No better time to reform Nigerian economy than now

As the Nigerian adage goes, the wind has exposed the fowl’s behind and it is not pretty. For years, high oil prices glossed over Nigeria’s poor economic choices but a reversal in fortune has put its vulnerability on global display. Will Nigeria’s leaders – in government, civil society, and the private sector – use this opportunity to drive the needed reforms? There is a compelling case for the removal of the fuel subsidy and to drain that cesspool of corruption. The question is: Can Buhari do it?

There is no good point from where to start this bad news. Take the 2020 national budget, for instance. The benchmark crude oil price of $57 per barrel is now at about $27; the same price level that triggered the 2016 recession. What was the basis for Nigeria’s projected sale of 2.18 million barrels of oil per day when data from the Central Bank of Nigeria shows that the last time the country sold that quantity of crude oil was in January 2006? In fact, the last time Nigeria produced that quantity of crude oil was in November 2015.

Will the low crude oil prices recover? It depends on how the current crude oil price war is resolved. Saudi Arabia called for a cut in oil production as a way to increase prices. Russia refused and this led to a drop in oil prices. The United States, which needs prices to come back up to $40 per barrel, retaliated with sanctions against Russia who, late last week, indicated her willingness to negotiate. Oil prices have started inching upwards but many analysts are still forecasting a drop to about $10 per barrel. Nigeria’s revenue is still against the ropes.

A combination of a slowdown in global demand and the impact of the COVID-19 pandemic has triggered a global economic recession. Over 80 countries are already seeking support from the International Monetary Fund. Nigeria may not be spared the recession because she is vulnerable to a number of external factors that have already resulted in declining revenues. Last week, the CBN devalued the naira by 15 per cent after it burnt through 16 per cent of Nigeria’s foreign reserves in just one year. Unfortunately, the country lacks the production capacity to take advantage of the expensive dollar. A lot needs to change.

Every Nigerian leader since 1973 has known that the fuel subsidy is not sustainable. However, they all lacked the temerity and tenacity to do the needful. These failures have resulted in a need for urgent reforms across all sectors of the economy even at a time when the country is very poor.

The intent is not to exonerate the President, Major General Muhammadu Buhari (retd.) from his responsibility. In fact, he has made many of his own errors. How can one justify his refusal to assent to the Petroleum Industry Governance Bill; an action that should have unlocked billions of dollars of investments in the petroleum sector?

Similarly, he has had at least three opportunities (in 2015, 2016, and 2019) to eliminate the subsidy on Premium Motor Spirit (also now as petrol or gasoline) and stop the corruption. He refused. To put things in perspective, Nigeria has wasted over N10 trillion on fuel subsidy from 2006 to 2018. This amount could have built and equipped at least three 1,000-bed hospitals in each of the 774 local government areas in Nigeria. Let that sink in, especially in the face of the ongoing COVID-19 pandemic.

Those opposed to a fuel subsidy reform will argue that the programme is in the interest of the poor. This is not true. There is now enough empirical evidence from Nigeria that it is the rich, not the poor, who benefit the most from the fuel subsidy. Isn’t it malevolent that kerosene – the product predominantly used by the poor –  is not subsidised in Nigeria? By the way, in the event that the poor are impacted by the removal of the subsidy, there would be enough savings from the reforms to offer the right palliative measures.

One would understand if President Buhari is apprehensive about fuel subsidy removal. As the adage goes, he whose father was stung to death by a bee is typically petrified by a housefly. It was a similar reform effort in 2012 that helped coalesce opposition against President Goodluck Jonathan. Buhari rode the public angst to Aso Rock. The circumstances are different this time. The coalition that opposed the 2012 fuel subsidy reforms has shifted ground since then. A 2015 study conducted by Nextier Advisory, a public policy advisory firm, shows that, except for the labour unions, all the other parties now support the reforms: civil society organisations, stalwarts of the All Progressives Congress, many members of the National Assembly, agencies in the petroleum industry, and the state governors. In 2018, the “Enough Is Enough Coalition” that was at the forefront of that protest hosted a workshop advocating the removal of fuel subsidy. The economics of the subsidy is now clear to even the most dogged resister.

The labour unions are still holding on in opposition to reforms because their raison d’être is to protect the jobs of their members. Per the 2015 Nextier study, the unions want the government to “fix the refineries first” before removing the subsidy. They argued that the subsidy would not be necessary if oil was refined in Nigeria; a concern that is being addressed by investors such as the Dangote Group.

The main challenge is that President Buhari may not be inclined to deal with the subsidy. A December 2019 Political Economy Analysis conducted by Nextier Advisory showed that the President genuinely believes that he is making the right decision for poor Nigerians. He is not. The poor whom he might truly wish to protect are not the ones enjoying the subsidy. He needs to be open to what the evidence suggests.

Source: Punch

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