By Henry Boyo
The pace of governance under President Mohamed Buhari has been decried in some quarters as being slow in providing clear signals of a realistic, regenerative economic blueprint; some other Nigerians, however, conversely endorse Buhari’s more complimentary self branding of being slow and steady. Nevertheless, in the absence of any formal declaration of an economic strategy, it may still be possible to deduce government’s mindset on some critical challenges, through snippets from statements made by Senior government officials.
In this regard, the defense of fuel subsidy retention by Emmanuel Kachikwu, the GMD-NNPC, at a recent senate screening, may be very enlightening; in his remarks, the ministerial nominee confirmed that, Buhari is deeply worried that “if we take away this subsidy without adequate plans on palliatives, — what is going to be the impact on the populace?” For this reason, Kachikwu reported that “we are having a continuing dialogue on this, I think (however) that we are both determined that at some time, given the effect on the national economy of subsidy today, something would have to happen on subsidy”.
Sadly, average subsidy payments, inexplicably often exceeded N1Trillion or 20% of annual budgets in the last five years. This ‘obscene’ reality in a major oil producing nation, is probably the stuff from which tragic comedies are inspired; sadly, we are the “happy and gullible” caste of this ugly drama!
Ironically, despite the scarcity of job opportunities at home, we think nothing of exporting jobs to countries which refine our crude; it is apparently, also no big deal if Nigerians are schemed out of the lucrative shipment of our crude exports or fuel imports; neither does it matter if our daily fuel requirement is 40m litres as per data projections or, actually, just 25m litres as suggested by Kachikwu.
Furthermore, it seems of no significance either, whether or not 40% of all foreign exchange remittances from Nigeria are for settlement of fuel imports bills; little wonder therefore, that such heavy foreign exchange outflows constantly deplete CBN’s reserves and ultimately threaten Naira exchange rate as dollars become relatively scarce. Indeed, despite the several negative attributes of subsiding fuel imports, “Buhari is deeply worried” according to Kachikwu, “on what will be the impact on the populace” if subsidy is abolished.
The President is obviously clearly conscious of the depth of poverty in Nigeria and, he is, therefore, rightly wary of increasing the burden of deprivation on our people. Buhari, similarly, recognizes the relationship between the general price level and increasing fuel prices in our economy. We cannot forget the January 2012 nationwide mass uprising triggered by Jonathan’s ‘misguided’ plan, to abolish subsidy with the promise to channel the related ‘savings’ to tangible social infrastructure.
Nonetheless, some experts still suggest that real growth in economic and social welfare and the hope for reduced budget deficits will remain impossible if fuel subsidy is sustained; these analysts insist that the trauma of a sharp price rise due to subsidy removal will after all, be short-lived as prices will gradually stabilise overtime, as Nigerians make inevitable adjustments to the evolving economic austerity.
The question, however, is whether or not the price spiral would actually stabilise in the short to medium term to create a sustainable downward adjusted equilibrium in lifestyle and individual consumption habits? Regrettably, there are no guarantees that this would be the case; evidently, if the albatross of eternally systemic Naira surplus subsists in the economy, as it has since 1999, inflation may well exceed 15% by 2017!
Instructively, such spiraling inflation would inadvertently weaken the Naira exchange rate, particularly, if government’s revenue base remains constrained by low crude oil prices. Conversely, further depreciation of the Naira exchange rate will again invariably spark higher fuel prices; for example, if dollar appreciates under demand pressure to say N300=$1, imported fuel price will simultaneously rise by about 50% without any subsidy! The question, however, is how Nigerians will react to the impact of another significant spike in fuel price, with the inevitable knock on impact on the already oppressive general price level.
In essence, it is clear that unless inflation and Naira exchange rate can be kept in check, fuel price will remain volatile with serious social and economic consequences which will make subsidy abolition very unpopular. Consequently, Kachikwu’s observation is “that the President is a lot more disposed to attacking subsidy, once he is able to deal with the palliative issues rather than simply yanking it out”.
To this end, the government would first, according to Kachikwu, seek to direct more funds towards improving facilities in such areas as the National Health Scheme, railway network and power infrastructure. Clearly, these are medium to long term gestation projects for which completion could dovetail close into the election campaign year of 2018-19. Thus, despite the attendant distortions inherent, subsidy may unfortunately remain with us for at least 2-3 years hence, or even possibly longer, if inflation and exchange rate depreciation also remain irrepressible.
In reality, the promise of palliative measures is not new in our endless battle to mitigate the impact of rising fuel prices; regrettably, both the Obasanjo model and Jonathan’s version of Sure-P failed miserably to create the desired impact on social infrastructure and job creation. There is currently nothing to suggest that the Buhari model of palliatives will have a successful coloration, while there is similarly no indication, either, that the Naira exchange rate will remain stable: such uncertainties on these critical issues portend serious economic dislocation, which cannot, surely, be the expectation of the quality of change Nigerians desire.
It is noteworthy that Kachikwu made no reference, whatsoever, to any plan for the construction of more public refineries to reduce the huge forex outflow from fuel imports; this omission may be read as body language to imply that government may not be looking in the direction of new government refineries as solution to unbridled fuel imports, high fuel prices and related subsidy payments or depleting forex reserves.
Instructively, despite government’s apparent dilemma, the fuel supply and subsidy debacle will be salutarily resolved, if the Naira exchange rate gradually becomes stronger; for example, if Naira exchanges for N100=$1, fuel price will rapidly collapse without subsidy to below the current N87/litre and may accommodate a petrol sale tax/litre to bolster government revenue.
The Naira exchange rate would invariably harden once government decides to stop subsidising the dollar exchange rate with the steadily depreciating Naira values caused by CBN’s induced systemic Naira surplus which has poisoned our economy over the years. The Naira will be stronger when CBN stops substituting Naira allocations for distributable dollar denominated revenue.
SAVE THE NAIRA!! SAVE NIGERIANS!!