Key highlights
- Subsidy removal would reduce the debt burden in Nigeria and also boost domestic refining.
- The planned removal of fuel subsidies may cause further northward movement of inflation in the short term
- FG must be aware of its socio-economic implications, especially with unemployment at the unwholesome rate of about 40 percent.
The removal of fuel subsidies is, expected to spur investments in domestic refining and petrochemicals and create a significant value chain for the various stakeholders.
This was disclosed by the LCCl’s President, Dr. Michael Olawale-Cole, during the chamber’s second-quarter State of the Economy conference on Tuesday in Lagos.
They also revealed that the planned removal of fuel subsidies may cause further northward movement of inflation in the short term,
Debt and Subsidy
The Lagos Chamber of Commerce and Industry (LCCI) Chief stated that Government’s planned petrol subsidy removal will also reduce Nigeria’s debt burden they said:
- “Removal of fuel subsidies is, amongst others, expected to spur investments in domestic refining and petrochemicals and create a significant value chain for the various stakeholders.
- “Though the planned removal of fuel subsidies may cause further northward movement of inflation in the short term, it is arguably one of the best economic decisions to reduce our unsustainable debts and widespread corruption in that sector.
- “The government must, however, take cognizance of its socio-economic implications, especially with unemployment at the unwholesome rate of about 40 percent.”
Debt for subsidy
Olawale warned about the effects of borrowing to fund subsidies citing that FG’s fixation on debt accumulation was unhealthy and urged FGmust prioritize exploring other avenues, including opening equity opportunities, offloading/selling of its real estate holdings, and tackling oil theft to create room for fiscal manipulation.
The LCCI also advised that FG must follow through with the recently launched and restructured Ministry of Finance Incorporated (MOFI) by President Muhammadu Buhari on Feb. 1, to optimize national assets, as it would provide local and global observers a balanced picture of our financial position.
- “It would also motivate national asset managers, led by MOFI, to grow our assets and the returns on them as well as motivate our national liability managers, led by the DMO, to minimize our liabilities and the costs we incur on them with equal vigor.
- “Indeed, issuance of joint reports by MOFI and DMO would be ideal going forward.
- “One-sided updates on liabilities with no updates on assets when such updates were adequately available could well be blamed for some of the downgrades of Nigeria’s debt issuance risk profile and outlook.
LCCI urged there is a clear need for the government to strengthen its support to critical sectors like agriculture, export infrastructure manufacturing, power, energy, and insecurity and also look at ways to improve supply chains as well as cushioning the cost of production by assisting manufacturers with subsidized inputs and foreign exchange allocation.
What you should know
Recall Nairametrics reported recently that Fuel subsidy removal could lead to some companies becoming bigger players in the downstream sector, as they may be better positioned to handle the higher costs associated with distributing and selling fuel.
The removal of fuel subsidies is likely to have significant impacts on the country’s downstream sector, including oil companies, distributors, and consumers.
The removal could also be a gold rush in energy trading for these companies:
TotalEnergies Marketing Nigeria
The company has over 570 service stations, 19 customer service centers, numerous industrial outlets, 5 depots, distribution plants, and warehouses with high safety standards spread across the Western, Northern, and Eastern territories in Nigeria.
TotalEnergies provides the two major products in the Nigerian aviation industry: Avgas (Aviation Gasoline) Aviation Turbine Kerosene (also called Jet A-1), and Aviation Gasoline. Total Nigeria Plc is the sole marketer of Avgas in Nigeria.
Others are MRS Oil Nigeria Plc, Conoil Plc, Ardova Plc, 11 Plc, NNPC Retail Limited