Persistent Diesel Price Increase And The Looming Danger

The continuous rise in the price of Automotive Gas Oil (AGO) also known as diesel, the fuel that powers a large part of the industrial and commercial activities in the Nigerian economy, has had its ripples felt throughout the economy, from manufacturing giants through medium-sized enterprises to small-scale organisations.

From gigantic diesel generating plants that turn the industrial machines in Nigeria, to the trucks used for long-distance haulage of both industrial and finished goods, to small machines used by small-scale enterprises, diesel has a stronghold on Africa’s largest economy.

This has put an unprecedented stress on the economy, threatening its ability to produce goods and services, as the nation battles the scourge of diesel price hike. The price of diesel rose from N300 at the beginning of the year to over N800 per litre, putting the cost beyond the reach of producers.

Manufacturers stated that the cost of diesel will hit the roof if nothing drastic was done to curtail the current challenge faced by importers of the deregulated commodity.

The manufacturing sector in Nigeria employs over 5 million workers, directly and indirectly with 8.46 per cent contribution to Gross Domestic Product. The sector also dominates export trade in the West African region, generate foreign exchange, contributes substantially to revenue of government and human capital development in Nigeria.

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It is therefore imperative that manufacturing be given priority attention and safe guarded against steep deadline. This should be backed with comprehensive and integrated support system during times of crisis. Its performance should be enhanced through a pro-manufacturing policy that will encourage scale and lower unit cost of production.

The director-general, Manufacturers Association of Nigeria (MAN), Mr. Segun Ajayi-Kadir stated that the Nigerian economy is completely dependent on importation of refined petroleum products including diesel and other vital manufacturing raw materials and there are currently no sufficient alternatives.

He expressed his concerned about the implications of the sharp increase in the price of diesel on the manufacturing sector, which include: the exertion of untold hardship on the manufacturing sector leading to the closure of many industries, leading to reduction in capacity utilization, further decline in GDP, large scale unemployment across 76 sub-sectors and increase in crime rate; further decrease in foreign exchange earnings from the manufacturing sector as high cost of production feeds into export commodity prices; sharp reduction in government tax revenue uncontrollable incidences of insecurity; among others.

Ajayi-Kadir pointed out that “in the light of the gravity of the precarious situation that we have found ourselves as a nation and the looming dangers ahead, the Country should develop a National Response and Sustainability Strategy to address challenges emanating from the ongoing invasion of Ukraine by Russia; continue to support manufacturing to accelerate the process of recovery from the aftermath of COVID-19 and previous bouts of recession to avert the complete shutdown of factories nationwide with multiplier effect on the employment; and issue licenses to manufacturing concerns and operators in the Aviation industry to import diesel and aviation fuel directly to avert the avoidable monumental paralysis of manufacturing activities arising from total shut down of production operations and movement of persons for business activities.

He also stated that “As a matter of urgency, address the  challenge of repeated collapse of the national grid, which is causing acute electricity shortage in the country, especially for manufacturers; urgently allow manufacturers and independent petroleum products marketing companies to also import AGO from the Republic of Niger and Chad by immediately opening up border posts in that axis in order to cushion the effect of the supply gap driven high cost of AGO; remove VAT on AGO as instant stimulus for immediate reduction in price and expedite action in reactivating or privatizing the petroleum products refineries in the country; restrict the export of maize, cassava, wheat, food related products and other manufacturing inputs available in the country; and grant concessional forex allocation at the official rate to manufacturers for importation of productive inputs that are not locally available.”