The effect of current happenings at the world energy bazaar on Nigeria

Oct 21, 2004 02:00 AM

by Chukwuemeka Okoro

Current happenings at the world energy bazaar should interest every Nigerian, not least the ubiquitous common man (and woman!) who has become the index for measuring the gap between the very negligible band of Nigeria's haves and the vast majority of the wretched-of-the-earth have-nots. To be sure, the scenario is indeed frightening.
One economist friend of mine has dutifully postulated that trends in Nigeria should follow the international vogue and that our local people should stop complaining about uncontrollably rising cost of energy, particularly petroleum products. The argument is that Nigeria's dependence on imported refined petroleum products is so legendary, it should not require an economist of any value at all to persuade our people to follow the macroeconomics of the world oil market.

Which is that, as prices go up, our people should learn without end to follow the trend. But, take that standpoint a bit further than classical economics theoretics; take a look at what is happening in the world market.
The price of a barrel of oil hit over $ 50 in the international market. "Traders" say that fears about political unrest in Nigeria's oil-producing region of the Niger Delta have put pressures on prices, same as the slow return of US output after Hurricane Ivan, low US stocks and concerns about Iraqi supply.
But, the question to ask is: what impact would a $ 50 plus barrel price have on consumers, businesses and the global economy. What is an over $ 50 barrel of oil really worth? What does that really mean for the average Nigerian who is not being told and made to contend with local petroleum products pricing to match the trend in the larger world?

Yes, $ 50 sounds a lot to pay for a barrel of oil -- and indeed a barrel of oil now costs twice as much in dollar terms as it did in 2001. In relative terms, however, oil was much more expensive in the early 1980s and in the 1970s. By more recent measures, however, the price is certainly soaring and you and Iare being made to follow suit in our thoughts and actions, although in many years past when world oil cost much more in real terms, petrol was not costing us as much as it does now.
International economists say that oil is 136 % more expensive than it was in 2001. Again, this sounds bad -- but set alongside previous oil shocks, the contrast is less stark. The $ 8.50 rise in the price of a barrel of oil between August, 1973 and January, 1974, while tiny in dollar terms by today's standards, nevertheless amounted to a 274 % jump in the price.

But what does a $ 50 barrel mean to the consumer today?
The most obvious effect is the price of local petrol on Nigerians. Watch it: the theory that those most directly affected (in the Nigerian context) are people with cars is a wicked fallacy!. The impact on the Nigerian car owner or vehicle user is certain to be greater than on European or American drivers, because tax makes up a smaller proportion of the overall price at the pump in Nigeria than it does in Europe.
But even those who do not have a car in Nigeria will feel the impact: market women will necessarily (automatically) raise prices, even itinerant hawkers of chewing sticks on Nigerian streets will raise prices and retort when you complain: "you no no say them don increase petrol price?"

Next, it is trite economics that rising oil prices lead to higher business costs, reducing profitability. Many businesses will seek to pass this onto the consumer, cutting into household income. Yet, not all companies will be able to do this; but lower profitability could encourage them to lower their costs in other ways -- perhaps even by getting rid of staff.
Airlines and road transport companies, for whom fuel is a major cost, are already feeling the pinch. Many of the paltry population of Nigerians who buy newspapers will now lack the capacity to patronise their vendors, on account of their other imperative domestic burdens having become heavier on account of spiralling living costs -- the corollary of fuel price increase. The end of the down-stream (to borrow from President Olusegun Obasanjo's economic team) consequences of an open-ended deregulation of petroleum products pricing is as far as going from the Nigeria of old to a place people knew as Panya.

Now, refusing, or not being able to purchase petrol, in Nigeria, at ruling prices determined by so-called ruling world prices leads us to our national past-time -- petrol scarcity, yes. But, buying at indeterminately higher prices ruins everything the average Nigerian has done to improve on his/her living conditions in the last five years since when it has become the most popular government policy to engineer sudden increases in the prices of petroleum prices.
It becomes a chicken-and-egg situation for our grandiloquent grand economists at Aso Rock and elsewhere (the Nigerian oil ministry has since stopped to function from any ministerial buildings). I ask, are we ready for the aftermath of our insistence not to take our national problems with the peculiar pinch of salt they often come with?

Source: Daily Champion
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