Not very many people can boast of knowing what this year holds in stock, or understand the likely pains that lie ahead.
The only pain, as far as they can see on the horizon, is that of the increase in petrol price or what is known in many circles as deregulation or partial removal of subsidy.
In a few months time people will begin to wake up to new realities. Later this year, plans would have been concluded to issue new driver’s licences. New number plates will also be obtained. One might say: “How will that affect me? After all, I do not own a car.” But almost at the same time, with the power reforms well advanced, and higher tariffs officially introduced, there is no way that will not affect people who benefit from public electricity supply.
These government policies technically referred to as fiscal tightening, will also include government raising tariffs on some imported food items. All these point to the fact that, even when ones salary remains constant, one will have to spend more than one spent in the last year. This is where the problem lies this year.
Bismarck Rewane, the Chief Executive of Financial Derivatives, said, “With the reduction in fuel subsidy alone, $3.2 billion or N512 billion have been transferred from consumption income to government revenue. Thus collectively, Nigerians have lost N512 billion to fiscal tightening of government.”
An additional burden on the consumer is that, with the removal of N3.2 from consumption income, inflation will rise by three per cent. The implication of this is that, after N512 billion has been mopped from the system, consumers now have to spend more to purchase the same quantity and quality of goods and services they used to purchase last year. Added to this is the extra money which would be spent in getting the new driver’s licence, vehicle number plate and the new high tariff on electricity.
For some, the power-sector reforms are key to the economic outlook. It is expected that, with the reform firmly completed, the country will be able to generate 16,000 Mega Watt (MW) of electricity by 2014 (as against the current output of only 4,000MW).
Debate over privatisation in the sector had been lively, with unions arguing that the vast amounts of capital investment required, as well as long cost-recovery times, run counter to the need for privatisation.
But Razia Khan, Regional Head of Research, Africa Global Research, Standard Chartered Bank, London, said that phased tariff increases will be aimed at making investment in the sector more attractive, but that progress will only be assessed in the medium term.
The new electricity tariff, which targets an increase of between 50 and 100 per cent to the current tariff, is expected to be released soon this year.
According to the Nigerian Electricity Regulatory Commission (NERC), the Multi Year Tariff Order (MYTO) is aimed at gradual increment in tariff to attract private investors. Dr. Sam Amadi said the commission was still working on the new document.
The benevolence of the Central Bank of Nigeria (CBN)’s Monetary Policy Committee (MPC), it is feared, may not last long. The subtle threat was contained in the press statement signed by Sanusi Lamido Sanusi, the Central Bank governor himself.
The statement signed by Sanusi, noted that the inflation outlook in the short-term will be impacted by the anticipated fiscal injections in relation to the proposed 2012 budget, the recent partial deregulation of pump price of PMS, and new tariff regimes on certain food imports.
He expressed worry about possible plans by the National Assembly to revise the budget benchmark price of oil from $70 per barrel to $75 or even $80 per barrel. He said such a measure would significantly increase expenditures especially given the already high oil output assumptions. In addition, he added it would go a long way in the accretion to the Excess Crude Account (ECA) and increase the inflationary pressure already in place on the supply side.
He warned that: “In the event of this happening, the likelihood of further tightening during 2012 increases”.
If the Central Bank is allowed to go back to the trenches and resume monetary tightening, things might just be worse than when only tightening is fiscal.