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Nigeria Crossroads When Refinery Output Reaches Capacity. - Politics - Nairaland

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Nigeria Crossroads When Refinery Output Reaches Capacity. by 19naia(m): 7:47pm On Oct 15, 2020
I am not sure if this is exactly political, but it will be eventually.

When Nigeria starts refining all the local crude it needs to fuel its transportation and other needs, it will make a tremendous economic change.
Nigeria will keep billions of dollars circulating internally rather than paying it out to Europe and beyond.

Then again, a lot of the crude oil refinery money will be paid out to foreign investors who brought their money in to build up Nigerian production capacity. But that will end one day when debts are paid.
Another cost will be paying the foreign makers of refinery equipment and service equipment, and it is a cost that will remain perpetually as the refineries need perpetual upkeep, rebuilding and expansion.

So, much of the foreign reserve$ from crude sales will stay longer in Nigeria. But will raw crude exports go down as a result of Nigeria refining its own crude? Places that bought Nigeria crude and sold it back to Nigeria as refined fuel, will no longer buy that portion of crude.
Dangote and other refineries will buy it? Yes.
Nigeria refinery workers will be paid from sales of refined crude products. Foreign manufacturers will be paid much more than Nigerian workers. Foreigners paid to supply the equipment the refinery uses.
What amount remains after investment loans are paid?
Is it enough to make a real economic impact? Added jobs for Nigerians is a good measure.

Eventually, loans will be paid. Then what?

The main plan has always been to stop Nigeria’s revolving door of crude sales income where it comes in and goes right back out to buy refined crude which then sells with less gained than the original sales of crude.
When the plan comes full circle, to keep the crude export dollars in Nigeria, it will secure Nigeria’s foreign reserve standing and that in turn will make US dollar exchange cheaper to the Naira.

What happens when the dollar value goes down in Nigeria? It is good for the Naira but will it be good for market where Nigerians are not known for lowering their prices for any reason?
When Naira value goes so high next to the dollar, and people are still paying a thousand+ Naira for a day's worth of meals, what happens to the economy?
Maybe not so bad as long as people are still making 18 thousand minimum wage? Yes but that exchange rate will make it favorable for importers to bring in food from poorer countries and sell much cheaper for Naira that then gets exchanged for dollars that leave the country to pay the food producers in poorer countries.
It will become a situation that once again drains Nigeria of foreign reserve, unless the imported food comes from neighboring African countries that will accept Naira paid to them in their countries. They will use that Naira to buy Nigerian refined crude? Yes Benin republic would.

Still, Nigerians will crave imports from Europe, America, South America and Asia. Foreign reserve will go out and Nigerians will buy imported food for cheaper than local produce that still wants to sell at prices when Naira was #380-$1. Even after Naira returns to #100-$1... They will want to sell high.
It will eventually come full circle and cause Naira value to fall again and also maintain a reputation of instability that discourages neighbouring African countries from accepting Naira for goods they export into Nigeria.
It will all add up to keep the Naira value low.

People will then find out that the single biggest factor in Nigeria currency value is not the sale of Nigeria crude oil for US dollars, but the internal market culture of price gouging and refusal to lower prices when the Naira value goes up next to the dollar. They will probably ignore it and look for another scape goat to frame and deal with.

Crude oil on the global market goes up and down based on production. So i am sure Nigeria will bring petrol prices down as production goes up.
But without production going up on other market goods, what will bring those prices down?

Refined crude oil production increase alone, is not enough to drop prices for the entire market of all things sold in Nigeria.
Food production must increase to bring prices down.
Housing and land is the most limited factor and eventually that will be the main focus for government subsidies in the future of Africa’s most populous nation. Land does not multiply, especially where more of it is being raked up for farms and refineries and other industry.

This whole crude oil focus, with big plans to change the economy through refineries alone? It looks good and sounds good especially when looking at it on paper and investor’s perspective. A lot to gain, but not in the full scope of the bigger economy picture.
The hopes of bringing the Naira value up to nearer the dollar, is going in the right direction with Nigeria refining all of its own crude oil needs and then selling refined oil for export. But as big a share of Nigeria market value that it is, it is not the foundation of the country.

There is no country on a foundation that cannot afford to feed itself. People collapse without affordable food, and as people collapse, so does the nation that people breathe life into.
Will the market prices adjust to the economic stimulus that Nigeria refinery projects bring to Nigeria economy?

What else? People fuel their cars, not just to be driving. They drive to work where they work with resources that cost money and have a price.
They drive to market where they buy household resources that cost money and have a price.
They drive to schools where they use resources for learning, and that costs money and has a price.

Will all these costly things with their prices, adjust prices down if the Naira value goes up to near the dollar?

Imagine the oil and refinery market bringing the Naira to equal the value of the dollar. Will i then be able to go to the Bukka and pay 5 Naira for a full meal and drink? Will i then be able to rent a 3 bedroom flat in an average area, for 15 thousand Naira a year?
And the list goes on. 20 Naira for a new shirt? And the same for the pants and a pair of modest shoes?

Which marketeer do you know, ready to bring prices that low if Naira equals one US dollar? Only the ones who import the goods from Asia and south America.
They will all be willing to drop your salary amount on account of the high Naira value, but not the cost of living.

And that is why south America and Asia will end up the main beneficiary of a high value Naira. People will buy imported, using Nigerian foreign reserve of US petrol dollars.
Government will likely clamp down on import flow to keep local production alive. But it will not be enough because Nigeria simply does not produce enough to service the standard of living Nigeria attempts to live.

What can Government do? Government should do price controls as the Naira gains significant value.
Also subsidized housing and land appropriation will be needed as population rises where land area does not increase.

Another option is to forget about the Naira value. If market people won’t lower prices, let the Naira value stay low by the doings of price gouging.
A low Naira value is actually good for Nigerian exports. People want high Naira value because they live off of imports.
But when they rise to business of exporting to other countries, they can sell well when their Naira value is low and cheap for the foreign customers looking to buy.

More important the Naira value represents what Nigeria wants to be. A seller to the world, bringing in buyers and their money from abroad.
No coincidence that Japan has a low currency value while being a rich country and a super producer of some of the top quality products in the world, and a big world-wide exporter of goods.
Japan cars are a hit all over the world. And their currency is ¥100 to $1.
Why do Nigerians want 1 Naira to equal 1 dollar, when Japan Yen equals 100 to 1 dollar? Because Nigerians want to import and do no work to produce or export.

The time will come, after the refinery business in Nigeria starts to make a big improvement in Nigeria economy. It will then shift the foreign reserve problems into something favorable for the Naira. But the Naira can only be as stable in any position as the market sellers allow.
Not just the people exchanging currency, but the sellers of farm produce and other wares made in Nigeria.

Crude oil and foreign reserves are not the foundation of Nigeria and the economy of Nigeria. Most petrol burnt in Nigeria, is not burnt for the glory of crude oil profits.
It is burnt to transport people and goods. Lots of agriculture goods and the other goods that are the true pillars of any human congregation under nationhood. Even if the fuel is burnt for electricity and pumped water supply, it still relates to produce and consume agriculture and then the tendering of other goods and services that range from education, medical and government.

The cross roads will come one day, and people will have to decide if they want a high value Naira or a market culture that works for Nigeria economy that works reasonably for the people.
It is not any more serious or trivial a problem, than making the right decision while not ignoring the root of the problem.


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