How this fuel price hike affects inflation, GDP, others

The history of fuel increase started in 1978 in the then general Olusegun Obasanjo’s military regime. The impact of all such increases has always been the same, reducing people’s purchasing power, and some cases reducing revenue accruable to government.

The effect of fuel price increase to the growth and development of the Nigerian economy can not be overemphasized. Consequently, it has worsened the economic crises in Nigerian economy. In this section we discuss specifically the effect of increase of fuel price to the country’s Gross Domestic Product (GDP), Government Revenue. Furthermore, we discuss its effect on unemployment and inflation.

Impact on GDP

Since 1978, the fuel price increase has negatively contributed to the country’s GDP downward trend. The tables below summary the effect of petrol price increase to the country’s GDP.

In 1978, the fuel price increased to 15 percent, while GDP fell by 5.8 percent. In 1982 the the price rose to 20kobo, while GDP fell by 0.2 percent. In October, 1994 the fuel price fell from N 15.00 per litre to N 11.00 per litre and stood till 1998, while GDP fell by 0.6 percent in 1994 and rose to 2.6 percent in 1995.

The interesting trend that is revealed in the analysis above is the negative relationship between fuel price and GDP since the deregulation policy. Thus, any time the fuel increases the GDP tend to decrease.

Government revenue

Fuel price increase has a negative significant on Government revenue. In 1982, the fuel price increased to 20kobo, while total federally collected revenue fell to N 11,764million. In 1986 fuel price rose to 39.5kobo, while government revenue fell to N12,382 million. However, the fuel price, in 1993 and 1994 fell to N3.50 and N 11.00 per litre respectively, while government revenue rose to N138,874 million and N 201,911million respectively. In 1998, fuel price rose to N 25.00 pre litre, while government revenue fell to N 463,609 million.

Thus, this inverse relationship can be attributed to labor unrest which has resulted a fall in oil and gas industry activities, consequently affecting the revenue that would have accrued to government coffer.

Unemployment

As it has been observed that labour demand is influenced by money wage rate, while labour supply is influenced by expected real wage rate. Thus, wage legislation has affected labour market negatively.

In 1982, petrol price rose to 20 kobo, while unemployment stood at 4.1 percent. During the period 1986-1990, fuel price rose to 60 kobo, while unemployment fell to 3.4 percent.Between 1991 and 1992 rose to 70 kobo, while unemployment stood at 3.8 percent and 4.0 percent respectively. However, the inverse relationship witnessed during the period 1986-1990, can be attributed to the impact of SAP, positively on the economy, which eroded in 1991. However, the positive relationship can be attributed to high cost of production which resulted layoff.

Inflation

According to Kuti, B.R.,as posited by Mba-Afolabi, J.(1999),the outrageous price increase had made life unbearable for Nigerians as prices of goods and transport fares had risen, forcing people to trek long distances . To complement this Tell, a weekly media publication posited that inflation may also be attributable to the hike in petroleum products and transportation cost.

Going by analysis, in 1978 petrol price increased to 15kobo,while inflation rate rose to 21.7 percent. However, in 1993 petrol price fell to N 3.25, while inflation rose to 57.20 percent. In 1998, fuel price rose to N 25 .00, while inflation rate stood at 10.00 percent. Furthermore, in 1999, it fell to N20.00, while inflation rate declined to 6.6 percent. The inverse relationship can be attributed to deficit financing by federal government.

Recommendation

The following recommendations are made in the hope that they could Proffer a solution to the destabilized economy, prompted by hike in fuel prices.

i) Since we import, based on world export market such that we bring into the country refined oil products, the next thing to do now is to subsidize. Since the federal government makes more money from excess of budgetary projection per barrel. The president should prepare supplementary appropriation bill to get fund approved to subsidize the local prices of petroleum products. That’s, government should control the prices of petroleum products, rather than leaving it to market forces, by which, it means to the importers the NNPC and the private internal and external business moguls. Such a situation will enable the small clique of refined petroleum importers to make abnormal profits at the expenses of the country and its ordinary citizens. However, government should sell to NNPC, price that is below the price that prevail in world oil market while NNPC export (crude oil) base on the world oil market price and use the excess to subsidize the imported refined oil products.

ii) The nation refineries’ Turn-Around-Maintenance (TAM) should be consolidated with transparency and accountability. If our existing refineries are functioning at full capacity, they can meet Nigerians’ internal fuel needs and some excess for export and strategic reserve of products demand. Therefore, their repairs should be given urgent attention. Thus, price hike comes after, not before the repair of the refineries.

iii) The labour union and private sector should be carried along before the increase to forestall a major unrest.

iv). Also, the resources should be channeled to productive ventures that would lead to physical development and touch the life the average Nigerian

Conclusion

From the analysis so far, we are to say that fuel price hike has worsen the economic situation of Nigeria. However, if the above recommendations are put in place, the fuel situation when price increases would improve the economy and the protest and threats of labor would be avoided. Consequently, the economy will be disengaged from stigma and economic quagmire that have had been inhabiting the Nigerian economy from experiencing real economic growth/development. .There is tremendous anger amongst millions of low-paid Nigerian workers against the price hike imposed on January 1. Most workers survive on around $300 per year, and even before the fuel price increases were unable to provide enough food for their families. According to a report by the World Bank, around 66 percent of the population now falls below the poverty line of $1 a day, compared to 43 percent in 1985.
(C)BLESSING ANARO--Businessday