HIGH ENERGY COSTS AND THE NIGERIAN ECONOMY

 Madaki O. Ameh argues that the current price of petrol is not sustainable

Predictably, the very first decision the government of President Bola Ahmed Tinubu had to take, albeit inadvertently, was the removal of subsidy on PMS. As has been widely acknowledged, this was a forced error in the inauguration speech which the government had to live with in the early hours of the administration, being a Presidential pronouncement. Not wanting to be seen to have misstepped so early, this highly unpopular decision had to be forced through, with devastating consequences for the vast majority of Nigerians, who have now had to grapple with the huge effects of this sudden adjustment to their family budgets, not just on the cost of petrol, but most other commodities and services like transportation, without any increase in their incomes. The more than 200% increase in the cost of PMS on inauguration day has undoubtedly thrown many Nigerians under the bus and heightened their already impoverished state. With zero increase in earnings, such a sudden adjustment in the cost of living will no doubt take its toll on the poverty index of the country, which is already very bad indeed.

The current state of affairs is that people are gradually resigning to their fate and most people have either parked their cars because they just can’t afford the cost of petrol, or have resorted to buying just the small quantity they can afford at a time, if only to get by for short distances. This definitely slows down the economy, as mobility will definitely be low and the vibrancy expected of a highly mobile economy such as ours where everyone tries to be up and doing on a daily basis, is gradually being lost. The usually vibrant petrol service stations now look like ghost towns, as there are hardly any activities there anymore.

The point has been made severally that subsidies on their own are not a bad thing, as all economies globally subsidize one critical sector of their economy or the other. It is the manner of subsidizing that makes it either effective or not, and sadly in Nigeria, the government has been subsidizing the oil and gas industry in a wasteful manner all these decades, and needlessly so.  The current hardship being encountered by the citizenry is totally unnecessary and self -inflicted, and it is never too late to beat a retreat, for the short and long-term benefits to the national economy.

A number of pundits have hailed the increase in pump price of PMS as the right thing to do to stabilize the Nigerian economy, deregulate the oil and gas industry and prevent smuggling of petroleum products across our ever porous borders to neighbouring countries, but those arguments cannot stand the test of rational scrutiny. The reality is that the current scenario, which drastically increases the cost of living and the cost of   doing business in Nigeria is not sustainable, in the very low per capita income and minimum wage situation currently existing in the country. Comparisons between the pump prices of PMS in Nigeria and other countries with higher per capita income and higher minimum wages is akin to comparing mangoes with oranges, which though similar, are entirely different.

Nigerians have gotten used to expecting less and less from their governments over time, with calls for sacrifice all the time, without a corresponding cut in the visible flamboyant lifestyles of government officials and the general cost of governance at the expense of the Treasury.

As mentioned before in an earlier piece on this subject, stoppage of subsidy payments does not necessarily have to translate to increase in the price of petroleum products dispensed at the pump, if properly handled, using the best available principles of petroleum economics. In fact, the prices could come down drastically, and a uniform pricing can be achieved for PMS, AGO, DPK and Jet-A1, and the positive impact of such a policy on the overall economy can be better imagined. The reality is that all these products need to be better priced because of the advantages available to Nigeria as an oil and gas producing country. As currently applied, there is zero benefit for being a Nigerian citizen living in an oil and gas producing country. And there is no assurance that the recent increase in the price of PMS will suddenly transform the oil and gas industry in Nigeria from its current embarrassing state of being a loss-making business, the only country in the world with such an unenviable status!

Can you imagine what the impact would be if PMS, AGO, DPK and Jet-A1 are priced at N250 and it is still profitable? All the industries grounded due to high cost of diesel and epileptic and expensive power supply will roar back to life; aviation costs will drastically reduce, cooking costs using kerosene will crash, and the cost of transportation will also come down drastically. All these outcomes can still be achieved, in spite of the initial false steps taken by this government on this issue. Having lingered this long, any policy on subsidy requires deep and informed thinking to address it effectively, which sadly has not been the case.

The lame argument that relatively cheap petroleum products prices in Nigeria will exacerbate smuggling at our porous borders is totally inexcusable, as the government cannot punish the entire citizenry for its inability to effectively police our borders in spite of the huge cost of maintaining the Customs, Immigration and other security agencies at our border posts. Moreover, such a scenario opens up new business opportunities for our downstream companies, who will have the incentive to apply for licenses to open service outlets in neighbouring countries where petroleum products from Nigeria can be legitimately trucked to and sold at appropriate prices to earn much needed foreign exchange, thereby eliminating the need for smuggling.

To conclude, it is not too late to beat a retreat on this issue and do the right thing for the benefit of Nigerians and the Nigerian economy. The much-needed deregulation of the oil and gas sector will finally be underway, if we can step back and do the right thing now, rather than politicize an economic policy by adopting a praise singing approach, as many pundits are currently doing, in an uninformed manner. The Nigerian economy will not just pick up suddenly because Nigerians are paying more for petrol, and reducing their purchasing power in all other sectors of the economy. This will only drive up our collective poverty, increase our misery and drastically slow down the economy.

Chief Ameh is a former Legal Adviser and Managing Counsel, Legislative Development with Shell Nigeria and Senior Consultant with Arthur Andersen