NAIRA FREE FALL: Manufacturers Canvass End To Fuel Subsidy
MANUFACTURERS in the country have joined the clamour for fuel subsidy removal, saying it is putting pressure on the country’s external reserves and the value of the Naira.
The President of Manufacturers Association of Nigeria (MAN), Dr. Frank Udemba Jacobs, in a statement yesterday, described fuel subsidy, as a ‘major source of wastage of foreign exchange’, arguing that it would stop naturally with the privatisation of the oil and gas sector to promote emergence of private refineries.
“A major source of forex wastage in Nigeria is the on-going subsidy on importation of petroleum products. In the real sense, Nigeria should not have relied on fuel importation to meet the fuel requirement of the nation, given the number of refineries we have in this country, which are currently laying waste. But rather than repair them, we turned around to import fuel and pay huge subsidies to fuel importers, thereby wasting so much on foreign exchange. MAN believes that the downstream petroleum sector should be privatised in order to save the country from wasting the huge forex paid as subsidy.”
The manufacturers asked the government to revisit the issue of private refineries and carry out investigations on why those granted licenses have not started operation.
“Some years back, many refining companies applied for licenses and we do not know what happened to those applications or why those companies that were granted licenses did not start operation. Why should government subsidise fuel imports, when some of such subsidy is even ambiguous? The resources on fuel subsidy could have been channeled to streamlining the refining capacities of existing refineries or even establishing new ones. The solution appears to tilt towards the privatisation of the sector so that government would hands off subsidy payment.”
The manufactures also urged the Central Bank of Nigeria to allow market forces determine the exchange rate, adding that allocation of forex to Bureau de Change would not allow market forces to determine the rate of exchange with little regulation from the apex bank.
“Towards ameliorating the situation, MAN would like to advise, for a start, that the Central Bank of Nigeria (CBN) stops funding the Bureau de Change market. It is difficult to understand why, in the first instance, these outfits should depend on official allocation of forex by the CBN for their survival. The Bureau de Change market should provide alternative funding window to the economy, in which case they would source their forex independently from other sources and supply to the forex market.
It is difficult to understand their real functions with the kind of arrangement Nigeria has. They act as mere distributive conduit pipes by simply getting forex allocation from the CBN and selling to very few Nigerians out of the multitude that need forex, thereby making their profits without much value addition. Foreign exchange allocated to the Bureau de Change as well as from other sources should be channeled to the productive sectors of the economy, especially manufacturing, for the importation of essential inputs and machinery that are not locally available.
“MAN believes that this arrangement will allow the exchange rate to be determined by the market, but with some moderation and also leave room for investors to be attracted to invest in the country. This will also assist in checking the ugly situation that took place during the Structural Adjustment Programme (SAP) era where, as a result of devaluation, over 60 percent of small and medium scale industries closed down because of their inability to sustain their operations. Restriction on dollar inflow should be lifted, but this should not preclude CBN’s duty of investigating sources of such incomes,” he said.