The recent comments by Edo State Governor Monday Okpebholo comparing petrol prices in Nigeria to those in the United Kingdom have sparked a heated debate. Okpebholo stated that Nigerians are "doing very well" because petrol costs more in Britain after conversion to naira. However, economists argue that this comparison is flawed, as it fails to consider income levels and purchasing power. A litre of petrol in the UK costs around £1.74, which is equivalent to over ₦3,000.
The governor's arithmetic may be correct, but it overlooks the significant differences in income levels between the two countries. In the UK, the National Living Wage for workers aged 21 and above is £12.71 an hour, while in Nigeria, the national minimum wage is ₦70,000 per month. This means that a UK worker earning the minimum wage needs only a small fraction of an hour's pay to buy a litre of petrol, while a Nigerian worker earning the minimum wage faces a much higher affordability burden.
A litre of petrol costing ₦1,400 in Nigeria represents about 2% of the entire monthly minimum wage, while filling a 50-litre tank would cost effectively an entire month's statutory minimum wage. In contrast, a 50-litre tank in Britain costs roughly £87, which is a much smaller proportion of a UK worker's income. Economists argue that purchasing power is the missing mathematics in this comparison, as prices do not exist in isolation but in relation to incomes.
The cost of fuel in Nigeria has a multiplier effect on the economy, as it is not just a transportation expense but also a critical component of electricity generation, logistics, and commercial activity. When fuel prices rise, the costs are passed on to consumers, affecting the prices of food, transportation, production, and services. Recent reporting shows petrol prices around ₦1,400 per litre in Lagos and Abuja, with variations across locations, while diesel has moved above ₦2,000 per litre.
The Nigerian petrol-price debate cannot be reduced to a simple comparison of fuel prices, as it has far-reaching implications for the economy and cost of living. Renewed fuel-price increases are adding to cost-of-living pressures in Nigeria, and economists argue that policymakers must consider the broader economic picture when making decisions about fuel prices.
International comparisons can be useful, but meaningful comparisons require comparable indicators such as average disposable income, transportation costs, electricity costs, and public services. A Nigerian household that spends heavily on private healthcare, alternative electricity, transportation, and security cannot be assessed against a British household merely by comparing fuel prices.
Ultimately, affordability is measured against purchasing power, not currency conversion alone. The weakness in the comparison between Nigeria and Britain is exposed when considering the proportion of income spent on fuel, rather than just the nominal price. As economists argue, a high nominal price does not automatically translate into low affordability, just as a lower nominal price does not automatically mean affordability.
Key points
- Economists argue that purchasing power and income levels must be considered when comparing fuel prices across countries.
- The cost of fuel in Nigeria has a multiplier effect on the economy, affecting the prices of food, transportation, production, and services.
- Affordability is measured against purchasing power, not currency conversion alone.
