The Danger of Dangote Buying Crude With Dollar

BY MS Ingawa

 The implication of Dangote Refinery buying crude in dollar is that there will be significant rise in dollar demand by the refinery for the crude transactions which is on daily basis. 

• Dangote group has no dollar inflow from other sources that will match the dollar demand for the crude purchase except for them to sell refined products in dollar in order to generate adequate forex for the crude transactions. That’s why they announced selling refined products (including PMS and AGO) to their customers in dollar.
• Now the customers too, most of which have their receivables in Naira, will have to source for dollar from wherever to enable them purchase from the refinery. And that will only be from open market. This will amount to increased dollar demand as PMS is the single most demanded product in our daily lives. 
• And because the forex supply in the market is not adequate enough to service demand from PMS marketers as well as other forex demands, the supply-demand gap will result in additional pressure on Naira thereby making it loose value against the dollar.
• The lower the value of Naira, the higher the prices of commodities rated in dollar. PMS is one of the major products rated in dollar and one that will immediately be affected by this economics. The higher the forex rate, the higher the prices of refined products. 
• If FG (through NNPCL) fails to resume Crude-In-Naira transaction with local refiners, three things will eventually happen; a. The Naira will loose it’s value after regaining for about 5 consecutive months now because of the anticipated pressure coming from dollar demand for PMS transactions between DR and Marketers. b. The PMS and other products prices will go up due to the fall in value of Naira against the dollar since the products are dollar-rated commodities. c. The prices of all goods and services will be affected as everything is either depending on dollar (through inputs) or refined products (through logistics). 
• The Crude-In-Naira transaction is unsustainable (I said it from day 1) but 6 months is not enough for the deal to stop. I advocate for at least 12-24 months to enable stabilization of the economy. The last 6 months have been evident that the deal is yielding the desired results. 8. God help our leaders. God bless the Federal Republic of Nigeria 🇳🇬