…Urges Tinubu to intervene, fix refineries, curb oil theft
…Say free market not synonymous with complete absence of regulation
The Federal Government has been urged to intervene in the foreign exchange market to contain the likely free fall of the Naira to the dollar thereby checkmate rising price of petrol, which experts say could hit N1000 per liter.
Economists advised that the government should be wary of allowing only market forces to determine the value of the Naira as the Asian countries do not succumb entirely to the interplay of market forces, despite the fact that it is desirable.
To check the rising price of fuel, they urged the government in the interim to give petrol importers special concessionary FX rate in order to bring in the product at a cheaper rate devoid of intervening variables at the international market.
In the long run, the experts advised government to fix all the local refineries so that petroleum products can be refined locally to meet the country’s needs.
They also advised the Federal Government to ensure that modular refineries are established in the country to argument the shortfall that may arise from the regular refineries.
In addition, they tasked the government on the urgent need to curb oil theft in order to meet the country’s production quota set by the Organisation of Petroleum Producing Countries (OPEC), as doing so will boost the the country’s foreign exchange earnings.
The experts warned that allowing the country’s exchange rate to be determined by the vagaries of market forces could spell doom for the economy since much production is going on for export earnings.
Chief Economist & Partner at SPM Professional, Paul Alaje, said it is correct to assert that the price of petrol could reach N1000 per litre if left unchecked, especially when the price of crude rises and the country has no control over it.
Alaje said: “It is true that Nigerians may have to pay up to N1000 per liter because when we say the forces of demand and supply, it is purely international market that will detect the price. It is not a respecter of what Nigeria is earning or number of poor people in Nigeria. That is why we should be wary of following purely market forces.
“There is a role government has to play in any economy. And that is what the Asian economists have realised and have advocated that there is limitation to what the classical and neoclassical are teaching the public and those in authority; there is danger in market forces.
“We have, therefore, stated that as much as it is important for us to allow the forces of demand and supply to adjudicate prices, including FX, and PMS, it is therefore, also more important for government to intervene because of the large number of poor people that we have in our nation today.
“If it (petrol) goes to N1000 per litre, what does it mean? It means that the support government wants to give to people in terms of N8,000 is even insufficient abnitio as the price of PMS will continue to increase. We know that no matter how much government increase salaries, it cannot be done indefinitely, even the Federal Government income cannot double immediately. That is why it is important for us as a people, to be mindful of the theory that we apply and adopt in our system”.
On his part, Managing Director, SD&D Capital Management Limited, Gbolade Idakolo, agreed with the analyst’s assertion that the price of petrol could rise to N1000 per litre if nothing is done to reign in rising FX rate.
Mr. Idakolo said: “The assertions of the analyst might not be far from the truth if government only relies on private refineries or imported fuel.
“The government needs to speed up the turnaround maintenance of its refineries which will ensure that a large percentage of petroleum products can be refined and sold at a considerable low cost to the people because private refineries would sell at international price in order to maximise profit.
“The government also needs to intervene to stop the free fall of the Naira to the US dollars by injecting more foreign currency into the Importer and Exporter (I & E) window so that it can drive down the exchange rate which has a major impact on the eventual cost of petroleum products”.
Aliyu llias, a financial analyst reacted thus: “It is expected that Nigerians will pay more because two things are the determining factor now. The Naira to dollar is on floating, so anywhere the world moves, we follow them. Another thing is the price of crude oil. If the price of crude oil moves up, instead of Nigeria benefitting, we will pay more for our consumption.
“In the short term, government should intervene by providing special forex for fuel importers. The main solution is for us to have our refineries working. If we have domestic refining capacity, we will not have to import fuel. We should have modular refineries and revisit the issue of forex”.
Managing Director at Dignity Finance and Investment Limited, Dr Chijioke Ekechukwu, identified two major factors driving high cost of petroleum products as the international crude oil price, and the exchange rate. He called on the government to fix the refineries since it cannot influence the oil price.
Dr. Ekechukwu said, “There are two major factors driving the high cost of petroleum products currently. The first is the international crude oil price, and the second factor is the exchange rate.
“We cannot influence the oil price as a country, but we can influence the exchange rate by doing everything within our powers to increase production of oil up to the allowed OPEC quota. We can also reduce oil theft to generate more foreign revenue. That way, supply of foreign currencies will increase and the exchange rate will be reduced.
“We also need to make our refineries work, both government and privately owned refineries. When they work, we don’t have to import petroleum products at exchange rate determined prices”.
Worried by the volatility in the foreign exchange market, Dr Muda Yusuf Director/CEO Centre for the Promotion of Private Enterprise (CPPE), said in spite of the limitations in forex supply, the system needs to be managed in a way that would not undermine investors confidence as this triggers speculation and influences expectations which in turn triggers diverse responses among economic players.
He called for vigilance to prevent questionable capital outflows, speculative assault on Naira, and urged the Central Bank of Nigeria (CBN) to exercise better oversight on forex demands.
Acknowledging that the foreign exchange market is evidently under pressure as a result of a number of factors, he pointed out that there was a curious surge in monetary expansion in the last one month.
Yusuf said: Money supply grew by an unprecedented 15% in one month between May and June 2023. Broad money grew by over N9 trillion, from N55.7 trillion to N64.9 trillion. This surge in monetary growth is unprecedented. Obviously, this must have had an effect on the exchange rate.
The monetary authorities should investigate this drastic growth in money supply and take steps to curb subsequent expansion. Such dramatic growth in money supply poses a significant risk to macroeconomic stability, especially price stability.
He added that transiting from a repressive market environment to a more liberalised market could be a source of market instability. However, there is need for vigilance to prevent questionable capital outflows or speculative assault on the currency.
A free market is not synonymous with complete absence of regulation. Free enterprise has to be complemented with an appropriate regulatory framework to curb illicit financial flows.
It is evident that the frequency and scope of Central Bank of Nigeria (CBN) intervention in the forex market had decelerated compared to first five months of the year.
Recent reports from the CBN indicate a total of $17 billion intervention by the CBN in the forex market in 2022. This is an average of N1.4 billion per month. Since the inception of the present administration, it is doubtful whether we had seen an intervention of up to $1 billion in total. It expected that as the scale of intervention improves, the volatile will be subdued.
And only recently, the government paid $500 million to settle matured debt service obligation on Eurobond. This could also be a constraining supply side factor.
The marginal decline in foreign reserves was also disproportionately amplified by the media. This also created some anxiety which could also have driven speculative activities in the forex market.
On the supply side, he said the trajectory is that there would be an improvement in oil output which would boost forex earnings, adding that the prospects of improved domestic refining of petroleum products in the coming months, will reduce forex demand pressure from importation of petroleum products.
Improved investors confidence will boost Foreign Direct Investment (FDI) and foreign portfolio investments, and other remittances.
CBN should exercise better oversight on forex demands to ensure protection of the market from speculative assault and illicit capital outflows, he stated.
