on petroleum products between June and December 2022. According to the information made available to everyone, the Nigerian government actually needs N3 trillion to fund subsidy in six months in 2022. That is approximately N16.3 billion per day, and is a huge sacrifice for the money-starved Nigerian economy.
It is ironical for a government that rode on the mantra of no subsidy payment, and after seven years in office, has no solution to the subsidy debacle. Rather, the problem is getting worse daily. Arising from this are often-repeated practices which the current administration has not addressed.
First is the issue surrounding the number of litres of premium motor spirit (PMS) that Nigeria consumes daily. Before the avoidable fuel scarcity in town, caused by the utter failure of government’s agencies, the average price of a litre of PMS as of January 2022 nationwide ranged from N155.82, the cheapest, to N177.33 a litre, being the most expensive, according to the National Bureau of Statistics (NBS).
Crude oil prices are going to rise further, implying that the N2.55 trillion supplementary budget will be a tip of the iceberg
Meanwhile, stakeholders are of the opinion that going by the current crude oil prices at the international market, a litre of PMS should not sell less than N305 a litre. Thus far, the highest PMS price is about N178 a litre. At the current subsidized rate, Nigeria will be consuming approximately 92 million litres per day.
At the market rate of about N305 per litre, the country should be consuming 53.5 million litres per day. In effect, the Nigerian government is subsidizing 38.1 million litres of PMS per day. These are our estimates since conflicting figures were provided by government agencies on the volume of PMS Nigeria consumes daily.
While the Nigerian government is expecting the National Assembly to respond to its request, a global conflict that may turn out to be the crisis of this century, emerged in Ukraine. The Russian government recognised the Donetsk and Luhansk republics in the eastern region of Ukraine. Consequently, Vladimir Putin, Russian President has ordered Russian troops into the eastern regions of Ukraine on “peacekeeping mission”.
The import of the above is that crude oil prices are going to rise further, implying that the N2.55 trillion supplementary budget will be a tip of the iceberg. Should the Ukrainian conflict be a long duel, Nigeria may be affected in other economic sectors. It is on record that the two countries-Russia and Ukraine, are World’s largest producers of wheat and maize. In 2021, they both accounted for a third of the global trade in these two commodities.
Nigeria’s reliance on wheat importation is obvious because the nation’s domestic production has not been as successful as planned. In the third quarter of 2021, Nigeria imported N315.17 billion worth of wheat which amounted to 3.87 percent of the total imports for that quarter. The country imported N256.5 billion worth of wheat in the fourth quarter of 2020. In 2019, Nigeria imported $319 million worth of wheat from Russia.
In a way therefore, industries such as food and beverages, bakery depend on what happens in Ukraine and on how long the conflict will last.
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In a nutshell, Nigeria will need more money to offset the burgeoning subsidy in the face of the emerging conflict in Ukraine. Further, the Central Bank of Nigeria could find itself in a not-too- favourable situation to render additional supports to the federal government through its ways and means advances.
This is because, as of August 2021, it was reported that the federal government borrowed N15.51 trillion through the CBN’s ways and means advances. That debt is not part of the country’s public debt which comprises the external debt stock and domestic debt.
The ultimate ice-breaker is to find the lasting solutions to Nigeria’s idle and comatose refineries. Indeed this is one sure way in which the country can tackle in a meaningful way the menace and bogey which goes by the name of oil subsidy. And indeed and as things stand the sceptre of subsidy has the capacity to ensure for this besieged nation a long and endless winter of discontent.
