The Chronic Pains of Delayed Adjustments

BY simon kolawole

I was filled with regrets after watching a documentary by the Depot and Petroleum Products Marketers Association of Nigeria (DAPPMAN) titled ‘Fuel Subsidy: Lifting a Nation’s Burden’. I started ruminating over what might have been. In the opening, Dame Winifred Akpani, founder and CEO of NorthWest Petroleum and Gas Company, reminds us of how fuel subsidy came into being. It was in the mid-1970s when oil boom made us believe we were so rich we could buy the entire world. It probably made sense at the time that as Nigeria was raking in billions of dollars from oil export, some of the benefits should be passed to Nigerians via cheap/fixed prices of petroleum products.

Akpani recalls how the military government added petroleum products to the price control list in 1977, officially introducing fuel subsidy in Nigeria. I am looking back today and thinking: if we knew the inter-generational quagmire we were getting ourselves into, we probably would have done things differently. If we sit down to calculate the billions of dollars we have sunk into fuel subsidy since 1977 and how this could have developed the critical infrastructure necessary for Nigeria’s development, we cannot but wonder what might have been. But rather than get stuck with lamenting about the past and what might have been, we should be learning from our mistakes as we head into the future.

Let me state this clearly: I am not against subsidies. The US, the global flag bearer of market economy, heavily subsidises its domestic agriculture, and some aspects of energy, housing, and car manufacturing — all geared towards increasing investment in those sectors. The UK, which is also a market economy, subsidises areas identified as key to economic growth, notably the automotive sector, aerospace and clean energy. Public transport fares are capped and government pays part of the difference, which runs into billions of pounds yearly. But government shares the subsidy burden with commuters through yearly adjustments in the fares charged by the transport companies.

The problem with Nigeria is that we subsidise the wrong points in the production and consumption chain. This is because we probably asked the wrong questions or came up with the wrong answers while designing the policies. The questions should be: why are we subsiding? Can we afford it? How are we going to fund it? How long will the subsidy be in place? What happens when the funds are not flowing like rivers again? Should we be responsible for 100 percent of the subsidy or should we stick to a percentage and pass the rest to Nigerians so that regular adjustments can be made? We went for a blanket, no-questions-asked subsidy policy and Nigerians became infinitely entitled.

This was a major negative outcome of the oil boom. Rather than see the boom as a boon and deftly utilise it to develop other critical sectors and build a robust economic base for Nigeria, we thought the petrodollars would continue to flow without let or hinderance till the end of the world. We plunged into a spending spree, flooding the country with an unsustainable expenditure profile. Isn’t it remarkable that the era we still celebrate as the best in Nigeria’s economic development — the 1950s and 1960s — was when there were neither fuel nor electricity subsidies? Public funds were concentrated on education and building infrastructure by the federal and regional governments.

Today, we lament that some Asian countries that were at par with us in the 1960s have overtaken us and become world beaters. I have never disguised my belief that oil booms have done more harm than good to us. Not just to the economy, but also to politics, security and public morality. Nigeria was not a perfect country before the oil boom — after all, there were several cases of corruption and abuse of office before and after Independence — but the impunity that came with oil wealth is beyond compare. We moved from an era of “10 percent” corruption to the age of phantom contracts. Insane impunity! We have moved from robbing revenues to looting loans. Insane!

Let me be fair. By introducing energy and meal subsidies in the 1970s, the military governments obviously meant well, even if their economics was questionable. With high crude oil prices, petroleum products also became more expensive. Our leaders were probably asking themselves: why should Nigerians pay more for petrol? Shouldn’t cheap products be a fringe benefit of being oil producers? We also needed to encourage more Nigerians to have university education by introducing a number of incentives. You can fault their choices but you cannot fault their desire to make life more comfortable for Nigerians. Rather than cry over spilt milk, we should be thinking about the lessons.

Lesson No 1: never introduce a privilege that you cannot sustain. Withdrawing what has come to be seen as an entitlement is akin to courting war. Gen Olusegun Obasanjo discovered as much when he tried to reduce or remove subsidies when oil prices began to fall. While the boom was a feast for us, it was a funeral for industrialised countries. They began taking measures to reduce fuel consumption: manufacturing fuel-efficient cars and introducing the “pool car” system in offices to encourage sharing, among others. The US — the world’s biggest consumer of petroleum products at the time (and till today) — also started oil exploration in the Gulf of Mexico. You see, they did not go to sleep.

The biggest implication of these initiatives was that oil demand started dropping and prices began to fall. Obasanjo, on becoming head of state in 1976 following the assassination of Gen Murtala Muhammed, had started preaching the gospel of agriculture, launching Operation Feed the Nation to encourage Nigerians to be individually and collectively self-sufficient in food production. In 1978, he increased fees payable in the universities — although tuition remained free — and reduced the meal subsidy, raising the cost from N1.50 to N2 per ticket. Hostel accommodation fee tripled from N30 per session to N90. (Ironically, it was still N90 in 1989 when I enrolled at the University of Lagos).

Like I said, never introduce a privilege that you cannot sustain. Be ready for war if you want to withdraw it. University students, under the auspices of the National Union of Nigerian Students (NUNS), rejected the reduction of these subsidies and embarked on a nationwide protest, unforgettably tagged “Ali Must Go” (or, comically, “Ali Mungo”). The students demanded the resignation of Col Ahmadu Ali, then minister of education, because of the astronomical fee increases. At the end of the protests, which the military and police tried to suppress, there were at least eight dead bodies. That did not change anything as Obasanjo insisted the increases were necessary.

Lesson No 2: adjustment is no child’s play. As most Nigerian leaders have discovered in the last 50 years, it is easier to maintain the status quo than to disrupt it. Most African countries do not subsidise energy consumption. As soon as oil and gas prices change in the international market, citizens expect adjustments in energy prices: petrol, diesel, electricity and all. There is nothing to debate. Ghanaians and Togolese are not poorer than Nigerians yet they pay the market prices for energy. The difference is that Nigerians have successfully given petrol a political status. We buy yams, beans and tomatoes at market prices but treat petrol as a political entitlement. Yes, since 1977.

Adjusting prices and fees has become a perennial problem for both the government and the citizens. The government is always reluctant, or even scared, to make changes because they know the street can catch fire. The default response of the citizens, who are perpetually under economic pressure, is to resist any attempt to adjust prices and fees. The fact is that we are not used to it. It is not in our culture. Nigerians who migrated abroad are seeing the realities of price adjustments, although they console themselves with the fact that “we can see what the government is doing with the money”. Very well. People-led accountability is a democratic culture we also have to imbibe as Nigerians.

Lesson No 3: delayed adjustment comes with even more pains. When President Muhammadu Buhari came to office in 2015, two things were begging for attention: the exchange rate — which had become glaringly unsustainable with falling oil income — and petrol subsidy (please note that government stopped subsiding other fuels ages ago). The exchange rate was N197/$ while petrol was N87/litre. Buhari was reluctant to move the needle for one reason: the inflationary impact on millions of poor Nigerians. While that was considered socio-politically expedient, the economy was the worse for it. Some of the adjustments came rather late in the day and then stalled at some point.

By the time President Bola Tinubu assumed office in May 2023, he was faced with three tough options. One, retain the suicidal status quo and risk a return to the 1984-scale crisis when we started queuing up to buy rice and milk because of FX crunch and falling revenue. Two, adjust gradually, although there is a risk of getting mixed results. Three, go full blast, with the attendant short-term pains and long-term gains. Tinubu gave us the impression that he went full blast, but all I can see around me is chaos. It is glaring that there was no plan and his government is just making things up per time. The PR machine is doing very well — I give them credit for that — but I think we are stuck.

Nevertheless, the basis of my argument today — after watching that beautiful documentary produced by Ademola Adedoyin and Zik Zulu Okafor — is that the introduction of fuel subsidy in 1977 has hurt us more than we think. We created a culture of privilege that will be extremely hard to discard. Also, our failures to adjust to new realities in several areas of public expenditure since the oil boom era will continue to hurt us if we don’t change course. If we were adjusting where and when necessary all along, we would not need to be facing sudden killer shocks all the time. We have gone too deep into the abyss. We need a miraculous reorientation to be able to change our ways.

AND FOUR OTHER THINGS…

EFCC VS BELLO

The American International School Abuja (AISA) has refunded the fees paid for the children of Mr Yahaya Bello, according to the Economic and Financial Crimes Commission (EFCC). Bello, the former governor of Kogi state who is engaged in a running media drama with the commission, allegedly paid $760,910 in advance as fees for five of his children from the coffers of Kogi state. However, by a previous court ruling in the case of Chief James Ibori, the ex-governor of Delta state, the money will now have to be returned to Kogi state. And the current governor of Kogi state is Mr Usman Ododo, who was handpicked and installed by Bello. Are you thinking what I am thinking? Rebound.

MEDIA MENTOR

When I was studying mass communication at the University of Lagos, the common joke at the department was that those who wanted to specialise in journalism would die poor and those who wanted to make money should go into PR and advertising (PRAD). Mr Azu Ishiekwene, who has seen it all as a reporter, writer, editor and publisher, has a better story to tell the current and future generations in his book, ‘Writing for Media and Monetising It’, published by Premium Times Books and due for release anytime soon. It is the basics of journalism and media entrepreneurship. I have received an advance copy and I am currently unlearning and relearning journalism. Reinvention.

GOOD NIGHT, MALLAM

Mallam Abdul Ndubuisi Okwechime, the journalist who came into limelight in 1986 for daring the devil to interview Lawrence Anini, then Nigeria’s most wanted armed robber, abruptly drew his last breath on April 19, 2024. He was my friend despite being my senior in age. We met in 1998 when he spearheaded the media campaign of the late Alhaji MD Yusufu, who was a presidential aspirant. I was recently on the phone with Mallam Abdul, who had suddenly fallen ill. He encouraged me to always call rather than send texts because he was finding it difficult recognising alphabets. I was devastated. I didn’t know the worst was still coming. May God comfort his loved ones. Painful.

NO COMMENT

Trust Nigeria to always provide premium content. On Wednesday, 118 inmates escaped from the Medium Security Custodial Centre in Suleja, Niger state. According to the Nigeria Correctional Service (NCoS), a rainfall ravaged parts of the prison and brought down the walls. The NCoS used the opportunity to cry out that the prison walls are generally weak because they were built — now you won’t want to believe this — during the colonial era. Nigeria gained independence from colonial rule 63 years ago and, in fact, we are still making use of a facility that was probably built 70 years ago without improving the structure. Is it because powerful people are not in that jail? Wonderful.