Yesterday, the Federal Government announced that they had removed subsidy and that fuel will now sell for no more than N145, an increase of more than fifty percent. My first reaction was one of surprise. The timing was wrong and certain things should have been put in place before embarking on such a risky move. I will try to analyse the situation based on my understanding of things.
For a long as I can remember, government has always fixed the fuel price. Fuel was readily available because demand was lower and the refineries were working. In 2016, the demand is much higher, our refineries are barely functioning; we are importing to meet our fuel needs. As we all know, these fuel imports were being subsidised, and the government was paying marketers to cover the difference.
Sometime last year, the Minister of State for Petroleum told us that subsidy had been removed and fuel would now sell for N86.50 because international oil prices were so low. I am aware that these prices have now gone up slightly, but should that justify the kind of prices that we are seeing?
This is what I think is happening; the hand of the government has been forced. When the government decided to start tightly controlling the sale of foreign exchange, many companies pulled out of the import game. To keep things going, the government became almost the sole importer of petrol. Unfortunately, they did not have the capacity to import enough for the whole country, so the fuel queues reappeared. If you add that to the fact that electricity supply is very unstable and Nigerians are very selfish, you have a situation where no one wins.
On one hand, if the government decided to be stubborn and continue to be the sole importer, the fuel queues would not end any time soon. On the other hand, if the government decided to give in and release their grip on the sale of the dollar, our reserves would quickly run out and we would then be on a downward spiral, heading in the direction of Zimbabwe.
The government took the easy way out, which is to raise petrol prices and give freedom to anyone who has the means to import to do so. They did this with a few caveats though; the first is that the foreign exchange the companies would need to import would be sourced independent of the Central Bank. The second is that they put a cap of N145 on the price.
Economists would argue that an open market encourages competition and would encourage capitalists to get involved and make the product readily available. The socialists would argue that the increase in price would have an adverse effect on the poor, and that as an oil producing nation, we should not be importing fuel.
I completely understand both sides of the argument. The time and effort spent procuring fuel on a regular basis is expensive. On the other hand, the increase in price is going to affect everything and prices are going to shoot up astronomically. Nigerians by nature do not like to do business unless it involves great profits, and this is where selfishness and greed come in. Greedy Nigerian businesses will mark up all their prices by outrageous margins, claiming that the increase in price affects them adversely. At the end of the day it is the impoverished masses that will continue to suffer.
I honestly believe that both the information surrounding the fuel price hike and certain infrastructural issues could have been better managed before embarking on this price increase. If fewer people are buying our crude and attempted crude oil swaps have been unsuccessful, then the government should let the people know the situation. The state of our refineries should also be made known and timelines should be clear. We all know that the refineries are not working at full capacity, but how long will it take to bring them back to optimum standard.
Nigerians are already angry that electricity prices have gone up with little or no visible improvement. Banks are gleefully charging us government mandated stamp duties, not to speak of the other opaque charges that get deducted on a regular basis. In a time where both government and businesses are trying to increase revenue, an increase in fuel price seems insensitive and ill timed.
The truth is that successive governments have dug the country into a hole so deep, that the country will suffer greatly to get out. Our political class is too far removed from the masses to feel their pains, and they are insulated from price hikes of this magnitude by virtue of their huge emoluments.
While I think the price hike was badly timed, total removal of fuel subsidy was inevitable. The way the government handles the aftermath will make all the difference; they need to take actions that show that the government cares. The following is what I am proposing:
Let the NNPC filling stations sell only locally produced fuel, no matter how little they have access to. Since it is not being imported, I would assume that it would be sold far cheaper than the current rate. This will give people hope that the situation is not permanent and we would look forward to our refineries working again.
The power situation has to be improved drastically. Farming, manufacturing and other activities that will provide exports will not work withour power. The demand for fuel will not reduce without power. With stable power, the government can afford to not fix the price of fuel.
Encourage exports by reducing duties and other bottlenecks. In an environment where we are trying to encourage local production and bring in more foreign exchange, there should be a drastic reduction in taxes for non-oil exports. The government may be trying to raise internal revenue, but this is something that they have to concede. Such duties should be at the barest minimum.
There’s a lot more that can be done, but the most basic and most effective is still improving the power situation. Let’s wait and see how the markets react to this increase and by how much prices increase. We are all in this together, as a people we need to be less selfish and put the right kind of pressure on governments to produce change. The government and especially the legislature needs to show us that their sole goal for being elected is not to make money.
We are here today because some people are profiting off of our misery. Nothing will change unless we are ALL ready to make a collective sacrifice for the Nigeria we want.
