- Says fuel subsidy makes e-vehicles unattractive in Nigeria
The World Bank has projected that inflation may hit 25 per cent in 2023 as a result of petrol subsidy removal.
This projection was contained in the June 2023 edition of the Nigeria Development Update.
However, the Washington-based bank noted that although there will be a significant increase in 2023, headline inflation will fall by the first quarter of 2024.
The report read, “The removal of the petrol subsidy is anticipated to cause a temporary increase in inflation in the upcoming months before contributing to disinflation in the medium term. The price increases resulting from the subsidy removal will have a one-time impact on prices, primarily affecting petrol purchases for transportation, power generation, and certain services.
“Headline inflation is expected to rise from 18.8 percent in 2022 to 25 percent in 2023. However, by Q1 of 2024, the subsidy removal will start to have a disinflationary effect, meaning that it will alleviate inflationary pressures despite higher petrol prices.
“This is because the subsidy removal creates additional fiscal space and reduces reliance on financing from the CBN, curbing growth of the money supply. To limit the risk of so-called second round effects, where one-off price increases trigger more generalized inflation including through wage-price spirals, it will be important to adopt macro-fiscal policy settings that are conducive to price stability.”
The National Bureau of Statistics recently disclosed that inflation in the country rose to 22.41 per cent in May, which is the highest in about 19 years.
The World Bank report also noted that consumer price inflation has surged and is currently one of the highest globally, which is related to Nigeria’s fiscal imbalance and points to the urgency of reform efforts.
It added that the CBN implemented measures to control rising inflation, including raising the monetary policy rate by 700 basis points, but these proved ineffective and monetary policy remained loose overall in the first half of the year.
The bank added, “The loss of purchasing power from high inflation has increased poverty in the short-term, pushing an estimated 4 million Nigerians into poverty between January and May 2023.”
The Washington-based lender also said about 7.1 million poor Nigerians would become poor if the Federal Government failed to compensate or provide palliatives for them, following the removal of fuel subsidy.
In another report, the World Bank has said the decision by the previous administration to subsidise the price of petrol hindered the development of e-mobility and use of alternative vehicles, like electric minibuses, two-wheelers and three-wheelers.
The bank in a document titled ‘E-Trans-Electric mobility and transition in Nigeria: Strategy and implementation’, published to facilitate dialogue on urban and rural clean energy e-Mobility strategies that reduce air pollution and greenhouse gas emissions, stated that the funding gulped N4.39trn in 2022.
According to the bank, e-mobility is a general term for the development of electric-powered drivetrains designed to shift vehicle design away from the use of fossil fuels.
It said, “Nigeria devotes significant funds in excess of N4.39trn in 2022 to subsidise transportation, but unfortunately, this funding serves precisely to discourage the development of mobility.
“The subsidisation of petrol discourages the take-up of alternative vehicles such as electric minibuses, two-wheelers and three-wheelers amongst other alternative sources of e-mobility.”
The World Bank stated further that with the removal of fuel subsidy, the introduction of e-buses should be supported by subsidy and financing solutions to offset the high upfront cost, the electricity should come from renewables where possible, the extent of private involvement should be decided at the outset, and commuters should be encouraged to use e-buses.
The Bretton Woods Institution added, “Regulations to enact policies will also need to be developed, mostly at the federal level, adapting the tax regime and permission framework for importing new and used vehicles and instituting new framework drawing from international experience for safe storage, recycling and disposal of batteries and e-waste associated with e-vehicles.
“The long-term vision calls for the expansive adoption of mass transit systems such as the Rail and Bus Rapid Transport to reduce the number of commuter vehicles on the road and curb emissions and encourage the acquisition and use of zero-emission vehicles such as electric cars and buses.”
