Opinion: No nation develops in ease and quiet

As development stories go, no nation develops in ease and quiet. After exertion comes enjoyment and the most massive nations are seared with scars. I am not a religious man but I will say, ‘even though darkness persists for a night, joy comes in the morning’.

This has always happened. In South Korea, China and Singapore, periods of sacrifice made these nations emerge economically more viable.

This is the Nigerian story.

We had a commodity price increase without a commodity price increase. The commodity in question is Premium Motor Spirit (PMS), popularly referred to as ‘fuel’ or ‘petrol’. What is the price of fuel – is it the pump price or a combination of the pump price, emotional price and time spent? The latest public opinion poll released by NOI Polls has revealed that a vast majority of Nigerians (85%) bought fuel above the official pump price of ₦86.50; and at an average pump price of ₦176 per litre. This is factoring the estimated average time spent to obtain PMS at the official price (86.50NGN), the estimated hourly wage of the average Nigerian and the average price of PMS on the black market.

In 2000, the government licensed 20 new refineries to be constructed by private investors. Sixteen years later and none of these are at any stage of completion. There has been no incentive for private investors to enter a highly subsidised market.
Data on Nigeria’s consumption figures show discrepancies. In the words of Governor Adams Oshiomhole, ‘The number is crazy; even if all Nigerians are drinking petrol the way we drink pure water?’ Smuggling of petrol into neighbouring countries is one of the factors that have led to the increased consumption figures.

The Nigerian story has been one of unofficial price hikes, smuggled government subventions, bad data management and government spending without any real impact on the citizen’s life. In effect, the government has been spending to cover subsidies to the detriment of other national needs. The economy decision to remove the subsidy is in an economic sense long overdue.

The workability of this arrangement gives some cause for concern though; how was the current price regime arrived at? To arrive at the current cost, all stakeholders including marketing companies and independent experts were consulted.

The road hereon looks bright.

This fuel subsidy removal will create more foreign exchange (FX) for the government and inevitably cause a drop in the dollar exchange rate. Before now, fuel imports set back the Central Bank of Nigeria with an import bill of Six Hundred Million Dollars monthly ($600m/month). This resulted in limited ability to earn FX for the Federation and potential crippling of the economy. The movement of marketers to the autonomous FX market will make available approximately Six Hundred Million Dollars of FX via CBN to be used in other sectors of the economy.

The growing subsidy differential was a threat to states debt profile. As at 29th April 2016, under-recovery of N13.79/litre was recorded in the price of PMS, thus the need to urgently address the trend, as Government has no budgetary provision for subsidy payment in the 2016 Appropriation Bill. A deduction from FAC payments of N13.61bn was recorded monthly while state debts accrued to N34bn/month. With the removal of subsidy, a deduction of the estimated subsidy claim will reduce governmental exposure and support states in their fiscal obligations.

The flush funds available to government will allow government access to more funds to develop infrastructure, reduce the pressures on foreign reserves and help address the great imbalance between the recurrent and capital expenditure in Nigeria.
The fuel subsidy will actually reduce our dependence on fuel. Under a recent survey, of the population who admitted to purchasing petrol, 73% indicated they used it for fuelling generators, and 58% mentioned they use it to fuel cars (Source: NOI Polls). This highlights the use of petrol to meet energy demands resulting from poor power supply. Improvement in amenities means we will no longer need fuel for prevalent need of power generation.

If government no longer needs to borrow from the stock market, investors will redirect their fund to buying shares and this will lead to rebound in the stock exchange, there will be surplus funds in the banking sector and this will drastically bring down the cost of funds. The private sector will benefit as banks will be forced to return to lending to the real sector.

A major tenet of the subsidy removal is this: the hike will not become a meaningful part of our life, it is only an interruption; a brief and helpful one. This government decision offers not merely a consolation but a restoration – not just of the life we had but of the life we always wanted but never achieved as a nation.

Op-ed written by Osisiye Tafa. He is the author of ‘Sixty Percent of a True Story’.

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