One of the most topical issues in the Nigerian economy within the past week is the "somewhat sudden" removal of subsidy on the price of petrol, a major source of vehicle fuel in the most populous black nation in the world. In truth, the new administration had mentioned earlier during the campaign season that it "will hit the ground running" and also that subsidy will take effect. This was also part iof the communication made by the outgoing administration which belongs to the same political party. Despite this background, it was generally expected that the removal would happen at least 1 month later than was actually announced. Some observers claim that the urgency may be hinged on the current state of the treasury and budget limitations amidst very challenging fiscal and macro-economic realities.
Whatever the true position is, the current reality is that there has been an over 150% increase in the petrol pump price. With a double digit inflation rate estimated at 22%, it is most certain that this increase will further trigger price increases across transportation, food, services and typically touch all the segments of the national economy. Exploring this wider, Nigeria already has significant shortfalls in meeting the local demand for electricity. This gap typically adds further pressure on the demand for petrol with the use of generating sets to augment the epileptic power supply from the nation's grid.
Whilst the government of the day has mentioned that it will improve the minimum wage, as a public institution, this will only impact the civil servants and the public sector, whilst private sector organizations are left with a new burden in an already challenged macro-economic environment. There are a few perspectives to consider:
- For one, in an election year, a good portion of February, March and part of April had already been lost. This is based on the heightened political schedules and the pre and post election activities that happened within the period. Organizations and businesses had to put a pause to a lot of their existing plans, approach them with caution or just wait to see how events will take off before deploying their own plans in full. In the season around post elections, businesses were just beginning to kick off. This new development has presented a new set back. Many business owners will once again be necessitated to revisit the drawing board.
- Post Covid recovery has not been optimal and widespread. As businesses were heaving a sigh of relief from the lifting of the lockdown and the resultant gradual growth, fresh local realities sprung up covering increased taxation, foreign exchange scarcity, insecurity, stay at home actions, and most recently, the currency change/swap which created local scarcity of Naira notes. Whilst subsidy removal has its gains, amidst the prevailing circumstances, the national economy has once again, been hit hard.
In attempting a response, organizations are faced with big decisions to make:
- How to create a balance between proposals to increase salaries (inflationary adjustments or improved transport allowances) whilst dealing with a potential significant dip in sales. The proposed increase can be made feasible if sales volume and profit margins are at least, sustained. If not, it will add to an already heightened operational cost of doing business and if not carefully managed, it can compromise not only corporate performance but business sustainability.
- Can all the costs be transferred to the customer in terms of an immediate price increase? With price adjustments, customers are faced with choices to either maintain or reduce purchasing volumes or even consider cheaper alternatives. A household may move from consuming chicken to meat, to fish or even eggs based on their own realities. In situations like these, it is not always the case that household income will increase. In some cases, especially with the inflationary trend, it even dips.
- Focus on cost efficiency and profitability: For business managers, data driven decision should take precedents and key indicators like cost efficiency and profitability should be the watch word. In making comparative analysis, there may be some products or services that will go off the front burner. The status quo may no longer be the reference point to navigate the current crisis.
- Potential work disruptions: Already and as is usually the case, the Nigerian Labour Congress has announced a strike to commence in the coming week. It may be another long chain of protests, negotiations, work delays and some inaction that will still hit businesses and employees hard whilst a final outcome is being realized.
- What approaches can be explored to ensure better employee experience? Remote and hybrid work could not have come at a better time. With road constructions very common within the past few months in a metropolis like Lagos, the nation's defacto economic capital, transit to and fro work had already been quite tasking and burdensome. For some organizations, this may be a good time to make those kind considerations. With technology, goals and tasks can still be monitored. If we survived working from home during Covid, we can also do the same now.
- Lifestyle changes and life style choices. Solar energy provides a viable option in terms of inverters, household appliances and even automobiles. There may also be a few adjustments to create leverage for the individual. For instance, joint vehicle transit, vehicle sharing, staff bus schemes, water transport and even biycles (which are used in leading cities in Europe, Asia and America).
Regardless of the diverse perspectives on subsequent calls to action, it is a long journey ahead. This will require multi-stakeholder cooperation across the public and private sectors on one hand, and the employers/business owners and employees on the other. It will take some sacrifices, some adjustments, restrategizing, creative thinking and carefully considered action plans. Like the typical optimist will say in Nigerian parlance, "last last, we will all be fine".
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1yWell thought out treatise. Very pertinent that all stakeholders should have a rethink on fuel pump price and its over reaching impact on the general economy.
White Belt Lean Six Sigma | Scrum Master | Risk Management | Governance | Compliance | Cluster Operational Risk Manager, East and West Africa
1yI agree that all stakeholders need to work together to succeed in these times.
Managing Consultant
1yYes, you have raised critical issues that have far reaching negative impact on the masses.The headline inflation based on the data released by NBS was even 22.2%.Core inflation rate as reported by Nairametrics last week was above 20%.We have to note that increase in pump price of fuel always has a multiplier effect on the economy.The increase of pump price from N185 to N500 is alarming.It means that the prices of goods and services will be escalated to high heaven and this will not be in the interest of masses.Nigerians were put in a very tight corner due to cash crunch occasioned by CBN new Naira notes redesign policy.What Nigerians went through is beyond explanation.We have weak macroeconomic fundamentals.We have unstable macroeconomic environment.If we examine such indices as GDP per capita , unemployment rate, income per capital .GDP growth rate , exchange rate etc and above all our debt service to revenue ratio we will notice that all is not well with our economy.One of the things , the new administration should focus on is to find a way of fixing our refineries so that we will put a stop to importation of petroleum products and refine our crude oil locally, Nigeria is obviously one of the largest producers of crude oil