The recent hike in diesel price from the much-vaunted Dangote Refinery, from N940 to N1,100 per liter, is a harsh reality check on the impacts of Nigeria’s struggling currency and economic policy incoherence. Just weeks after announcing reductions that provided a glimmer of relief to consumers, the refinery has been forced to reverse course due to the naira’s free-fall against the U.S. dollar.
This episode lays bare the fundamental vulnerabilities that keep Nigeria’s economy hitched to the vagaries of import costs and foreign exchange rates, even with a massive refining facility now operational within its borders. The fact that the Dangote Refinery still relies substantially on imported crude supplies means its production expenses remain heavily exposed to currency fluctuations.
It’s a troubling paradox that highlights the disconnects in Nigeria’s policy ecosystem. On one hand, the Dangote Refinery is touted as a transformative project meant to insulate the nation from import reliance and subdue runaway fuel and diesel Prices. On the other, lax currency management has nullified much of those expected gains by making the refinery’s inputs prohibitively expensive when the naira tanks.
There are no easy solutions here, but some glaring policy missteps are evident. The Central Bank’s muddled approach of alternating between defending and letting the naira slide has utterly failed to instill confidence and stability in the forex markets. This erratic policymaking creates uncertainty that gets inevitably priced into commodity costs by suppliers.
Moreover, the federal government’s evident lack of appetite to substantively tackle fiscal leakages, weed out corruption, and pursue robust export diversification has severely capped Nigeria’s ability to earn stable forex inflows that could buoy the naira’s value. Empty rhetorics cannot sustain currency strength in the face of weak economic fundamentals.
Ultimately, Nigerians once again find themselves at the receiving end of painful price shocks stemming from policy disconnects and economic mismanagement by the authorities. The Dangote Refinery was expected to be a buffer for Diesel Price but has ended up transmitting import cost pressures instead due to naira’s vulnerabilities.
Rather than playing a blame-game, it’s time policymakers took a hard look at the systemic gaps and contradictions that allow ostensibly landmark projects to get derailed by extraneous issues like forex volatility. The Dangote Refinery tussle demonstrates that having industrial capacity alone is inadequate without a coherent economic policy framework to make that capacity optimally viable and beneficial for citizens.
Until Nigeria gets its fiscal house in order through productive policies, stabilizes its currency through market-aligned reforms, and pursues real economic diversification, even its grandest infrastructure achievements will keep getting undermined by self-inflicted policy weaknesses. The vicious cycle of subsidy regimes making way for crippling devaluations and price shocks must end through real reforms, not optics-driven quick fixes.
Dangote may have bitten off more than it can chew by situating a refinery dependent on imports amid an economy paralyzed by policy inertia. But the real burden falls on the Nigerian masses having to pay ever steeper prices due to systemic policy missteps they had no hand in. They deserve better from the policymakers meant to protect their interests, not subject them to avoidable economic shocks.
Reference
Naira slide pushes Dangote diesel to N1,100/litre published in Punch