In these defining moments (2)

Last week, I started on the dangers of re-introducing toll-gate fees, doubling VAT, allowing the Naira to continue falling, hiking up fuel prices and jerking-up electricity tariff, all at the same time, because the President is said to be popular enough to get away with all these, and insisted we should examine these proposals on […]

Last week, I started on the dangers of re-introducing toll-gate fees, doubling VAT, allowing the Naira to continue falling, hiking up fuel prices and jerking-up electricity tariff, all at the same time, because the President is said to be popular enough to get away with all these, and insisted we should examine these proposals on their own merits, and that we should measure and phase changes very carefully.
On the racket called “fuel subsidy” I maintained that everyone knows it is really theft but we are refusing to ask the right questions. My queries were: why are we the only oil-rich nation that insist on exporting crude and then give some import licence to bring back refined products, and pay them for the privilege; how much petrol and kerosene do we even require domestically; and, how would higher taxes, deregulation and devaluation, now looking almost inevitable, affect our lives and chances?
There is no subsidy on fuel simply because, to talk of subsidy we must be giving up something to enable our people have access to fuel at a lower rate. The oil producers are not stupid. They extract crude oil from the ground at a rate much cheaper than what they can sell in the open market, otherwise they would shut down their wells. So when we go into some production sharing agreement, for example, and jointly pay for bringing out a certain quantity of crude, we do so because we know there will be some profits. Production costs are shared, and the crude split between the partners. The private (often foreign) partners take their own, and sell, after paying us all the necessary fees and taxes. The NNPC takes our share and sells, paying the proceeds into the Federation Account, after deducting its costs. So, everyone has been paid. It is only if the amount taken up by the local refineries are allocated to them at a rate lower than the market price that an element of subsidy can be said to come in. But this is not the case.
Should the NNPC be unable or unwilling to get their refineries working, and decide to buy, or get some cabal to purchase refined products from outside, or enter some crooked swap agreements, we are talking then of inefficiency or incompetence. Any difference, therefore, is a price we are paying for ineptitude or corruption, not subsidy per se. Handing over a trillion Naira to some cabal is not subsidy and, even though it is mostly legacy debts, it must be called by its proper name: ransom. It has to stop.
The President needs to get a neutral Task Force, not one entirely made up of NNPC, PPMC, PPPRA or other government engineers and technocrats, to work out some genuine alternatives. Given current crude prices, refining margins and all other reasonable costs some engineers insist we are already paying over and above cost, plus all reasonable margin. Frankly, it is time to detach the refineries from NNPC and set them up as independent companies, and work out plans for setting up additional ones. Let government and private refiners compete, getting their crude from anywhere they wish. As things are, for any crude you pump into Kaduna, Warri or Port Harcourt refineries you can get 28.7%, 32.6% and 33% respectively, of the output as PMS. So, at $50 a barrel, even after adding your refining costs, Kaduna could, for example, give you PMS at N57 and Kerosene at N32, in addition to other useful products very cheaply. If we allow Kaduna to compete with Warri, Port-Harcourt or other refineries to be set up, prices would stabilise reasonably, with minimal regulation. Artificially fixing prices over any length of time leads only to waste and inefficiencies. The critical role of government should then be to control oligopolies so that they don’t take us to the cleaners. Yes, we trust PMB but we do not trust NNPC and the other agencies, nor should we encourage the emergence of inefficient, rent-seeking monopolies. Change must come but with an honest face.
Guided deregulation is what has made China, Malaysia, Singapore and the others what they are today, not free-for-all, predator capitalism. People cannot jet around the world in publicly owned airlines and come back to tell us government has no business in business. Public companies can be made to work profitably. It is a question of ending theft and inefficiency not ending subsidy.
Back to the value of the Naira, which has plummeted significantly, and some are saying should be devalued further, but which the CBN has been trying to shore up with some one-sided policy. The questions are simple and they need to be asked if we are to find the right answers. First, why is the CBN the main source of foreign exchange? We only sell oil and gas, and the dollars resulting therefrom accrue to the CBN, which manages them on our behalf. We repay our foreign depts., settle international official obligations, buy machinery, spare parts, and consumables from there. Our trading partners would not accept Naira because we are not producing goods and services that they can use the Naira to buy. As our oil revenue reduces, so would the Dollar we have to procure foreign goods and services, and settle our obligations, also decline. We can choose to select what we allow people to purchase from, or make payments for, or we can allow the highest bidder to get access to these dollars. Either way, we would be selecting winners. The CBN is rightly saying something are not essential, for they can be produced locally, or people could source forex from elsewhere. We are breaking any WTO regulation but simply being prudent.
Commendable as the regulations are, however, the Central Bank’s move only tackles one side of the equation, because its own responsibility is limited. To increase local production of goods and services so that we import less requires a set of well-coordinated interventions of the Ministries of Finance, Trade, Agriculture, Education, Science and Technology and even Solid Minerals, as well as the right mix of monetary and fiscal measures. Simple devaluation, or forex restrictions, on their own, would only make necessary imports and payments harder without producing the substitutes we need for our own use, or for exports. My brother Kayode needs to reduce our iron, steel, machinery, spare-parts and mineral imports; Chief Audu Ogbe needs to do something on rice, wheat and sugar; Colonel Hameed Ali needs to ensure our restrictions and tariffs are observed, and so on. Mallam Adamu must make sure we start producing the manpower to drive industrial and agricultural expansion. Our banks need to lower interest rates to single digits, and make access to loans easier. A stable currency, some exchange control and trade-fairs are only a small part of what we must do; on their own they are not sufficient, and they need to be part of a bigger drive. Asking Buhari to devalue may end up pleasing only the speculators and the rating agencies, but these neither vote nor hang around when the going gets tough.
Market forces may be good at driving decisions, getting some prices right, and ensuring efficiency but the general direction that the society should move is a political decision, along with the questions of values, social responsibilities and fair regulations. Asking President Buhari to champion unpopular policies fail to address why these are unpopular to begin with, and whether there are indeed better alternatives. Without competition, markets only benefit a very small group and end up behaving irresponsibly, just like the politicians who do not fear losing elections.
In the final analysis, PMB’s chances in 2019, which he must contest, would depend on how successful he is in the next few years in tackling unemployment and falling incomes, but these are also directly related to these hard choices we have focused on now. The real economic debate needs to seriously start, or else we mortgage our future and the future of the next generation. We must all contribute to arriving at the right decision, or have no one else to blame when things fail. There is too much silence in the land. No person or single group has a monopoly on the right answers. Have a nice and safe Xmas.