Between export expansion grant and oil subsidy removal
For a long time, this has been the song of many of our leaders, including players in the non-oil export industry. Since the discovery of oil in Oloibiri, Bayelsa State, in 1956 Nigeria has continued to slide into economic abyss. We have since become the proverbial husband who, because he has just married a new […]
For a long time, this has been the song of many of our leaders, including players in the non-oil export industry. Since the discovery of oil in Oloibiri, Bayelsa State, in 1956 Nigeria has continued to slide into economic abyss. We have since become the proverbial husband who, because he has just married a new wife, forgets his first wife. Yet, the agricultural sector was the main stay of Nigeria’s economy from inception. What oil wealth has not been able to do, Agricultural wealth has done for us in this nation. The western, eastern and northern regions of the country lived solely on their agricultural wealth. Unfortunately, we have continued to turn the other eye to this sector because of the easy money that accrues from oil. Rather than develop our non-oil exports, we have continued to subsidize the oil sector to the advantage of other nations of the world.
Many have had cause to kick against the removal of subsidy from the oil sector. But many of those who kick have failed to realize the grave economic implication of subsidizing that sector of the economy at the expense of other areas of our economy. Indeed, simply put, the subsidies on oil have only had economic advantages to the foreign countries in which our crude petroleum is processed, before being re-exported to us as refined petroleum products.
The question is how did Nigeria come about subsidizing the oil sector and how does this subsidy relate to the export expansion grant introduced by former President Ibrahim Babangida as part of his economic development plan (SAP, diversification of the economic base and export incentives were key features of his government), and subsequently seriously entrenched by President Olusegun Obasanjo, few years into his government? It is instructive to note that the introduction of subsidy to the oil sector was an arrangement of General Yakubu Gowon government to encourage manufacturers who were complaining of high cost of doing business outside Lagos.
In the beginning the subsidy was not there, But Gowon felt the need in order to create a situation where manufacturers will be encouraged to establish their factories in other parts of the country other than Lagos.
Before the introduction of subsidy, many manufacturers were concentrating their efforts in Lagos because of the proximity to oil which would enable them run their engines and vehicles very well. But Gowon in his wisdom felt it would be counter-productive if all manufacturers concentrated in the south. His government then decided to bear the extra cost of freighting of fuel to other parts of the country thus creating a uniform pricing for the product throughout the country. In the real sense this should not have been the situation.
But Nigeria has got so used to the subsidy that it has now become an albatross. Many government officials and contractors now latch on the subsidy to squeeze the government.
The statistics from the Petroleum Products Pricing Regulatory Agency (PPRA) and the National Bureau of Statistics, show that it costs N11774 to get petrol to Nigeria and because Nigerian ports are grossly inefficient, an additional cost of N6.25 per litre is incurred.
The ports charge N3 for storage and an administrative cost of N15. There is a bridging fund of N3.95, and then dealers would add their margin of N1.75 per litre. The transporters add their own margin of N2.7 while filling stations in turn add a margin of N4.60. So, they argue, the cost of fuel at the petrol stations should be N138.19 per litre, (approximately N140). And because it is sold for N65.00, the Federal Government pays the shortfall of N75.00 or thereabout on every litre. This extra N75.00, called a subsidy is the bone of contention.
Findings reveal that Nigerians use 294,000 litres of fuel per day. The four refineries in the country provide 93,450 litres daily, which means that an additional 200,550 litres is imported to cover the shortfall. On the average it is believed that Nigeria spends about N15million daily on subsidy.
There has been so much argument about the pros and cons of the subsidy issue but many fail to realize that by subsiding the oil sector Nigeria is helping to develop other economies and not its own economy. The money spent to encourage importation does not come back to Nigeria; it goes to other economies and in a way, the pockets of a few Nigerians who benefit from the gesture of the federal government.
My concern however is that we have left undone what we should have done. How do you explain a situation where we spend trillions of naira on other economies of the world and fail to look inward on how to help our own economy. That is why it worries me that the issue of export expansion grant is treated with a kid’s glove. Who benefits from the grant? It is easy to say the exporters. But the truth is that the real beneficiaries are Nigerians who are in the labour market who will get employed if exporters are encouraged.
The Nigerian business environment is fraught with so many difficulties that have pushed the cost of doing business to very high levels. Ours is one of the most expensive business environments in the world. Indeed, in global (export) competitiveness ranking Nigeria is an alarming 137th out of 183 countries rated by the World Economic Development Forum in 2011. The Export Expansion Grant only helps to reduce some of the extra costs borne by the Nigerian exporter in providing inadequate or sometimes absent infrastructure like Power, water and roads.
Even the most advanced countries in the world have made it a point of duty to evolve various levels of incentives to support their exporters in the international market.
Boyede is the CEO, Koinonia Ventures Limited