Victor EzejaAs Nigerian government continues to mull over the removal of petrol subsidy scheme due to the heavy burden it poses on public finances, experts have continued to express concerns about the impact on different sectors of the economy due to the likely increase in energy costs.
President Muhammadu Buhari administration had promised that the subsidy payments would stop by the first half of 2023. The Federal Government made provision of N3.36 trillion to cover fuel subsidy payments for the first six months of the year.
Already energy prices have increased across the globe since last year posing challenges for businesses and households alike and contributing to the continuous rise of inflation rates across countries. According to the National Bureau of Statistics (NBS), Nigeria’s headline inflation rate increased to 22.04 per cent in March 2023 compared to the February 2023 headline inflation rate which was 21.91 per cent.
Even before the subsidy is finally removed, prices of petrol and diesel have continued to increase. An NBS report released recently showed that the average retail prices of petrol increased by 42.63 per cent from N185.30 recorded in March 2022 to N264.29 in March 2023.
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Also, for diesel, the NBS Diesel Price Watch for March 2023, increased by 55.90 per cent from N539.32 per litre recorded in March 2022 to a higher cost of N836.81 per litre in March 2023.
Marketers and other groups in the downstream sector of the petroleum industry have said that fuel prices may likely double as soon as the subsidy was removed and it will have a ripple effect on everything.
Apart from petrol and diesel, other energy source like cooking gas has been on steady rise. The NBS Liquefied Petroleum Gas (Cooking Gas) Price Watch for March 2023 showed that the average retail price for refilling a 5kg Cylinder of Liquefied Petroleum Gas (Cooking Gas) increased by 22.03 per cent from N3,778.30 in March 2022 to N4,610.48 in March 2023.
Economic experts have said the subsidy removal would likely lead to a sharp rise in the prices of things but expressed optimism that if proper measures are put on the ground, things would get stable after w few months.
However, in this article, we will look at five sectors that may likely be most affected by the rise in energy prices when the subsidy payment is finally stopped.
Transport
The transport sector includes land, sea and air transport. As has always been the case, once the prices of refined petroleum products increase, transport is usually among the sectors that receive the direct impact as vehicles increase their fares to cover the costs they incur.
NBS Transport Fare Watch for February 2023 shows that on a year-on-year basis, the average fare paid by commuters for bus journeys within a city per drop rose by 26.07 per cent.
Higher transportation cost will likely have a double-whammy effect on the economy. This is because vast amounts of goods are conveyed by road and higher bus fare would have a ripple effect on the cost of goods in the market.
Telecommunications
Nigeria has one of the largest telecom markets in Africa.
Due to electricity challenges, operators spend heavily on diesel used by generating sets that power Base Stations and other telecommunications infrastructure.
A report on data from Nigerian telecoms operators in May 2022 revealed that the cost of powering telecommunication services with diesel jumped by at least 233.33 per cent to N30 billion monthly, resulting in an annual cost of N360 billion.
With the increase in cost of diesel as indicated in the NBS March 2023 report, the monthly cost of powering base stations has jumped to N33.47 billion in March 2023 from N21.57 billion as of March 2022.
At the current rate, the cost of operating base stations is expected to exceed N401.67 billion by year’s end.
In a recent interview, the Head of Operations, Association of Licensed Telecoms Operators of Nigeria (ALTON) Gbolahan Awonuga, said that the rising cost of diesel is affecting telecom service providers, noting that the telecoms industry is the highest user of diesel in the country.
It would be recalled that in 2022, telcos under the aegis of ALTON proposed a 40 per cent hike in the cost of telecom services due to the hike in diesel prices. They said diesel accounted for about 35 per cent of their operating costs.
Agriculture
With the prevailing system in Nigeria, rising transportation prices will transmit to higher prices for agricultural products as they are basically transported from farm to market by roads. NBS report on selected food prices for February 2023, revealed that prices of food surged amid cash crunch.
The Bureau said the average price of 1kg beef boneless increased year-on-year by 27.43 per cent from the value recorded in February 2022 (N1,922.2), and 1.12 per cent on a month-on-month basis from N2,418.91 in January 2023.
The average price of 1kg of Rice (locally sold loose) on a year-on-year basis rose by 19.30 per cent from N436.58 in February 2022 to N520.84 in February 2023. Also, on a month-on-month basis, it increased by 1.17 per cent from N514.83 in January 2023.
The report also indicated that the average price of 1kg of Tomato increased on a year-on-year basis by 19.08 per cent from N393.08 in February 2022 to N468.09 in February 2023.
Other food items captured in the report include onion bulb, yam and vegetable oil.
See below a screenshot of the infographics of the report as presented by NBS.
Service and Hospitality
Just like telecom, businesses in the service and hospitality sector equally rely on diesel for their generating sets that provide constant electricity needed for smooth operations.
In a recent interview, Managing Director, Transcorp Hotels Plc, Dupe Olusola, said rising energy costs pose a big challenge in the hospitality business in Nigeria.
Olusola re-echoed the view of the President of the Lagos Hoteliers Association, Mr Oluomo Jamiu Talabi, who earlier in an interview with Travel and Leisure, said the spike in running cost of hotels was caused by the astronomic cost of diesel for powering generators.
He lamented that hoteliers incur costs both on payment of electricity bills (with poor power supply), and cost of diesel and maintenance of generating.
Conclusion
With these challenges on the ground, it is expected that the removal of the petrol subsidy would cause sharp rises in costs, but economic experts believe that with vital measures, it will be shortlived.
Victor Ezeja is a passionate journalist with six years of experience writing on economy, politics and energy. He holds a Masters degree in Mass Communication.
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