April 24, 2024/CSL Research
Yesterday, there were reports that the Dangote Petroleum Refinery has once again slashed the prices of diesel and aviation fuel. Diesel now sells for N940 per litre, while aviation fuel is priced at N980 per litre. This marks the third significant reduction in diesel price within a span of less than three weeks. Initially selling at N1,700, there was a significant drop to N1,200 and then N1,000 before reaching the current rate of N940.
Diesel, a crucial fuel for generators and trucks, has long been a source of concern for numerous manufacturers and businesses due to its high cost. The revised price of N940 applies to customers purchasing five million litres and above from the refinery, while a rate of N970 is set for those buying one million litres and above. According to the company, the new pricing strategy reflects the company’s dedication to alleviating the economic challenges faced in Nigeria.
In a separate but similarly positive development, the federal government recently announced the introduction of a N200 billion Presidential Intervention Fund (PIF) specifically tailored for Micro, Small, and Medium Enterprises (MSMEs) as well as manufacturers across the nation.
Doris Uzoka-Anite, the Minister of Industry, Trade, and Investment, unveiled this initiative in Abuja. Under this program, the Minister detailed that N75 billion will be earmarked for MSMEs, while an equal amount of N75 billion will be allocated to manufacturers.
The manufacturing sector was rattled by troika factors in 2023. First, the 49% (June December 2023) currency devaluation by the CBN and FX scarcity dampened the import capacity of the manufacturing sector. For context, we note that about 60.0% of companies on the NGX30 have significant FX needs either for import or foreign debt services. In fact, FMCGs (over half of the manufacturing sector) were badly beaten, with many of the listed players recording a negative equity position after the devaluation.
Secondly, in 2023, interest rates reached unprecedented levels, leading to elevated finance costs for numerous manufacturing companies. Additionally, the high borrowing costs significantly constrained the expansion of manufacturing activities. Thirdly, inflation introduced an additional layer of pressure, as diminished purchasing power resulted in lower sales volumes and output.
At the start of 2024, we noted our optimism around the manufacturing sector, largely stemming from the commencement of the Dangote refinery. In addition, we saw legroom for higher oil refining, as the 60,000 barrels Port Harcourt Refinery was anticipated to come on stream in the first quarter of 2024.
Also, mechanical completion of the 125,000 barrels Warri Refinery was slated for Q1-2024 and operation was to begin fully in Q2-2024, though we remain quite sceptical about the ability of these refineries to produce given several previously failed resuscitation attempts. Though manufacturers still face enormous challenges, the reduction in the price of diesel and the intervention fund should bring some respite. We forecast 2.01% GDP growth for the sector in 2024 from 1.44% in 2023.
