The Nigerian Petroleum Industry Act signed by the President in August 2021 provided for total deregulation of the petroleum downstream sector to spur investment and growth. Nonetheless, the FG recommended an 18-month extension while the 2023 budget also provided for subsidy until June 2023. The impact of the removal of fuel subsidies has had an unquantifiable impact on petrol dealers since deregulation went into full force on 1st June 2023. The implications for Nigerian Premium Motor Spirit (PMS) traders are significant:
A Shift to ‘Just-In-Time’ Inventory management practices: The elimination of the subsidy and the effective price deregulation means dealer margins become more variable and sensitive to market changes, specifically changes in global oil prices and generally, dealers may encounter difficulties in promptly altering their retail pricing to counteract these swings. This might make it more difficult for dealers to take long-term stock positions.
This is quite a similar pattern to what is observed in comparative deregulated markets where dealers only procure stock quantities they can comfortably sell-off within a 3–5-day period, compared to the 14-day or 1-month stock sufficiency commonly practised during the subsidy regime.
A shift to Credit-Led Supply Chain models:
Going forward, dealers will be required to invest more working capital upfront to acquire PMS at higher costs, which puts a burden on their already stretched financial resources. Delays in B2B or B2C consumer payment processes might worsen cash flow problems. This would necessitate operational changes for filing stations.
To react to the changing market dynamics, dealers may need to rethink their supply chains, pricing tactics and cost management procedures - one of which may be mergers between independent retail stations, particularly those on the outskirts. However, an already rapidly growing trend by retail stations across the country is the adoption of trusted Credit-led B2B e-commerce platforms, to de-risk capital requirements for PMS deliveries.
Latent Asset Monetization (LAM): Already we see daily consumption figures reflecting how the subsidy removal affects overall demand for PMS. Higher prices would diminish customers' spending power, leading to a drop in demand volumes, even if the material hike in price makes this less noticeable in value terms.
PMS retailers may see decreased sales volumes, particularly if customers migrate to alternate forms of transportation or cut their PMS usage which, in turn, has the potential to reduce sales and profits. As a result of this, we see retail outlets seeking more ways to diversify revenue streams and grow earnings by monetizing previously latent assets. For example, deploying their delivery trucks for 3rd party logistics; leveraging forecourt footprint for forecourt advertising using billboards or other electronic advertising etc.
This is when TradeGrid comes in for retail stations and independent PMS marketers in the Nigerian market. TradeGrid is an established category leader in Africa’s B2B e-commerce, specializing in large-ticket categories like Energy retail and industrial supplies.
Launched in Nigeria in 2021 and later made entry into the East African market through its hub in Nairobi, Kenya. As African economies move away from subsidy regimes, Traders have found TradeGrid’s suite of digital products essential in navigating the new landscape. Some of these products include:
- PLP ULTRA – The Product Lease Programme (PLP) is a trade-financing product designed in-line with best practices in JIT supply chain management. The product leverages rich customer data to estimate user’s inventory parameters with which it designs and delivers efficient 3-day Top-up schedules to the retail outlet, with zero upfront payment for the inventory. With our efficient logistics delivery systems from Depot to Dealer - we can achieve the following for our bulk and retail customers:
- Hedging against Price Fluctuations: By assuring smaller truck compartments every three days according to the filing stations daily traffic and capacity, dealers would have a more consistent and predictable supply of PMS. This can assist to lessen the impact of market price volatility as they can better manage their inventory and pricing strategies with a more constant supply, decreasing the risk of inventory shortages or overstocking.
- Addressing Distribution Inequity: Distributing fuel to remote or outskirts involves higher transportation costs which are ultimately borne by the consumer. Moreover, the distance, road conditions and logistical challenges would contribute to increased expenses which will be reflected in higher fuel prices. With PLP Ultra, these and related expenses are spread between different dealers taking different compartments, thus, de-risking the logistics process.
- Increased Transparency: Our TradeGrid application gives transparency via instant notifications as station attendants collect customer payments directly into the App Wallet. This provides real-time visibility into payments made by buyers or consumers. Petrol dealers and station owners can promptly track and verify payments received, ensuring accurate and up-to-date financial records. This simplifies the reconciliation process, lowers mistakes, and enhances financial reporting accuracy overall.
2. TG Boost – The Boost product is a series of offerings that enables dealers own additional & diversified income, for instance Retail stations and Dealers who own trucks can diversify to realize more margins by registering their trucks with TG for logistics. This way they generate additional revenue on leased trucks to other customers along our pre-determined routes.
TRADEGRID EAST AFRICAN MARKET
In serving the East African Market, TG has entered a partnership with SAFARICOM to integrate MPESA (a widely used and trusted mobile money platform across East Africa) with our mobile software. This ensures payments are processed securely and reliably and reduces the risk of payment delays or potential issues associated with traditional payment methods.
The seamless integration ensures that payments are received promptly, minimizing the chances of defaults or missed payments. By offering Mpesa as a payment option, the app provides a convenient and familiar payment method for buyers. With payment received directly into the app wallet, third-party credit providers can streamline their debt collection processes.
They can access payment information in real-time and have a clear record of payment history. This simplifies the tracking and management of outstanding balances, enabling more efficient and effective debt-collection strategies.