Double edged-sword as rising oil price means GDP growth, fuel price hike, scarcity
The rising global oil price, according to industry experts means two critical things for Nigeria. One, goodwill as it will jump up real Gross Domestic Product (GDP) growth over the coming quarters.
The second condition that are usually associated with rising oil price in Nigeria has been rise in landing cost of petroleum products as sea ports because the economy is dependent on imported products.
Already, the lingering fuel scarcity which had started since early December 2017 is still holding sway as not up five per cent of petrol stations across the country is now selling at approved pump price of N145.
Major marketers had called on the federal government to give them some forms of tax holiday that will cushion the effects of the rising landing cost but government has not responded thus, leading to endless scarcity of Premium Motor Spirit (PMS).
This is to write off the differences between the official landing cost of N138 which has been rubbished by rise in global oil price till date.
One of the industry analysts who spoke to Business Hilights on Tuesday on the matter said “The landing cost of N138 can only work if the oil price is between $40 to $55. At more than that, it means higher landing cost and government is not ready to shift to avoid invoking the hanging anger of Nigerians who felt that the administration has disappointed them in not fighting corruption in the downstream oil sector.
Besides, studies have shown that the Nigerian National Petroleum Corporation (NNPC) cannot sustain saturating the entire country alone with petroleum products without contributions from major marketers.
Only recently, disquiet emerged at the floor of the Senate as lawmakers saw high level discrepancies on subsidy payment claims by the Corporation in the last few years.
However, several public finance experts believe that steady rise in crude price still means an uptick in crude oil production and rising government spending
A report hinted on Monday that “A number of external factors will play in Nigeria’s favour over the coming quarters, including an increase in oil prices, a weak US dollar, and a broad-based increase in real GDP growth across the world. This backdrop will help to lift growth, despite President Muhammadu Buhari’s disappointing progress on the reform agenda he campaigned on when elected in 2015”.
“Similarly, the rise in global oil prices in recent months will continue to bolster government finances, allowing public spending to make a more robust contribution to growth.
The report further noted that “crude oil has traditionally accounted for around 65.0% of fiscal revenues, so we believe that the 60.4% increase in the price of Brent since June 2017 will offer substantial tailwinds to economic activity in the form of public investment and government consumption”.
