The Petrol Paradox: Understanding the Real Cost of Fuel in Nigeria
By Muhammed S. Ibrahim
For some time, the price of petrol in Nigeria has been a subject of heated debates. Some insist that Nigerians enjoy some of the cheapest petrol in the world while others argue otherwise.
Supporters of the claim of cheap petrol almost always rely on comparisons like: A litre of petrol in Ghana costs $0.95, in South Africa $1.19, in Zambia $1.47, in Benin $1.13, while in Nigeria, it is only $0.67. On the surface, these figures may suggest that Nigerians enjoy lower petrol prices. But is this really the case? Does the dollar price alone truly reflect how affordable petrol is for Nigerians?
This write up challenges the idea that dollar-per-litre comparisons tell the whole story.
By looking beyond these numbers, we see what cost really means for Nigerians and why the argument about “cheap petrol” is fundamentally flawed.
Limitations of Dollar-Per-Litre Comparisons
First, dollar-per-litre comparisons may seem like a convenient way to measure petrol prices, but they oversimplify complex realities by overlooking significant differences that determine the true cost for consumers.
For example, in dollar terms, a litre of petrol costs $0.67 in Nigeria, $0.95 in Ghana, and $1.19 in South Africa, which might make it seem like petrol is “cheaper” in Nigeria at first glance. However, earning a dollar in Nigeria is not the same as earning a dollar in Ghana or South Africa – or anywhere else. With Nigeria’s weak currency and low wages, earning a dollar requires a lot more labour and time. For a South African or a Ghanaian who earns in stronger currencies with higher purchasing power, that same dollar has far less impact on their affordability.
Another limitation of the dollar-per-litre comparison is that while, for example, $1 might buy a full meal in Nigeria, it would not buy even a cup of coffee in the UK. This is why the economists always use what is called the Purchasing Power Parity (PPP), a concept that expresses economic measurements by accounting for what a dollar can buy in different countries. In fact, even the IMF and World Bank recognise the importance of standardisation of rates using the PPP.
For example, the World Economic Outlook (WEO), a publication of the IMF often compares GDP, inflation, trade, and financial trends using both nominal and PPP-adjusted metrics to provide a more accurate comparison of economic well-being across nations. As such, nominal petrol prices expressed in dollars are misleading because they ignore the varying purchasing power of currencies and distort affordability.
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Thirdly, income levels across countries reveal another flaw in dollar-per-litre comparisons. In Nigeria, the national minimum wage is ₦70,000 per month, equivalent to about $42. So, a Nigerian minimum wager earns roughly $1.33 for a full day’s work, in contrast to his counterpart in the United States, who earns $58 for a full day – 43 times higher! In South Africa, the daily minimum wage is about $12.1 – nine times higher than in Nigeria! Therefore, it defies economic logic to claim that petrol in other countries costs more dollars per litre than in Nigeria, especially when earning a dollar in those countries is 9 to 43 times easier. Therefore, the overreliance on dollar-based comparisons obscures what the people really go through.
Finally, subsidies on basic services like water, electricity, and education have been drastically reduced or even stripped away in Nigeria, compared to these countries. Even banking fees, Telco charges, and rising taxes further eat into the already meager incomes. Meanwhile, a 5% tax on all postpaid and prepaid services is in the offing. The cumulative effect is that petrol, even at $0.60 per litre, is far from cheap for most Nigerians.
The Real Measure of Cost is Affordability
The real measure of cost is affordability because it reflects the true burden a price places on individuals, accounting for their income levels and economic realities. In economic terms, affordability is not about nominal prices but about what it takes to earn enough to buy a product. Therefore, for any commodity, a meaningful measure of its cost will be the hours of work needed to purchase one unit.
Consider this: In Nigeria, where the minimum wage is ₦70,000 per month, a worker earning ₦437.50 per hour needs 26 hours of work to fill a 10-litre bike tank at ₦1,150 ($0.60) per litre. By contrast, in South Africa, where the minimum wage is R4,412, a worker earning R25.22 per hour requires only 10 hours of work to fill the same tank even if it is priced higher at R21.3 ($1.19) per litre. This means that, in real terms, the cost of petrol is 2.6 times higher in Nigeria than in South Africa when the prices in both countries are adjusted for wages. The disparity is even clearer when we turn to Egypt, where the minimum wage is 6,000 EGP per month. There, it takes just 3½ hours of work to afford a 10-litre tank, meaning petrol is 7½ times costlier in Nigeria than in Egypt.
Again, these comparisons reveal the significant burden on Nigerian workers, where the apparent “cheapness” of petrol disappears when measured in terms of labour, time, and income.
By considering the wage differences and working hours across countries, this metric reveals a more accurate reflection of the true cost to consumers, beyond the simplistic nominal prices. Ultimately, the real measure of cost lies in affordability – how easily an average person can purchase the commodity without catastrophic strain on their livelihood.
Conclusion
Affordability is not about nominal prices; it is about the labour required to earn enough to purchase the commodity under consideration. For Nigerians, relatively stagnant wages, tax proliferation, limited social protection, and devalued naira make even the so-called cheap petrol unaffordable. Our policymakers must go beyond surface-level debates and tackle systemic challenges through means like raising incomes, creating jobs, and ensuring equitable access to basic services like health, education, and electricity. True affordability would only come from policies that are based on the realities of the people, not nominal prices.
Muhammed Sani Ibrahim is a Professor at Department of Community Medicine, Ahmadu Bello University, Zaria.
