The decision to sell crude to Dangote Petroleum Refinery and other local refiners in naira will have profound positive impact on the economy, experts have said.
Finance and economic experts were unanimous yesterday that the policy directive by President Bola Tinubu-led Federal Executive Council (FEC) has potential to reduce general costs of living, strengthen the country’s currency and foreign exchange (forex) position and underpin long-term development of local industry.
The FEC on Tuesday approved the sale of crude to local refineries for payment in naira and for the refineries to sell their products in the domestic market and accept payment in naira.
Experts said the decision will positively impact key fundamentals of the economy including inflation rate, forex rate, employment, access and cost of stable energy, susceptibility to global fluctuations and general economic growth and stability.
Civil society organisations (CSOs) and activists also commended Tinubu for his visionary leadership and statesmanship, noting that by such decision, the president has shown that the economy and Nigeria as a nation are his priorities.
Experts who spoke yesterday included Professor of Economics, Sheriffdeen Tella; Managing Director, Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf; Managing Partner, Biodun Adedipe and Associates, Dr Biodun Adedipe; Managing Director, Arthur Steven Asset Management, Mr. Olatunde Amolegbe and Managing Director, HighCap Securities, Mr. David Adonri.
Others included Managing Director, Ambosit Capital Managers, Dr. Wahab Balogun; Managing Director, SD & D Capital Management, Mr Gbolade Idakolo; Civil Activist, Tony Nyiam; President, Association for the Advancement of Rights of Nigerian Shareholders (AARNS), Dr Faruk Umar; Senator Mohammed Sani Musa, The Arewa Think Tank (ATT) and several civil society organisations (CSOs).
They agreed that the decision by Tinubu showed pragmatism and depth of understanding of the economic reforms, noting that strengthening the domestic oil and gas sector would have positive multiplier effects on the overall economy.
Tella said the decision would lead to reduction in general costs of goods and services while boosting the country’s forex position.
“That’s the right thing to do. If customers are using foreign currencies to pay for good in the country, it will put pressure on the naira and lower its value because those customers will have to buy the foreign currencies with naira to pay for the products.
“So, Dangote and others buying crude oil in naira is the best while those importing crude oil from outside will pay in forex because they will be paying into our foreign account. The implication is that Dangote and others’ fuel will be cheaper than imported fuel in our local market, which is good for our economy in terms of cost of production and cost of living. It will also not add to pressure on naira to cause its depreciation,” Tella, a globally renown economist said.
Yusuf described the decision as a welcome development that will go a long way to ease the current pressure of prices of petroleum products in the country, especially given the capacity of the Dangote Refinery.
“If the NNPCL can make the crude available in reasonable quantity or volume to the Dangote Refinery, and indeed to other domestic refineries that are producing petroleum products, it would be a great idea.
“And I’m sure that we should also expect that the benefits of these liberal payment terms will be transmitted to the citizens in terms of more steady supply of petroleum products, less volatility in the price of petroleum products, and possibly a moderation in the price of petroleum products. Because we are in a situation now that we should be worrying about the cost of living, social stability, economic development, issues of production. And in all of these things, energy is very, very critical.
“Access to energy and access to affordable energy is very central to the achievement of all of these social and economic objectives. So, it is a very good development, and I’m sure that the country will be better for it,” Yusuf said.
He however noted the need for NNPCL to rise up to the occasion by scaling up its production in order to meet its local and foreign obligations.
Nyiam said Tinubu’s intervention has further rekindled hopes in the domestic economy and the potential of Nigerians to champion their own growth.
According to him, the obvious support for the Dangote Petroleum Refinery is a signal of support for the local economy and enterpreneurs, the imagery that Alhaji Aliko Dangote represents.
Nyiam, a retired Lieutenant Colonel, described Dangote as Nigeria’s equivalent of the “Tata of India”, noting that the “Dangote is much of a highly marketable brand of Nigerian businesses to be allowed to be rubbished”.
He added that the intervention by the president could also foster greater African renaissance as African leaders begin to focus on harnessing domestic resources for domestic growth and development by building local entrepreneurship.
Amolegbe said the benefits of the policy directive would become more pronounced in the medium term, especially if NNPLC ramps up production to mitigate the gap that could be created in forex earnings.
“In the medium term, this arrangement should help ease pressure on the naira emanating from the need to import finished products. But we must also realise that the sales of crude in naira might very well leave a gap in our forex earnings, so we expect this to be blocked through either increased crude production or other forex sources or both.
“The reduction in pressures will most likely lead indirectly to pass-through inflation which could very well give the Monetary Policy Committee of the Central Bank of Nigeria the impetus to start to consider lowering interest rates. It is a positive move in the right direction but as I have mentioned the impact is likely to be felt medium term,” Amolegbe said.
Adedipe said the policy directive will boost job creation and ensure greater petroleum products security by significantly reducing the risk of global supply chain disruptions.
According to him, the decision effectively takes out the demand for dollars in the domestic forex market by the refiners and starts the journey to a stronger naira while also removing the influence of exchange rate and importation cost, including port inefficiencies and imported inflation, on the pump-head prices of refined petroleum products, thus making locally refined retail products cheaper.
“The policy will create jobs that were hitherto lost to foreign refineries. It will also deepen operations of local refineries and create multiplier effects across ancillary sectors. It will enhance the export of refined petroleum products and reverse forex outflows that we spent paying for about 39.1 per cent of our merchandise trade. This will also enhance supply of intermediate products, such as chemicals for local manufacturing of petroleum derivatives. We can also see this contributing to tax revenue of national and sub-national governments,” Adedipe said.
Adonri said the decision would reinforce investors’ confidence in the economy and further open up the economy to more investments.
“The decision to sell crude to local refineries in naira makes economic sense. It will justify the decision of promoters to site their refineries in Nigeria based on nearness to raw material source and proximity to market. Naira is the sole legal tender and medium of exchange in Nigeria. It was indeed a misnomer to request for hard currency to settle transactions between domestic economic elements.
“For the buyer and seller, use of local currency will eliminate currency or forex risks. It will also eliminate currency transfer costs. It will increase the ease of doing business by the refineries since they sell their products in naira and can now buy their raw material in naira. The new policy can reduce cost of production and hasten the time to market by producers. This major leverage to the refineries can curb occasional scarcity of petroleum products, boost the economy and reduce inflation,” Adonri said.
Umar said the decision has shown that the president deeply understands the dynamics of the economic reforms as such decision would benefit several sectors of the economy.
He pointed out that the government has demonstrated its belief in the domestic economy to pull through to greater development.
He added that the decision of the Dangote to list its shares on the stock exchange would ensure that the wealth creation from such supportive decision is generally available to all Nigerians.
He urged Alhaji Aliko Dangote to reciprocate the president’s gesture by increasing his investments in the domestic economy.
Balogun said the policy could significantly strengthen the naira.
According to him, by transacting in naira, the demand for dollars by local refineries will decrease, potentially easing pressure on Nigeria’s foreign exchange reserves. This could help stabilize or even strengthen the naira, provided the supply of dollars into the market remains consistent from other sources.
He noted that reduced dependency on the dollar for domestic transactions could also lead to less exchange rate volatility.
“A stable naira makes it easier for businesses to plan and forecast, which is essential for economic growth,” Balogun said.
Idakolo said it was the best decision for domestic growth and economic stability.
“It is one of the best decision that can help the government save billions of dollars and also retain the much need forex in our system. It can also lead to cheaper fuel that must also be sold to oil marketers in naira by all the local refineries. If properly implemented it will prove to be a game changer in the downstream sector of the economy,” Idakolo said.
Also, Musa lauded Tinubu over the directive, noting that by the decision, the president has reduced dependence on foreign exchange.
“I would like to commend President Bola Ahmed Tinubu, for his forward-thinking and impactful decision to approve the sale of crude to local refineries in Nigeria using naira. This strategic move is a significant milestone in our nation’s journey towards economic self-sufficiency and stability.
“By allowing transactions in our local currency, this policy not only strengthens the Naira but also reduces our dependency on foreign exchange,” Musa said.
The Arewa Think Tank (ATT) said the policy directive showed Tinubu is a listening leader, noting that the naira-for-crude policy is one of the several impactful policies the president had taken in recent period.
ATT said the policy will save the country billions of dollars used in importing refined fuel and contribute significantly to social stability.
“We want to use this opportunity to appreciate Mr. President for the establishment of North-West Development Commission. It is indeed a good initiative for the development and progress of the region.
“We equally want to thank Mr. President for similar establishment in the South-East region. This shows that he is carrying every part of the country along irrespective of political differences.
“Kudos also to Mr. President for signing the minimum wage of N70, 000 into law without delay. This is part of signs of many good things coming the way of the people of our great country, Nigeria,” ATT, which coordinates other CSOs, stated.
[TheNation]