Get Ready For Another Increase In Fuel Pump Price – Marketers

As the United States dollar hit an all-time high last week, exchanging for N400 at the parallel market, Nigerians have been asked to brace up for another hike in pump prices of petrol, due to the lingering scarcity of foreign exchange to finance the importation of the product.

Punch quoted oil marketers as saying that despite the competition in the business, they were battling hard to retain the price of the Premium Motor Spirit within the approved N133.28 per litre range.

“The truth is that Nigerians just have to brace for higher PMS price; there are no two ways about it. The government cannot fund this market; the money is not just there. Even if the government wishes to assist, it does not have the wherewithal to do. So, Nigerians should brace for higher rates,” an official of one of the notable oil marketing companies, who spoke to our correspondent on condition of anonymity, said.

He added, “We are all aware that the price of crude has been falling in the international market and it is the dollar the government gets from crude sale that it uses to solve forex problems. So, there’s no fast rule or solution to it than for all of us, both users and marketers, to just prepare for a price hike.

“For marketers, they should know that the days of higher profits are gone. Before now, if you want to import petrol, you’ll have to wait for months and possibly bribe some people to get an import licence. But those days are gone; nowadays, every interested dealer can get the licence and this has created room for competition, which is why you still get the product at around N140 to N145 per litre. We only hope that this will continue as the dollar availability improves.”

Another member of the Major Oil Marketers Association of Nigeria was quoted as saying that, “It is very logical for the PMS price to rise any moment from now, for there is no way somebody can import at the rate of N400 to a dollar and you expect him to continue selling at the official ex-depot price. And mind you, the government promised to facilitate forex provision to marketers at N287 to a dollar, because you cannot buy at N400 and expect to continue selling at the prevalent rates you see at filling stations today.

“However, most depots are still managing the situation and are selling at the recommended price of N133.28 per litre to filling stations. It is when it goes above this price that you will notice the eventual increase in the pump prices of the PMS. So, if the trend of forex unavailability continues, then the situation may go out of the control of the marketers.”

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REVEALED: What Has Never Happened To Economy In 30 Months Will Happen In August

There are indications that Federation Account Allocation Committee (FAAC) is set to distrinute N700 billion in the month of August, which will be the highest allocation in the last 30 months, analysts at Financial Derivatives Company (FDC) Limited has revealed.

The month of July saw a significant increase to a total of N559 billion. This was an increase of 83.2% over the month of June (N305.12 billion). The increased spending likewise assisted to boost shipping activities during the month of July.

While explaIning this in Lagos, chief executive officer of FDC Bismarck Rewane, attributed the increase to partially improved tax collection and exchange rate gains. Rewane stated that increased exchange rate gains got to its highest level in 18 months.

Based on a surge in spending, Rewane said there were more ships in Lagos. He said ships awaiting berth increased to 45 in July. “Higher international trade activity, forex availability and settlement of backlogs were responsible,’’ he said.

In addition, the CEO of FDC stated that ships awaiting berth are expected to increase to 50, “boosted by budget implementation and flexible exchange rate.”

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STAGGERING ECONOMY BLUES: Floating The Naira Without A Life-Jacket – Part 1

The stack reality about the oil and gas industry in Nigeria is that because it has been grossly mismanaged by past governments and the resources have not been channelled into development (diversification and infrastructure) there are no other options available to the country other than to continue to depend on the flow of oil. Hence we cannot afford to accommodate any temporary interruptions be it deliberate or a natural cause. The economy, the naira and citizens are currently the victims of short sightedness and poor planning. The government is therefore forced to float the naira prematurely to attract foreign investors.

A market-determined naira exchange rate is a rate determined by demand and supply forces. Adopting a market determined naira exchange rate means that the naira will be allowed to float and swim with or without support. Currently the economic fundamentals are very weak due to gross mismanagement in the past and also due to current disastrous crash in world crude oil prices. Turbulence no doubt will be expected as the naira floats and swims in waters infested with sharks. For the naira to survive the current challenges, the CBN must have a plan B. The CBN needs a level of commitment that has not been achieved before.

As has always been the case in the past due to the pressure mounted both locally and internationally, the CBN finally caved in to a new naira forex policy which resulted in outright devaluation of the naira by over 40% on the first day of implementation. (197/$ to 282/$). The move was hailed across the globe (eg Lagos, London, New York, Johannesburg etc). Multilateral organisations for example the IMF, the World Bank and some rating agencies were not left out. I have always held the view that the naira has “stakeholders overload” each with varying interests and agenda.

Devaluation cannot impact positively on an economy that is grossly unbalanced. Floating the naira is not the only attraction to increase investors’ appetite for Nigeria as investment destination. Other areas that can be critical to investors in their choice of Nigeria as investment destination include, the passage of the PIB, ease of doing business, lower interest rates (local investors), fight against corruption, power, diversification of the economy, essential infrastructure and security etc.

Some analysts and IMF have complained that the CBN was slow in adopting and implementing the new forex policy. I completely disagree. In an economic environment where the fundamentals are virtually weak, allowing the naira to float without adequate preparations would be suicidal. In fact, it is my thinking that the naira should have been allowed to remain at the capped rate of N197/$ with tighter controls pending the commencement of the implementation of the 2016 capital budget and social palliatives to take effect before going ahead with a policy that wiped out over 40% of the naira value on the first day of implementation.

Some delay would have also enabled the CBN to put in place some rules and structures to curtail the inflow of hot money that could freely enter and exit at will with devastating impact on the fragile economy that we are fighting to protect.

Floating a country’s currency is usually a major event and is based on long term strategic plan where the various outcomes, outflows and inflows of economic and social benefits are predicted in advance by applying appropriate advanced forecasting economic models. It is a major project and it is expected that both controllable and uncontrollable variables will be encountered. It is a decision made based on uncertain estimates about the future. It requires appropriate risk management strategy to stem surprises in the course of implementation. This process takes time and CBN should not have been stampeded into taking action by stakeholders with diverse interests and agenda.

The CBN should have also taken time to conduct a study on the so called foreign investors and the depth of their appetite for choosing Nigeria as their investment destination and of course have a rough idea of the value of naira that would satisfy their appetite. There is a Yoruba adage which states that “It is more difficult to wake-up someone who is pretending to sleep than the one who is actually sleeping”.

I hope we are not waiting on investors that are pretending to sleep. Citizens would have also benefited if the CBN was able to put in place rules in respect of old stocks that were purchased at the capped forex rate of 197/$ that would have ensured that the FIFO (First In First Out) rule was applied in the mark-up (pricing) to moderate the surge in prices (inflation) which was attributed to mark-up based on new forex rates eg 282/$ across the board.

A former Chief Economist of the IMF, Frank Rogoff stated that “The IMF may have sometimes tilted too far towards benign neglect as countries prematurely liberalised markets for short term capital movements before the internal regulatory structure was put in place to handle them”. Joseph Stiglitz, a Nobel prize winner, whose book Globalisation and its disillusionment with the IMF/World Bank consensus, argues that “excessively rapid financial and capital market liberalisation was probably the single most important cause of the Asian crises.

China escaped the Asian crises because of its strict control on its currency (Yuan). You cannot buy the local currency unless you had good reason to do so. Western European countries did not fully liberalise controls on capital account movements (particularly short-term ones) for decades after the Second World War. Most of them liberalised gradually after reaching a certain level of wealth and stability, and mostly only well into the 1980s and 1990s.

I support market driven economy but my worry is that its implementation in Africa is likened to children who are forced to grow up before they are ready (before their time). What hope is there for the people if what matters most is market economy? What hope is there for compassion in a world of endless competition?