Fitch, a leading global rating firm with reputation for indubitable projections on banks’ performances and nations’ economic indices, recently made a pronouncement on Nigeria’s economy that may calm the frayed nerves of persevering Nigerians.
The company said that Nigeria’s spiraling inflation has peaked and that headline inflation would drop to 25 per cent by the end of 2024.
It however warned that food inflation may remain high because of poor harvest instigated by obdurate insecurity.
Bandits have driven millions of Nigerian farmers out of the fields as they slaughter them mercilessly and, in some more tolerable cases, impose heartless taxes on farmers as condition for accessing their farms.
The Fitch report lamented that the insecurity has worsened Nigeria’s poor harvest emanating from unholy dependence on primitive farming method rather than mechanised farming.
A number of policy decisions by the federal government lend credence to Fitch projections that headline inflation might tumble to 25 per cent by the end of 2024.
Last week, President Bola Ahmed Tinubu eventually ordered a ceasefire in the senseless squabble between the Nigerian National Petroleum Company Limited (NNPCL) and Dangote Refinery.
The president ordered NNPCL to sell crude oil to Dangote Refinery and other local modular refineries in naira.
Three weeks ago, I argued in this column that NNPCL should divert the 450,000 barrels of crude oil allocated daily to Nigeria’s four dormant refineries to Dangote Refinery to enable it supply refined products to the domestic market. Last week, the president ordered NNPCL to do just that.
There will be bountiful outcome for Nigeria’s tottering economy if NNPCL obeys the presidential directive. Dangote Refinery would supply the domestic market with petrol, diesel and aviation fuel at cheaper pump prices.
Consequently, the pump price of diesel might drop slightly below N1,000 per liter while petrol pump price might tumble by anything from N150 per liter. Last month, domestic airlines hiked the fare for a one hour flight within Nigeria to N200,000. The situation was so critical that airlines abandoned low patronage routes like Uyo and Calabar.
Those flying to those destinations from Lagos were compelled to fly first to Abuja at the cost of N200,000 to connect a flight to their destination at a similar cost. The cost of a return journey on those routes sailed perilously close to N1 million.
That was because the pump price of aviation fuel surged to N1,800 per liter. If NNPCL obeys the president’s directives on the supply of crude oil to domestic refineries, the pump price of aviation fuel might drop below N1,000 per liter. Under that circumstance, the fare for one hour flight might drop below N50,000.
The reason for the optimistic projection is obvious. A Boeing 737 burns 4,000 liters of aviation fuel in the flight from Lagos to Abuja.
Depending on the configuration, a Boeing 737 carries anything from 153 passengers. Aviation fuel at N1,800 per liter consumes N7.4 million from the amount generated from passengers fares.
If aviation fuel is sourced locally and the pump price drops below N1,000, it would be a huge relief for passengers and airlines. Patronage of airlines would rise tremendously with lower fares. Patronage had dropped drastically when the fare for an hour flight surged to N200,000.
The same development could exert downward pressure on prices of food items as the cost of evacuation from rural farms to urban markets drop with tumbling pump prices of petrol and diesel.
Even as poor harvest might keep food inflation at high level, there is bound to be considerable drop in food prices if energy cost is effectively controlled.
With the cost of diesel at N1,500 per liter, the cost of hauling about 6,000 tubers of yam from Gboko, Benue state to Lagos in an articulated truck burning 1,500 liters of diesel for the journey, amounts to N2.2 million. The high cost of energy could raise the cost of evacuating 6,000 tubers of yam to N4 million which adds a princely sum of N700 to the cost of each tuber of yam. That cost might drop by 50 per cent in the new dispensation and bring down the total cost of the product.
Besides, the president’s war against oil theft appears to be yielding fruits. The president gave marching orders to General Christopher Musa, the chief of defense staff. The General was ordered to ensure that no one taps crude oil again from well heads and pipelines.
Oil theft had tumbled Nigeria’s daily crude oil sales to a miserable 1.2 million liters per day in April. However, NNPCL reported that production surged to 1.6 million liters per day in July.
That means considerable increase in crude oil production. NNPCL believes that by the end of 2024, crude oil production could rise to 2 million barrels per day.
With crude oil production at 2 million barrels per day, Nigeria could drastically reduce the catastrophic foreign exchange supply deficit causing the naira’s massive depreciation in the foreign exchange market.
Another development that could result in massive lift for Nigeria’s forex inflow is the coming on stream of Dangote Refinery. Aliko Dangote, president of the Dangote conglomerate, said two weeks ago that his refinery and the petrochemical plant besides it would be generating $30 billion in export annually.
If Dangote alone generates $30 billion and NNPCL takes oil production to 2 million barrels per day, the consequent boom in forex inflow could trigger massive appreciation of the naira that could push the exchange rate to N700 to the dollar.
At that level of exchange rate, Nigeria would have successfully reduced imported inflation. Above all, self-reliance on refined petroleum products would conserve a minimum of $20 billion annually.
That would drastically reduce the demand pressure on the naira and further engender considerable appreciation of the local currency.
From all indications, things are looking up as indicated by the Fitch prediction on inflation rate.