“Petroleum product marketers in Nigeria have written to President Bola Tinubu to complain that the refinery local prices which have dropped from N1,200 to N1,000 and now N900 per litre are impacting their businesses negatively.” – Devakumar Edwin, the Vice President of Dangote Industries Limited
“Over 95% of petroleum product importers in Nigeria are not buying from the Dangote Refinery.” ~ Dangote Refinery
Nigeria’s core challenge today is not the actual price or rate of petrol (or USD), but the volatility in the system. We always focus on the forward volatility which affects the end consumers. But the backward volatility is also dangerous because that affects lenders and bankers. So, if the price does not stabilize, no bank will provide credit to lift those assets. Yes, if you fund at N1,200/litre and the merchant will sell at N900/litre, wahala dey.
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That is the reason why you cannot make an inelastic product to run on “free market” principle, at distribution, when the supply remains bounded, constrained and restricted, because doing that will mean that price movement will keep shifting due to lack of parity between supply and demand.
What Dangote Group and the marketers are experiencing is expected, and I warned about that here a few days ago: “So, a village boy from Ovim posits that Nigeria cannot run a market-driven regime on petrol when its supply of petrol remains regulated, restricted and controlled, if we hope to attain parity, without welfare losses, in the market system.”
To attain equilibrium in that system will mean someone must compensate with some fudge factors (here, via Naira). Dangote Refinery, government, banks or marketers must decide who “loses” in the short term. The marketers and banks do not want to lose, and the government is out of it. So, what happens? Do not lift Dangote’s asset so that it does not enter the local market, to avoid a shift in the equilibrium. That is what is happening right now, and that is unfortunate!
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We seem specialize in making simple things very complex, then find plenty words to obfuscate. When Bird Flu happened under Obasanjo, how much did he propose to poultry owners for chickens to be slaughtered? N150 each. Was that the true value of each chicken then? No. But here, we are yammering on who should lose and who should gain everything. It is obvious that being incompetent is no longer enough, cynicism must be added to it.
Banks take losses when loans go bad; traders take losses when price of goods change; manufacturers take losses when they are unable to sell off goods with short shelf lives; government is king of losses, because it’s essentially designed to be loss-making. But somehow, Nigeria cannot balance losses for the four parties involved in making petrol available and relatively cheaper? Our tales are being told, as we individually fall by the wayside.
Nothing is complicated here, let each party bring their own figures to the table, and we will help them allocate gains and losses accordingly, for the good of all. Irresponsibility is never a virtue.