At N260/litre, rising energy costs strain manufacturing, logistics sectors

Hopes of recording a deceleration in the inflation rate before the end of the year appear to be weak, as rising energy costs are taking a toll on industrial firms, services sector and small businesses dependent on Automotive Gas Oil, also known as diesel, for operations. Specifically, the price of diesel has risen to a high of N260 per litre, with businesses taking a beating on the back of rising energy costs.

According to the latest data from the National Bureau of Statistics (NBS), the consumer price index, which measures inflation, stood at 11.28% in September from 11.23% recorded in August.Indeed, many manufacturers outside the coverage of the independent power projects (IPPs) established operated by Manufacturers Power Development Company Limited, a subsidiary of Manufacturers Association of Nigeria (MAN), are beginning to feel the pain of higher production costs.

Many businesses in the country rely heavily on diesel-powered generators for electricity as power supply from the national grid remains poor.
Although latest statistics from the Bureau on the Automotive Gas Oil (Diesel) Price Watch for the month of September 2018 showed that average price paid by consumers for diesel increased by 14.52% year-on-year and 1.76% month-on-month to ₦211.64 in September 2018 from ₦207.98 in August 2018, the pump price of the product has risen to as high as N260 per litre in Lagos.

According to the NBS report, the average diesel price across different zones in the country shows that the North-East zone recorded the highest price paid by consumers for Diesel in September with ₦218.47. It was closely followed by the North-West zone with ₦216.99, while South-West was the third with the highest diesel price in September with ₦216.83. Meanwhile, South-South and North-Central zones recorded the lowest diesel prices of ₦200.56 and ₦204.67 respectively during the month under review.

MAN expressed concerns that the rising cost of production and low consumer purchasing power continue to affect fortunes of the real sector.
Similarly, in the latest Consumer Expectations Survey Report for the third quarter by the Central Bank of Nigeria (CBN), most respondents expect the prices of goods and services to rise in the next 12 months, with an index point of 16.7 points, driven by transportation, education, medical care, electricity, house rent, and telecommunications.

Also, consumers’ overall buying conditions index in the current quarter for big ticket items stood at 35.1 points. This indicates that majority of consumers believed that the current quarter was not the ideal time to purchase big-ticket items like consumer durables, motor vehicles, and house & lot.

The battle against rising energy costs comes after global manufacturers were lulled by a protracted period of relatively low oil prices. It also adds to other challenges including pressure to find ways around a trade war between the U.S. and China.The Director General, Lagos Chamber of Commerce and Industry, Muda Yusuf, described the impact of the diesel price hike on businesses as very severe, adding that with the high cost of diesel, high transportation cost becomes inevitable.

“The environment for manufacturing has created a competitiveness problem for the sector. The first critical constraint is energy cost. It is difficult to drive industrialisation without energy that is affordable and available.“Over 80 per cent of the energy requirement of the Nigerian manufacturing sector is provided by the firms themselves.

“They operate generators powered either by diesel, petrol, gas or LPFO. These are very costly energy sources. Diesel cost has been skyrocketing because of the increasing price of crude oil.“This happens because the price of diesel has been deregulated and our refineries are comatose. High oil price translates to high diesel cost”, he added.