The impact of fuel subsidy removal in Nigeria has been felt in every sector of the economy. As various sectors grapple with the resultant price hikes and lower disposable income of Nigerians, TEMITAYO JAIYEOLA examines how this may affect the logistics and mobility sectors of the economy
Everything changed after President Bola Tinubu, said, “Subsidy is gone,” during his inauguration speech on May 29.
Petrol, which was selling for less than N200 in most major cities of the country prior to 2.00 pm on the day of the announcement, jumped to over N400 at the close of business. By May 31, petrol had jumped to over N600 per litre and the Nigerian National Petrol Company Limited released new pump prices for its fuel stations, killing every hope of a policy reversal.
Petrol is the lifeblood of the Nigerian economy. Almost everything rises and falls on it. While it is not the energy source that drives production and manufacturing, it powers mobility, logistics, commerce, and other segments of the economy.
43 per cent of Nigerians (85 million) do not have access to the country’s electricity grid, according to the World Bank. The bank estimates that there are over 22 million petrol generators lighting up about 26 per cent of all households and 30 per cent of MSMEs in the country.
Because of the importance of petrol to the Nigerian population, the government had been subsidising it, ensuring that it was within the reach of the average individual. But according to many economists and multilateral bodies, fuel subsidy had been hurting the country’s economy.
According to the World Bank, the payment of trillions of naira as fuel subsidy was unsustainable.
During a virtual pre-summit organised by the Nigerian Economic Summit Group, the Senior Public Sector Specialist, Domestic Resource Mobilisation, at the World Bank, Mr Rajul Awasthi, said, “There is also a need to reform the fuel subsidy regime, moving towards its full elimination at least by 2024.
“Nigeria needs to roll back the PMS subsidies and adopt the free market price. This is critical for this country. There is also the need to improve revenue from cross-border transactions and other international tax measures.”
There have been conversations about fuel subsidy removal for a long time. Even the immediate past administration set a deadline for the removal of the petrol subsidy but later suspended it. It was no surprise that President Tinubu’s subsidy announcement caused a surge in the price of most services.
Transportation costs have increased by 50–100 per cent; food prices have risen because of this, and there has been a considerable ripple effect across the economy. Perhaps, players that will be impacted most by this new normal are startups playing in the mobility and logistics space.
Mobility startups such as Bolt and Uber are already facing pushback from drivers asking for a 200 per cent increase in fare prices. Logistics firms, with bikes colouring major cities like Lagos and Abuja, are also faced with an uphill task.
Logistics prices rise
The General Manager of Paralex Logistics, Zainab Sadiku, told The PUNCH, “The most important part of our business is fuel, without it, we cannot move. With the increase in fuel price, there is an automatic increase in logistics prices; the amount customers will pay for delivery.”
She explained that fuel subsidy removal had adversely impacted the business, which operates in Lagos and Port Harcourt. Customers are shying away from ordering, and revenue is dropping especially in Port Harcourt, she said to The PUNCH.
Sadiku asserted, “Our company runs operations in Lagos and Port Harcourt. In Port Harcourt especially, people are not willing to adjust to the changes. They feel we should also consider them. However, consideration doesn’t fuel our vehicle. But in Lagos, people have adjusted well. Some people are not bothered about the change, but some are still bargaining for discounts.”
She noted that the firm had increased its price by 40 per cent since the fuel subsidy was removed. When The PUNCH asked her if there were going to be further increases, she said, “Our price increase is only for now. We are likely to witness further increases.”
According to the Chief Executive Officer of Moma Couture, Ganiyu Adebola, relying on logistics services is fast becoming a luxury.
Adebola, who uses logistics startups to deliver her customer’s clothes, told The PUNCH that prices have increased by close to 100 per cent.
She said, “What I used to order for N1,600 is now N3,200. Because of this increase, I either pass the cost to the customer or adopt new ways.
“Instead of going on some journeys before, I used dispatch riders. Also, I used to use dispatch riders every day of the week too. But now, instead of doing that I merge everything I want to dispatch and only do it twice a week. The new behavioural pattern is to limit the orders and use them for bulk orders.”
Idebuemi Faith, who runs an online retail store, explained to The PUNCH, that businesses are now having to bear part of the logistics cost in order to keep their customers.
She said, “Prices have gone up a lot and this is affecting my business. Now, I have to find a way to help my customers too. For instance, the last time I had to deliver, I had to bear a part of the cost to ensure the customer got their goods. Now, places where I used to pay N1,000–N1,500 have skyrocketed to N2500. Now, I have to cover the extra difference on that.”
The owner of Seafa Collections noted that this was not a sustainable approach.
According to her, she has adopted an option that allows her customers to bulk buy what they need over a time period.
Faith said, “I have also started offering bulk buying options. I sell earrings. For instance, you can’t buy one for N1,000, and pay N3,000 for delivery. So, I advise them to continue buying what they need for a while, and when the item accumulates, we can make plans for delivery.”
Many small businesses rely on the logistics sector to cater for the needs of their customers. The sector was worth $584m in 2018, according to the 2018 Logistics and Supply Chain Industry report.
Many experts have said that without logistics, there is no commerce as it facilitates trade, and drives the growth of the economy. However, this sector, which has been struggling to reach its full potential, is now at a crucial point.
The Chief Executive Officer of TruQ, Williams Fatayo, told The PUNCH, “What this will mean to the cost of goods and services that flow through our ecosystem is hard to tell. But it is an impact that will trickle down to everyone.”
Fatayo, who is the co-founder of the firm that uses tech to connect businesses and people to vehicles for their logistics needs, added, “Prices are changing everywhere; we are already seeing it in mobility, where there has been an almost 100 per cent increase in pricing.
“When services become expensive and people who are supposed to patronise the business can’t match the new pricing point, it is expected that you experience a bit of a dip in sales and traction. I am guessing most of the founders in the logistics and mobility space will experience a bit of this.”
Mobility drivers kick
For customers of mobility firms such as Bolt and Uber, petrol subsidy removal means a total change of taste. One Bolt customer, who only gave her name as Tosin, said, “I paid almost N9,000 for Bolt from my house to the office the other day. I am not willing to use them for a while again.”
According to the rider, the trip used to cost her N3,200 to N3,600. Another rider, who gave his name as Percy, said he had to reduce his movement around Lagos because of the surge in prices.
Mary, who relies on Uber to get to church on Sundays, told The PUNCH, “My house to church used to be about N600 and less than N1,000. But now, it is almost N2,000, without a surge. I paid N1,700 last week. My from house to work used to be N1,800, but the last time I checked it was over N4,000.”
Despite this, drivers working with these mobility firms are clamouring for a 200 per cent increase in fare prices and recently went on strike to drive home their demand.
The drivers under the aegis of the Amalgamated Union of App-Based Transport Workers of Nigeria stated in an earlier conversation with The PUNCH that any price review that was not up to 200 per cent would affect the drivers.
The Chairman of the Media and Publicity Committee of the union, Jossy Olawale, said, “When you look at the percentage of increase of fuel price, you will realise that it is ranging between 256 per cent to over 300 per cent.
“This will cause losses to our members. When you compare an increase in fuel price by 300 per cent to the increase by the e-hailing companies, which is only 30 per cent, it doesn’t make any sense.
“What they have been able to do is just buy sentiments that cannot meet the needs of the drivers. With the 30 per cent increase, it means that our members will be operating at a loss of about 200 per cent or thereabouts.”
Since subsidy was removed, both Uber and Bolt have carried out an upward price review. Bolt increased its base price from N650 to N800, and Uber increased from N850 to N1200. But both firms are conscious of the impact of price increases on the consumers of their services.
Speaking to The PUNCH, the Country Manager for Uber in Nigeria, Tope Akinwumi, stated, “Drivers are at the heart of everything we do and we continue to work on initiatives and engage with drivers to help make Uber the app of choice for drivers while maintaining an affordable service for riders.”
Prior to the removal of fuel subsidy, Nigerians spent at least 50 per cent of their income on food, and close to 10 per cent on transport, leaving room for little disposable income, according to numerous reports. With expected increases in food and transport prices and an 18-year high inflation rate, weakening purchasing power, it remains to be seen how customers will adjust to the price changes in the mobility and logistics sectors.
As Sadiku told The PUNCH, “We’ll be able to measure the impact of this move once the month ends.”