New Telegraph

MAN: Escalating diesel price bad omen for businesses

The sudden rise in price of automotive gas oil (AGO) otherwise known as diesel has put many businesses, including manufacturing, in serious crisis. TAIWO HASSAN reports

Already, the adverse effect of the rising price of diesel is telling on business owners and manufacturing firms. Particularly, since the Russia invasion of Ukraine, thus causing volatility in the price of crude oil at the international market amid economic sanctions against Russia, petroleum products have all seen sporadic increase in prices nationwide. In addition, it has also brought about scarcity of these products with the multiplier effects now being felt by Nigerians and other facets of the economy. However, as Nigerians and businesses groan over unavailability of these essential products, that of AGO (diesel) is becoming unbearable for business owners and local manufacturers. Diesel is currently being sold in Lagos and its environs at N645 per litre, while outside Lagos and Abuja, Federal Capital Territory (FCT), the price is between N720 and N800 per litre. Cumulatively, the hike in the pump price of diesel at the various filling stations in the country is brewing uncertainty and instability in businesses and manufacturing in the country.

Inflation

As expected, Nigeria’s inflation jumped to 15.70 per cent in February owing to rising food prices resulting from the spike in petrol, diesel and kerosene prices. The National Bureau of Statistics (NBS) reported in its latest Consumer Price Index (CPI) last week that the February rate represented a 1.63 per cent decrease year-on- year. The inflation figure for February was higher than the 15.6 per cent recorded in the previous month, indicating a 0.1 per cent increase compared to the rate recorded in January 2022. According to NBS, food inflation rose 17.11 per cent in February 2022 compared to 21.79 per cent in February 2021. On the country’s high inflation, a key member of the organised private sector (OPS), the Manufacturers Association of Nigeria (MAN), explained that inflationary pressure remained a major cause for worry both for businesses and households. Particularly, President of MAN, Mansur Ahmed, an engineer, stated that inflation had led to structural constraints, which inhibits productivity in the economy. This includes challenges of infrastructure, especially power, transportation and logistics, among others. Growing insecurity is affecting agricultural output in practically all parts of the country. Agricultural activities have been made difficult and almost impossible by the growing insecurity in many parts of the country. Climate change, which includes desertification and flooding has also taken its toll on agricultural outputs, as wrll as low productivity in agriculture resulting from low technological application and low mechanisation.

Market disruptions

According to MAN, AGO price is resulting in Nigerian businesses, including manufacturing firms, facing hard times and monumental challenges in terms of business disruptions and market challenges. It’s Director-General, Segun Ajayi- Kadir, empathically stated that business community, local manufacturers and micro, small and medium scale enterprises (MSMEs) were facing prevalent macroeconomic challenges in the country. According to him, feedback from its members indicated that production capacity utilisation was going down due to the unsustainable cost of running daily production on diesel. Ajayi-Kadir said that the rising price of diesel had become very worrisome following its negative impact on businesses, especially the manufacturing sector of the economy. He noted that the hike was due to the increase in the price of crude oil at the international market, which has gone above $110 per barrel following the ongoing war between Russia and Ukraine. “As long as the price of crude oil continues to go up, the price of AGO will equally skyrocket. “It is now said to be selling at N750 per litre, up from about N300 per litre two months ago. “Unfortunately, manufacturers who largely rely on diesel to run their factories due to unreliable nature of the grid power supply, are contending with a huge cost to sustain their production line. “The direct implication of this trend, as many Nigerians are already feeling the heat, is the reflective high cost of goods in the market owing to the high cost of production,” he said.

Alternative energy source

The MAN director-general said that it was on record that manufacturers expended N100 billion yearly on an alternative energy sources, which constituted between 30 per cent and 40 per cent of their cost structure.

“Since the average Nigerian’s disposable income has been depleted, we can only expect that the resulting higher prices of goods will further constrain purchases and aggravate the poverty level. “The solution is rather complex since we are dealing with a deregulated industry as I earlier mentioned. “In the short term, we can only look at how to get more favourable prices from the marketers; seek to remove other costs that are in the country such as Value Added Tax on AGO. “We will also work with government to reduce the pressure in other pain points for the manufacturers,” he said.

AGO situation reports

Following the N720 and N800 per litre pump price of diesel outside Lagos and Abuja (FCT), the productive sector (MAN) is seeking urgent intervention of the Federal Government to support the production of goods amid putting more further production costs. The Chairman, Manufacturers Association of Nigeria (MAN), Oyo, Osun, Ekiti and Ondo branches, Lanre Popoola, stated this in Ibadan, Oyo State, recently, while speaking on the increase of prices of petroleum products and lack of power supply. Popoola said: “It is a difficult thing ensuring production at this time, as diesel has gone up to N720 or N730 per litre. “It is getting extremely difficult to produce and I don’t know how we are going to cope because 70 percent of industries are running on diesel, there is no light. “There is no power supply, we are having 30 per cent of what it used to be, whereas the disposable income of people is not increasing and the cost of products are going up. “Even in my factory now, we are only running one shift instead of three shifts of eight hours each. “Other businesses are also running limited hours on diesel as they cannot afford to use generator all day,” Popoola added.

Constraints

The chairman noted that if the situation persisted, it could lead to bigger issues that would further affect the nation’s economy and increase the hardship of Nigerians. “The worst part is that diesel suppliers cannot agree for organisations to make a flexible payment plan such as installments, while they deliver the products on trust. “They cannot again supply you with diesel and allow you to pay in two weeks. It is either you do cash and carry, or pay ahead, because they too cannot predict the cost of the product. “And I don’t blame them, imagine you bought diesel last week at N630 per litre and the next day it is sold for N730 per litre, how will you replace your stock,” he said.

Logistics

Aside manufacturers, for transporters that are bringing food from the North or taking products to the East or Lagos, now, the cost of their logistics would have increased by 100 per cent if not 200 per cent. According to him, may be government can come in and do a kind of palliative for us. It is either we have light 24 hours per week to run our factories or do a palliative on diesel. “But unfortunately, we don’t produce diesel in this country, if the refineries are working, it is a different ball game, the country would have had it better now, if the refineries are working. “So the more the international prices of petroleum products go up, the higher the prices of what we are going to get from them,” Popoola said.

Last line

On the the way forward on the hike in diesel pump price, MAN is urging government to come in and assist manufacturers by giving some rebate on diesel as a lifeline at this turbulent period.

Read Previous

Housing: ‘Private sector needs right environment to thrive’

Read Next

NiRA slashes .ng domain name price by over 40%

Leave a Reply

Your email address will not be published. Required fields are marked *