Saturday, 13 October 2012


It will be interesting to note that as I write this article to post on my web page, I depended on a generating set fueled by petrol to get it posted on the Internet, while it would have cost me next to noting if I had constant electricity supply from the national gird to power my home. Well for your information, it cost me 10 U.S dollars using premium motor spirit (PMS) imported into the country even when Nigeria is blessed with the natural resources at no cost.

                                                  Cars queue at a fuel station in Cairo Egypt
A vibrant economy that has some control over inflationary trends depends on the consistent supply of energy to both the household and the industries alike. And without energy supply to the two sectors; development and advancement of the society will be at a comatose. The society will be dependents on factors outside its control and its territory to survive which will lead to a total collapse of the entire economy. The circular flow of all modern economy with its relation to economic development and increase in per-capital income of its people is based and dependent on the increase and demand of the energy needs and supply of the nation. Economic development and its currency stability to other world currencies are tied to the amount of energy generated and distributed to the industries and household. This makes it simple to understand why increase or decrease in the cost production by industries has a relation to the price of goods and services in the economy and the stability of its currency.
Increase in the price of crude oil in the world markets, increases the production cost of industries in many developing nations due to their dependency on factors outside their control and this in effect affects the growth of the economy negatively cascade in relation to the profit margin of the industrialist and the purchasing power of the household. Governments in developing nations have so much relied on oil imports to generate energy for their local industries and household and they have neglect other energy sources to power their economy which would have reduced their dependency on international factors that determine the price of oil through demand and supply which is not within their control. Even when some among them are blessed with the oil and gas resources it has been difficult for them to take a good advantage of it.

Cost of using petroleum powered generating plants in a country like Nigeria has increased tremendously over the years and it seems there is no stop to it. Generators that power industries in order to produce its desired output play a significant role as a source of inflation in the local markets which in turn is a determinant of the purchasing power and the saving capability of the population. Fuel consumption by the Nigerian household is at its highest level since the year 2009 due to epileptic power supply from the national grid which is controlled by the Power Holding Company of Nigeria (PHCN). Nearly every household has a generating set to power their homes at night when they return from work and even at work the same fuel powered generating sets are used as source of power to operate their businesses. The increase in the price of petroleum products by the government of Goodluck Jonathan in the early days of January 2012 which led to a nation wide strike by the nation's labor unions and other civil societies has increased the cost of living and diminished the standard of living which has thrown many back into poverty which the middle class technically escaped during the Olusegun Obasanjo administration.

A good example is the neglect to Invest in various power sectors by previous governments in Nigeria and that is now having a serious catastrophic effect on its population and the growth of the economy. The billions of dollars invested in the energy sector  by the democratic administration from 1999 till date has been shrouded in massive corruption and has drawn the nation backward due to wastage of the country's financial resources which was in the hands of corrupt officials. The nation has not been able to attain the 4000 megawatts of electricity which the last military regime left in 1999; instead it has led to more reduction in the number of megawatts. The ruling Peoples Democratic Party (PDP) that has been in power since May 29, 1999 has not been able to achieve a substantial result in the energy sector after 13 years in power which should have reduced the nations dependency on the high price of imported fuel consumption and bring about a change in industrial development and its operations from the sluggish nature which has led to the shutting down of many industries across the nation.

The increase and fluctuation in the price of crude oil in the world markets affects many developing economy and in return increases the price of goods and services which has led o inflation in many local economies around the world. Many never knew Inflation played a role to trigger the Arab revolution and was not only all about political change but economics. Developing economies should know that foreign direct investors look into the prospects of a country's energy sector and the alternatives in diversifying to determine its investment portfolio in the country. FDI’s can not venture into economies that the cost of production is high and where there is no stable power supply, it would rather prefer to direct its investment to nations where power supply is stable at its lowest cost. This is the reason why countries like Ghana, South Africa and Egypt have greater advantage and chances of attracting more foreign investors among developing nations than Nigeria. Even though, Nigeria has the market and the population when it comes to investment destination, it is more expensive to do business in Nigeria due to its epileptic power supply and inadequate infrastructure which increases the cost of production.

Developing nations must invest much of their political will in various energy sources if they want to develop quickly and reduce inflation that are imported from other countries, dependency on imported petroleum fuels must be drastically reduced for solar, hydro, nuclear wind, thermal and gas powered turbines for rapid development and economic growth. Investment on these alternatives source of energy will increase the national income of these poor nations of the world which has geometric population increase. It must prepare diverse energy sources for its coming generation to avoid being trapped with the oil economy that causes inflation. But for now more hand has to be on deck for developing nations in the 21st century to industrialize its economy which will reduce sky rocketing inflationary trends based on importation of goods and services.

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