Dear Subscriber,

Subsidy removal: how far can N5,000 go?

Iyabo just got news that the government intends to phase out fuel subsidy payments in early 2022. As she lamented and grumbled about how to adjust to this 106.06% jump in the pump price of petrol to N340/ltr, her friend called to inform her of the FG’s plan to introduce a monthly N5,000 transport stipend. The palliative, at a paltry 16.7% of the minimum wage (N30,000), is expected to run for about 6-12 months and designed to serve as a social safety net for 40 million of the most vulnerable Nigerians. The total amount comes to N2.4trn (80% of subsidy spending and 1.5% of GDP). Iyabo, now perplexed, wants to find out the criteria for determining who qualifies as part of the most vulnerable.

At the same time, the fuel price of N340/ltr is based on an average oil price of about $70-75pb. The spectre of further increases looms large if OPEC has its way and oil prices go higher and reflects on the pump price of petrol. At a time when consumers are grappling with higher food prices, the N5,000 barely scratches the surface. The real game-changer would be the re-allocation of freed-up funds to transport infrastructure which would lower transport and logistics costs.

What will OPEC+ do next?

OPEC and its allies will meet next week at a time when the US and other oil importers are making good on their threats to tap into strategic petroleum reserves as they attempt to bring down oil prices. In this high-stake chess game, one side has political considerations to ponder on while the other has purely economic contemplations and is known to do whatever it takes. Markets have been largely unmoved by the US’ move, choosing to wait patiently to see if OPEC, as it has done recently, presents a united front, pauses on output increases and waits out Biden’s strategy – causing it to backfire.

Santa bears growth tidings for Q4

We all could use some good news as the year comes to a close. Recall that the Nigerian economy maintained its positive growth momentum in Q3’21 (4.03%). However, when compared to the 5.01% achieved in Q2’21, the economy slowed. This is primarily attributable to shortfalls in major sectors – agric and petroleum. The good news is that the last quarter of the year is expected to be marked by an increase in aggregate demand due to Christmas spending. However, purchasing power will be impeded by the continued spike in commodity prices. Hence, we are projecting a positive but slightly lower GDP growth of 3.5% in Q4’21.

In this edition of the FDC Bi-Monthly publication, the FDC Think-Tank analyzes these issues and their implications on businesses and the economy at large.

Enjoy your read!