Global events have shown that the world is like a village. The emergence of a challenge in one country can become a major constraint with spiral effects for the world.
Often times when disruption occurs in any part of the global economy, only countries with functional institutions and strong internal economic mechanisms will be able to respond appropriately to such external shocks.
The current increase in prices of crude oil and other refined petroleum products such as diesel is one of such disruptions occasioned by external shocks that confirms the interlink of economies in the world.
No doubt, the recent short supply and over 200% increase in the price of AGO are part of the backlashes from the ongoing invasion of Ukraine by Russia.
This resulted in numerous economic sanctions on Russia by the US and EU, which propped up the price of crude oil to $120 per barrel (now moderated to about $100) as Russia oil export is isolated.
The Manufacturers Association of Nigeria is greatly concerned about the implications of the over 200% increase in the price of AGO on the Nigerian economy and the manufacturing sector.
More worrisome is the deafening silence from the public sector as regards the plight of manufacturers. Four obvious questions that readily come to mind that are seriously begging for answers are- What can we do as a nation to strengthen our economic absorbents from external shocks?
Should manufacturing companies that are already battered with multiple taxes, poor access to foreign exchange and now over 200% increase in price of diesel be advised to shut down operations?
Should we fold our arms and allow the economy to slip into the valley of recession again? Is the nation well equipped to manage the resulting explosive inflation and unemployment rates?
In the short term the disruption occasioned by the invasion of Ukraine by Russia will continue to heavily ruffle the global energy space and upset the supply of petroleum products thereby causing persistent increase in the price of refined petroleum products including AGO.
In the long run, it will result in enormous increase in the prices of other manufacturing inputs like wheat, maize, fertilizers and the raw materials.
By the time the current domestic reserve of manufacturing inputs is exhausted, in the face of acute shortfall in supply, we are afraid that the prices of manufactured products will soar.
Ironically, the Nigerian economy is completely dependent on importation of refined petroleum products including diesel and other vital manufacturing raw materials and there are currently no sufficient alternatives.
We are concerned about the implications of the sharp increase in the price of diesel on the manufacturing sector, which include:
The exertion of untold hardship on the manufacturing sector leading to the closure of many industries, leading to reduction in capacity utilization, further decline in GDP, large scale unemployment across 76 sub-sectors and increase in crime rate;
Further decrease in foreign exchange earnings from the manufacturing sector as high cost of production feeds into export commodity prices;
- Sharp reduction in Government tax revenue occasioned by drop in sales, lower profitability as lesser quantum of disposable income will be available to purchase manufactured goods;
- Reverse-multiplier effect, as cost of production escalates and the headway already made in the sector are grossly eroded;
- Negative spiral effects on every sector of the economy, resulting in hyperinflation, lower productivity and turnover;
- Depressing trickle-down effects on productivity, unemployment and standard of living of the citizenry;
- Uncontrollable incidences of insecurity with dangerous implications for economic and social well-being of over 200 million Nigerians.
* Segun Ajayi-Kadir is the Director General of Manufacturers Association of Nigeria (MAN)
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