Typically, Nigeria’s fiscal position improves when oil prices rise. This economic phenomenon is called the ‘oil boom’ effect. The recent increase in crude oil prices triggered by the war in Ukraine should ordinarily be beneficial to Nigeria’s fiscal position. However, in contrast to past periods of an oil boom, two factors are eating up the opportunities presented by high oil prices.
Whereas households in the bottom 40% of the income distribution account for less than 3% of all gasoline purchases in Nigeria, three-quarters of all gasoline sold in Nigeria is consumed by private firms, public transportation services, and government agencies and a substantial share is smuggled out of Nigeria for resale in neighbouring countries.
Before the war in Ukraine, higher inflation pushed an estimated 8 million more Nigerians into poverty between 2020 and 2021. In 2021, inflation averaged 17%, undermining Nigeria’s economic recovery by eroding the purchasing power of the most vulnerable households. The World Bank projects that the added inflationary pressure emanating from the war in Ukraine could push as many as one million more Nigerians into poverty, on top of the six million already projected before the war.
We fear that the unholy appetites of the elites are fueling citizens’ distrust, cynicism and social grievances. Left unresolved for a longer time, they could crystallise into violent demonstrations and political instability. From catastrophic security experiences to tertiary institutions being closed down due to perennial industrial disputes, mass protests will be a dangerous path for Nigeria.