Emmanuel OchayiRising Petrol Price Sparks Concern
The price of petrol has become a pressing concern for Nigerians, with many wondering if there is a way out of the current economic situation. The reality is that the price of petrol directly affects every aspect of daily life, from transportation to food prices. One significant factor influencing the rise in petrol prices is the value of the Naira. As the Naira continues to weaken, the cost of petrol, which is largely traded in U.S. dollars, inevitably increases.
“President Bola Tinubu and his team are well aware of this relationship,” said an economist. “If the Naira appreciates, we can expect a drop in petrol prices. But getting the Naira to strengthen is the challenge.”
Join our WhatsApp ChannelWhy the Naira Matters for Petrol Price
Petrol, often referred to as an “international citizen,” is traded globally using the American dollar. The Nigeria National Petroleum Company Limited (NNPCL) recently demonstrated this fact by converting the price of petrol from Dangote Refinery into dollars before translating it back to Naira. This process highlights how heavily Nigeria relies on foreign currency to determine local petrol prices.
The Crude Oil Refiners Association of Nigeria has pointed out this connection and suggested that local refineries like Dangote could potentially lower the petrol price to ₦550 if the exchange rate stabilizes around ₦1000 to the dollar.
The Role of the Government in Stabilizing the Naira
The task of strengthening the Naira falls squarely on the shoulders of President Tinubu’s economic team. This team includes Wale Edun, the Minister of Finance, Heineken Lokpobiri, the Minister of State for Petroleum Resources, and Yemi Cardoso, the Governor of the Central Bank of Nigeria (CBN). Strengthening the Naira is no small feat in an economy that is heavily dependent on imports.
One expert in international finance noted, “Nigeria is essentially an import-oriented economy. We import a lot of what we consume, from petroleum products to everyday goods. This reliance on imports puts immense pressure on the Naira.”
Without intervention, the Naira will continue to depreciate, driving petrol prices even higher. As one analyst bluntly put it, “If the Naira doesn’t get stronger, petrol prices will continue to skyrocket, worsening inflation and eroding the purchasing power of Nigerians.”
Global Economic Factors Affecting Nigeria
The issue of petrol pricing is not just a local concern. It is influenced by the global economic landscape, where countries like China and the U.S. dominate production. These countries produce most of what they consume and even devalue their currencies to make their exports more attractive. In contrast, Nigeria, as a net importer of consumer goods and an exporter of raw materials like crude oil, finds itself in a weaker position.
“Countries like China deliberately keep their currencies low to boost exports. This allows them to maintain a trade surplus, which strengthens their economies,” explained a global trade expert. “Nigeria, on the other hand, exports crude oil but imports refined petroleum. We earn less from crude exports and pay more for imported petrol.”
This trade imbalance is a significant reason behind Nigeria’s economic struggles. While the U.S. and China can afford to import luxury goods without impacting their currencies, Nigeria faces the opposite challenge. Every dollar spent on imports further weakens the Naira, driving petrol prices higher.
READ ALSO: SERAP Sues President Tinubu Over Petrol Price Hike, Seeks Reversal To N600 Per Litre
The Burden of Foreign Debt and Its Impact on Petrol Price
Another factor weighing down the Naira is Nigeria’s foreign debt. The Central Bank of Nigeria (CBN) has been urging the government to reduce its dependence on loans and repay existing debts. While the Federal Government has made strides in this direction, the burden of servicing foreign loans continues to strain Nigeria’s economy.
“It’s crucial for the government to manage its debt properly. Reducing our foreign debt would ease the pressure on the Naira and, by extension, help bring down petrol prices,” said an economist. “The more we owe, the more we have to scramble for dollars to service these loans. That scramble weakens the Naira.”
Nigeria’s current debt ratings reflect its precarious financial situation. While Standard & Poor’s and Fitch have given Nigeria a stable rating, Moody’s rating is less favorable. However, all three agencies acknowledge that Nigeria has been prompt in servicing its loans, which is a positive sign for the country’s economic outlook.
Local Solutions to Reduce Petrol Price
Despite the daunting challenges, there are potential solutions that could help reduce petrol prices in the long run. Local refineries, such as Dangote Refinery, are seen as part of the answer. By refining crude oil domestically, Nigeria could reduce its reliance on imported petrol and, therefore, lessen the impact of foreign exchange on petrol pricing.
“The key is to increase local production,” said a representative from the Crude Oil Refiners Association of Nigeria. “If we can produce enough petrol to meet local demand, the price will naturally drop. But this will require significant investment in refining capacity and infrastructure.”
Additionally, the government must clamp down on oil theft and bunkering, which reduces the country’s overall oil production. “We need to ensure that we are producing at least 2 million barrels of oil per day,” said the Minister of Petroleum Resources. “This will increase our foreign exchange earnings and help stabilize the Naira.”
Can the Government Reverse the Trend?
The big question on everyone’s mind is whether the Nigerian government can reverse the trend of rising petrol prices. While the government has expressed a commitment to finding solutions, the road ahead is fraught with challenges. Strengthening the Naira, reducing foreign debt, and boosting local production are all necessary steps, but they will take time to implement.
“Water don pass gari,” said one observer, using a popular Nigerian phrase to describe the gravity of the situation. “The government must act swiftly and decisively. Nigerians are feeling the pinch, and there is no time to waste.”
In the short term, petrol prices are likely to remain high, but there is hope that, with the right policies, the situation can improve. As President Tinubu’s economic team works to address these challenges, Nigerians will be watching closely to see if relief is on the horizon.
The relationship between the Naira and petrol price is undeniable. As long as the Naira remains weak, petrol prices will remain high, with severe consequences for the economy and the everyday lives of Nigerians.
The government’s efforts to stabilize the Naira, reduce foreign debt, and increase local petrol production are essential if there is to be any hope of bringing petrol prices down. But time is of the essence, and the government must act before the situation worsens.
Emmanuel Ochayi is a journalist. He is a graduate of the University of Lagos, School of first choice and the nations pride. Emmanuel is keen on exploring writing angles in different areas, including Business, climate change, politics, Education, and others.
