- Rising Inflation Worsens Nigeria’s Misery Index
The sustained increase in the consumer price index (CPI), which is used to gauge inflation in the country has worsened misery index in Nigeria, a report by the Financial Derivatives Company Limited has stated.
Using the third quarter 2016 unemployment and underemployment rate of 13.9 per cent and 19.7 per cent (the most recent published figures), and December’s inflation of 18.55 per cent, Nigeria’s misery index is 52.15.
Due to nationwide job cuts (in the banking and oil sector especially) unemployment is estimated to have risen to 14.5 per cent in the fourth quarter of 2016. This is expected to bring the misery index of the fourth quarter, 2016, to a record high of 53.35. This would be 21.05 points higher than the fourth quarter 2014 figures.
Misery index is a measure of economic well-being for a specified economy, computed by taking the sum of the unemployment rate and the inflation rate for a given period. An increasing index means a worsening economic climate for the economy, and vice versa.
To this end, the research and investment company in its latest bi-monthly economic report for January 2017, pointed out that Nigeria’s misery index had risen for the last six quarters, stating that if the movement persists, consumers would be hit hard. In addition, it noted that consumer may be faced with deeper dwindling purchasing power, as their incomes would only be able to buy less of their usual consumption basket. Similarly, the poor will become poorer in real terms, and the middle class will thin out.
These factors are important because they pose economic and social costs to the average income earner. An increase in the misery index is triggered by an increase in either variable, and signifies economic discomfort and negative consumer sentiment.
“Additionally, climbing misery index implies declining economic activity and reduced consumption. This is because unemployed people are underutilised and rising prices will discourage rational consumers from spending. This can cause or complicate an economic slowdown or contraction. There will also be increased debt, as the federal government borrows money to increase social support schemes. In the end, the citizens will be left with high uncertainty and low morale.
“Furthermore, it is believed that consecutive rises in the misery index usually lead to a decline in the favourability ratings of the serving administration, and could result in a re-election loss for the incumbent. This was the case for U.S. President Ford and Jimmy carter, whose terms saw the misery index reach all-time highs. Likewise, Nigeria’s 2015 elections reflected this hypothesis,” the FDC report stated.
Leading the pack of high misery indexes in Africa is South Sudan, whose inflation rate of 457.20 per cent in November 2016 had sent its misery index through the roof. Other countries with high misery index include Angola (67.92), Congo (57.3), Libya (46.9), Kenya (46.3). On the other hand, some countries such as Cameroon (4.55), Ivory Coast (5.1) and Uganda (9.5), still maintain low misery indexes. At 52.15, Nigeria’s misery index is among the top in the continent.
Furthermore, the report noted that oil booms in the past engineered the significant increase in the revenues of net oil exporting countries, with dramatic changes felt in countries like Nigeria, where oil revenues per capita in the country increased from $33 in 1965 to $325 in 2000. With this oil windfall however came dramatic appreciations in the currencies of net oil exporters leading to the famous Dutch disease studies on the effects of oil bonanzas on currencies of countries especially but not exclusive to countries with under developed institutions.
“Natural resource curse hypothesis and empirical studies often characterise countries that fall prey to this state of inefficiency with deindustrialisation, bad growth prospects and currency disequilibrium. Our focus will rest mainly on the latter as forex market challenges and currency woes have contributed significantly to the astronomical hike in the price levels of net oil importers, Venezuela and Angola.
“Venezuela and Angola are oil producing countries that pull their weights in their respective continents. Venezuela currently produces 2.02 million barrels per day, 14.85 per cent higher than 1.72 million barrels per day that Angola produces. Oil revenue contributes about 45 per cent to the GDP of Angola and about 95 per cent to its total ex- ports. The same trend is observed in Venezuela where oil production and activities contribute 50 per cent and 95 per cent to its GDP and exports respectively,” it added.
Buhari to Spend N729 Billion on 24.3 Million Poor Nigerians
President Buhari is working on spending N729 billion on 24.3 million poor Nigerians despite the present economic recession, weak industries and zero new job creation.
Sadiya Farouq, the Minister of Humanitarian Affairs, Disaster Management and Social Development, disclosed this during the inauguration of the Federal Government’s emergency intervention database for the urban poor.
In a statement released by Nneka Anibeze, the Minister’s Aide, the financial intervention would help cushion the impact of the COVID-19 pandemic on identified people.
According to the Minister, the Federal Government would disburse N5,000 each to 24.3 million poor and vulnerable Nigerians for a period of six months. A total of N729 billion.
In part, the statement reads, “According to records, about 24.3 million poor and vulnerable individuals were identified at the end of 2020 and registered into the National Social Register.
“Each beneficiary will receive N5,000 for a period of six months.”
The government is embarking on handouts despite the nation’s fiscal challenges and economic recession. The N5,000 or N729 billion can help build or support available industries, fast track economic recovery and improve job creation against sharing it with people it will has little to zero impact on their lives.
This is one of the numerous leakages being addressed by the same administration. The database can not be verified neither are the people to be paid.
FG Paying N1.1 Billion Per Day as Subsidy
The recent jumped in crude oil prices means landing cost of Premium Motor Spirit (PMS), popularly known as Petrol, has increased but the Federal Government has maintained the old pump price of N161 – N165 per litre.
In a series of reports, the Petroleum Products Pricing Regulatory Agency (PPPRA) open market price, the price fuel marketers are expected to sell, is N183 per litre as of yesterday. A break down showed N160 is the landing cost per litre while the additional N23 is the Petroleum Products Pricing Regulatory Agency (PPPRA) pricing template.
Therefore, with the payment of additional N23 as stipulated in the PPPRA pricing template and the national petrol per day consumption figure at 50 million litres, the Buhari led administration is offsetting about N1.1 billion on petrol consumption daily.
The Nigerian National Petroleum Corporation (NNPC) has been deducting the amount before remitting balance of oil sales to the Federation Account, according to a Businessday report.
An anonymous person in the oil marketing industry said: “We are back to the era of subsidy and Nigeria is bleeding badly because of this.”
“With deregulation, the current price of petrol should not be less than N181, so who is funding subsidy of the product for Nigeria to buy at the current fixed price?“.
Another oil marketers said, “the government does not have the boldness to allow full deregulation of petrol because of the spiral effects on Nigerians, and bearing in mind that Nigerians are in very hard times.”
Alao Abiodun, the Head of Energy Research, New Nigeria Foundation, explained that “Because of the loans from the IMF and World Bank that they got with the condition that petrol should be deregulated, I believe the government is trying to manage the problem.”
Nigeria’s Big Oil-Refining Revamp Gets Off To A Slow Start
A year after shutting down all of its dilapidated refineries to figure out how to fix them, Nigeria still can’t say how much it will cost to do the work or where the money will come from.
Nigerian National Petroleum Corp. said it has finished the appraisal of its largest facility, but hasn’t completed the process at two others. Refining experts said the extended halt means the plants are at risk of rotting away and unlikely to restart on time.
“Things haven’t been looking good lately,” with Nigeria’s plants probably “completely out of action for some 18 months,” said Elitsa Georgieva, Executive Director at Citac, a consultant that specializes in African refining.
The dysfunction of its domestic refineries has long put Africa’s biggest oil producer in an ironic situation. It exports large volumes of crude to plants overseas, then pays a premium to import the fuels its customers produce.
Pledges to fix the facilities have been made and broken again and again over the years. For at least a decade, NNPC’s 445,000 barrels a day of refining capacity barely processed 20% of that amount.
The latest effort to fix the refineries was supposed to be different to the failed attempts that came before. The company had totally shut all three plants down by January 2020 to do a comprehensive appraisal, and set the ambitious target of having them all back up and running at 90% of capacity by 2023.
“The refineries have been deliberately shut down to allow for a thorough diagnosis,” said Kennie Obateru, an Abuja-based NNPC spokesman. “They can be fixed based on what the diagnosis reveals.”
The appraisal of the 210,000-barrel-a day Port Harcourt refinery has been completed and NNPC has called for bids for the necessary repairs, Obateru said. The company hasn’t determined how much the work will cost.
“It is when we close the bids, everything is analyzed and presented that we will know how much we need,” he said.
The diagnosis is underway at the 125,000-barrel-a-day Warri facility and should be complete before the end of the year, he said. After that, the study of the 110,000-barrel-a-day Kaduna plant will commence.
One year into the process, refining analysts are skeptical that all this work can be done by 2023.
“I don’t think anyone has a good understanding technically of what’s wrong with those refineries,” said Alan Gelder, vice president of refining, chemicals and oil markets at Wood Mackenzie Ltd. “They’re probably corroding, which makes it a very difficult proposition.”
NNPC reaffirmed its deadline and said there’s no reason the refineries, which are at least 40 years old, can’t be restored to full operation.
“There are refineries that are over a hundred years old still running, so age is not necessarily an impediment,” Obateru said.
There are parallel efforts backed by private companies to add to Nigeria’s capacity. Aliko Dangote, Africa’s richest person, is building a state-of-the-art 650,000 barrel-a-day refinery, which Citac estimates will start production in 2023.
Bringing NNPC’s Port Harcourt refinery to the same clean-fuel standards as Dangote’s modern plant would cost about $1.3 billion for the equipment, on top of whatever other repairs are required to get the facility running, Georgieva said.
NNPC is talking to oil-trading firms about $1 billion of prepayment deals that could finance the repairs at Port Harcourt, Reuters reported last week. Obateru declined to comment on the report, but said “I don’t envisage that we will have a problem getting people to invest.”
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