Mr. President, Remove The Subsidies

IN its lead article, the influential London weekly, The Economist, quoting the late prime minister, Tafawa Balewa, wrote, “this is a wonderful day, and it is all the more wonderful because we have awaited it with increasing impatience, compelled to watch one country after another overtaking us on the road when we had so nearly reached our goal”. That was on October 1, 1960. The wonderful day came almost five and half decades later, on May 29, 2015, at Eagle Square, Abuja. I was, happily, there.

Since 1960, Nigeria, the “most African country”, slid into near failed state as one military regime after another, a civil war and successive kleptomaniac civilian and civilian governments interlaced. The single common thread among all past governments, civilian and military alike was corruption. Our country, year after year, is ranked among the ten most corrupt in the world.

Subsidies on petrol cost the government a whopping $6 billion (1,200 billion Naira) annually, some NGN9,000 yearly for every Nigerian. It provides the biggest opportunity for corruption to thrive. The subsidies are stolen as the subsidised fuel finds its way into the black market or smuggled to neighbouring countries where it fetches higher price. I bought only yesterday, at a station on Murtala Mohammed, Ilorin, with ease, petrol at NGN110/liter. Drive round the town at major marketers stations, idle attendants tell you nonchalantly “no fuel”.

But perhaps, the most compelling reason to remove the subsidy is its hindrance to investment in the downstream sector. Solidarity with anti-apartheid and anti-minority struggles in South Africa and the then Southern Rhodesia (now Zimbabwe) led to foolish nationalization of the downstream sector in the late 1970s. British Petroleum (BP) became African Petroleum (AP) and Shell became National Oil. Today, these entities are back in private hands under bizarre and dubious privatisations that saw them sold to inexperienced and incompetent Traders unwilling and unable to build any refinery, but happy to import and claim subsidy.

Remove the subsidy and dismantle attendant price control of petroleum products private refineries would balloon and the country would rightly no longer, perhaps, export one barrel of crude. Competition for market share would inevitably bring down prices.

If anyone is in doubt, take a look at what happened to the telephone business. NITEL, a state monopoly prior to deregulation, operated a mere 400,000 lines (for perhaps 100 million citizens) and for so long kept us not talking to each other. You have to pay its officials to have your application processed. You woke up at 3am to risk your way to its call kiosk to make an international call. Senator David Mark, then a communication minister, made the infamous remark that “telephones were not for the poor.” Alas, today, and thank God he is alive, even destitute have telephones.

Today, we import more than 80 per cent of our premium motor spirit (PMS), thanks to public owned refineries in comatose most of the time. But reduce the role of the state in the economy as the system distorts and thwart production. The market is the best arbiter. The Soviet Union had the world’s most educated and disciplined and skilled workforce, yet the system collapsed and gave way to the market. All that lampooning and rally against so-called IMF prescriptions distort the facts. They are worn out cries of the left increasing becoming political lepers. Russia, birthplace of central planning and state hegemony gave way to the market forces. Ditto China and even that island of hard-core communists, Cuba.

Take the shiny example at home here of a tiny Exploration and Production (E &P) start up that for and barely 10 years into oil and gas production. Its mini-refinery at Ogbele, Ahoada East Local Council, in Rivers State, it is probably the only functioning refinery today in the country. The company (thanks to regulated pms) refines only Automotive Gas Oil (AGO). It (thanks to deregulated AGO) sells its product at market price. When its price is high no buyer shows up. When its price is low, buyers happily queue. The market is supreme. The company increases or reduces price at the whim of the market. That’s what works. It eliminates official permits- synonym for corruption. Where ever and whenever any one is sitting in an office to exercise discretionary decision on economic matters you provide the perfect recipe for corruption. Remove it. Let the market sort it out.

All that talk about inflationary consequences of petrol price hike is pure scaremongering. It is built on timid ignorance, irrational emotion and crude politics. Commuter buses, supposedly used by the poor, consume less than 15 per cent of the stuff. Most inter-state goods haulage are executed by diesel engine trucks whose fuel, diesel (AGO), is deregulated. Despite the noble intentions cheap petrol does little to help the poor. Eighty per cent of petrol is consumed by car-owning city dwellers commuting to work and the affluent rich families, some of whom between them have halve a dozen cars. They fret needlessly over petrol price hike. The subsidy, alas, is for the affluent few. Mr. President remove it today.

Dokun, Consulting Petroleum Geologist.
Writes from Ilorin.