Small businesses hurting from recurring fuel scarcity in Nigeria

Ilorin, Nigeria – For Mustapha Arinakore, life as a tricycle rider plying his trade in the central Nigerian city of Ilorin depends largely on petrol. But getting the fuel he needs to power his tricycle has become a rather difficult task in recent weeks because of a continuing scarcity nationwide.

Unable to call in favours from fuel attendants and finding it hard to stay in a queue for several hours, he has turned to the black market. There, a litre goes for 500 naira ($1.20) instead of the official price of 165 naira ($0.40) and that squeezes his tiny profit margins even further.

“We buy at an exorbitant rate and it is almost impossible to increase the fares because most of the passengers cannot afford it,” said Arinakore who told Al Jazeera that he got his tricycle on hire purchase and therefore has to meet his daily payment.

When he is lucky to find a petrol station selling, he must pay a series of bribes; first to those manning the gates and then to those operating the nozzle.

Nigeria, Africa’s largest oil producer and one of the world’s largest exporters, has barely any refining capacity for the estimated 1.6 billion barrels it produces daily. Its colonial-era refineries are in a moribund state, leaving the country with no choice but to export its crude oil and import refined petroleum products for daily use. Subsidies, amounting to billions of naira, are paid to fuel importers to make this happen.

Too often, the dynamic is upset and fuel scarcity ensues every other year – for decades – and sometimes lasts for months. Since early February, another episode has been under way, causing endless frustration once again for Nigerians.

A statement by the regulatory authority specified that the current shortage is due to the discovery of 100 million litres of imported petrol in the supply chain with “methanol quantities above Nigeria’s specifications”, leading to an emergency withdrawal of unnamed volumes of the product.

The consequences have been manifold. Across the country, millions of people are spending hours daily on queues jostling for the meagre fuel in circulation. According to local media, 136 vehicle engines were reported as damaged by the contaminated fuel in the first week of February alone.

Given the country’s notorious energy deficit nationwide, everyone has also been affected, especially small business owners like Arinakore.

“The running cost of small businesses shoots up significantly when there is a scarcity,” explained Ikemesit Effiong, head of research at SBM Intelligence. “Oftentimes the biggest or second-biggest cost in running a Nigerian business is energy. You are looking at a situation where some businesses are shut down just because black market fuels are insanely expensive.”

Local media have reported passengers being stranded on highways and an increase in other mishaps. In February, nine people, including a pregnant woman and university students died in a fire accident triggered by the kegs of petrol in his bus.

A ripple effect

Buhkari Abdulrasaq, a shoemaker whose workshop is located in a sprawling student community in Oke-Odo, Ilorin, has not bought been able to buy fuel since the scarcity began, so his productivity has taken a hit.

“For some time now, I have been unable to work properly because I have difficulties fueling my generator,” he said, pointing at a dusty medium-sized 1.3kVA Elepaq generator at a corner of his shop. “The electricity in the area is also bad. The electric authority … most times, they restore power around 10pm when I would have closed for the day.”

His struggle has been compounded by the increase in the cost of materials and transportation and that eats into his profits. “When I go to the market, they tell me the cost of things has increased because of the fuel scarcity,” he said. “May God help us.”

Nowadays, Abdulrasaq has been getting to his workshop as early as 8am to work for a few hours before the power cuts from the Ibadan Electricity Distribution Company, the distributor responsible for his area, in the morning.

The ripple effect of the scarcity is also affecting women, who run many of Nigeria’s small businesses and support their families, especially those who work as hairdressers, tailors or own provision and cold food stores.

“Families can no longer preserve their food which means women are cooking more often because there is incessant lack of electricity and no fuel to power generators,” Nnennaya Enyinna-Eneremadu, the executive director of CARA Development Foundation, a nonprofit working with women and girls.

Enyinna-Eneremadu added that some school girls are now unable to afford the increased transport fares and that exposed them to dangers as they trek home. “That child could have been kidnapped, raped or molested as she has been exposed to an environment she does not understand.”

A radical overhaul

“Because we import these things [refined fuel] in batches, this issue is going to last only for a month”, said Olaniyi James Ogunleye, team lead at Carbon Limits Nigeria, a Lagos-based energy consulting firm. “We’ve already had about three weeks of it. By the end of the week, we should begin to see respite.”

To stop future occurrences, experts said a radical overhaul of the entire architecture around fuel consumption in Nigeria was needed. That would include improved inspection standards by the regulators and the removal of subsidies, one of a few ways Nigerians benefits from the country’s oil wealth, to help stabilise consumer prices.

“It is becoming increasingly difficult for the government to continue to subsidise so we have a situation where the subsidy framework breaks down either to quality issues or arguments within the government and that causes fuel scarcity,” said Effiong. “Nigeria has one of the cheapest oil rates and even if the subsidy goes off, it would still be really cheap.”

In recent years, Africa’s richest man Aliko Dangote has been working on what is billed as the largest single-train refinery in the world, with a projected output of 650,000 barrels per day. Upon completion later this year or in early 2023 if plans remain on schedule, it will provide a strong domestic option for refining petroleum products for Nigeria’s use.

But Ogunleye is pessimistic about it being a permanent solution to the country’s recurrent fuel scarcity issues.

“I think we probably would have solved the problem of availability but that doesn’t change the problem of the right price of petroleum in the market,” he said. “We would still have the situation where the government [might] have to subsidise Dangote.”