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Implications of the siting of the Dangote refinery in the export tariff zone, by Boniface Chizea

Dr Chizea

Recently, there is a trending argument about the implications of siting Dangote Refinery in the Export Processing Zone (EFZ). The crux of this argument is that the location of the refinery in the EFZ will actually have the same effect as any other refinery outside the country. And that expectations that the commissioning of the refinery will have an impact on the price at the pump may not come true. We must therefore be prepared for a possible reaction from a large part of our population. It was then advised that we continue to focus on setting up refineries outside the free zone to control the fallout from this development. But I think that’s a superficial reading of the situation. In fact, I disagree with this perspective.

I now invite you to come with me so that we can explore trends in my thinking on the matter. Refinery is in Nigeria for shouting out loud and this would automatically reduce freight, insurance, handling and demurrage costs due to port operations and even land transport costs not to mention the transition costs the country bears now recklessly while importing refined products. Why would this not affect the price of fuel at the pump if such costs are no longer incurred?

If the refinery sources crude from Nigeria, the substantial additional costs due to the lower exchange rate will be eliminated. Even if the refinery insists on selling to Nigeria in dollars due to its location, Nigeria will in turn demand that its crude be paid for in dollars and there will automatically be a reversal effect from a rate impact perspective. change on existing price levels.

Next, we have to remember that importing fuel has priority right over the available currency supply at around 30%! If this demand pressure subsides, we should expect a strengthening of exchange rates which will contribute significantly to the achievement of hitherto elusive microeconomic stability, which no doubt must have an effect on prices at the fuel pump. Such a development is also expected to have a positive impact on the inflationary spiral to moderate the unprecedented price escalation of almost all products and services in all sectors of the economy.

We should also recall that we have been told that, unsurprisingly, the country has taken a 20% equivalent stake in the refinery and will therefore be entitled to a seat on the board. administration to ensure that the interest of the country is not compromised and this will add to the expected returns to the Treasury as dividends are declared and paid.

There will also be a tremendous opportunity to hire Nigerians as part of the workforce. Such a development would contribute to easing social tensions in the country with consequent positive effects on the level of crime and the tendency towards crime. Therefore, in summary, I cannot imagine how the refinery can get off the ground without it having a huge positive impact on our fiscal space in the country. I appreciate and understand the need not to exaggerate expectations, but it is incorrect to push the arguments as is currently done as it simply does not reflect informed reality. We are, however, looking forward to the Dangote refinery being commissioned as soon as possible before frustration sets in. Shalom.

Boniface Chizea is an economic consultant