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Labour strikes? Expect many more, unless …! – by Les Leba


It would be mischief on the part of this column if we subscribed to the bandwagon of those elitist Nigerians whose stock in trade is the creation of false hope of a better year ahead at the end of every dismal year in the past two decades or so.

If truth be told, poverty has ravaged the vast majority of our people and in spite of bountiful dollar reserves, over 80% of Nigerians are believed to live on less than $1 a day, and our country is now listed amongst the world's poorest nations. The reality is that we have no right to expect any change for the better since no serious attempt is being made to tackle the main cause of our inability to turn our best ever harvest years into a sustainable platform for improved social welfare for the majority of our people.

The 2010 federal expenditure budget is just a little over N4000bn! Meanwhile, about N2500bn will be allocated for recurrent expenditure such as salaries, and allowances for the sustenance of the welfare of less than 1% of Nigerians, while the sum of N1500bn is projected for capital expenditure; a significant portion of which will be looted through brazen scams with respectable and revered public servants as major actors!

In view of the persisting impasse on the issue of deregulation of the downstream oil sector, it is doubtful if government has the spine to bulldoze full deregulation.

In any event, any truce brokered to permit deregulation will inevitably collapse once world economic recovery picks up in 2010, and crude price once again overshoots $100/barrel! Not even 20 more refineries, or indeed, any form of palliative will be sufficient to rescue the inflationary spiral and the predictable failure of deregulation once oil prices rebound. In this event, projected subsidy payments may exceed N500bn (note: according to Energy Minister, subsidy of N15000bn paid between 2008 – 2009).

This would lead to further reduction of the already meager capital expenditure vote and/or increased budget deficit over and above the already alarming projection of N1500bn for 2010! The net result will be further pain and gnashing of teeth for more Nigerians in a climate of increasing insecurity!

The article, “Labour Strike: Expect Many More, unless…” was first published on 25/6/07. It is here reproduced to encourage government to recognize the truth and save Nigerians!

The coalition of Labour Unions and Civil Society Groups made good their threat to embark on an indefinite general strike after the expiration of a 14 day ultimatum to government for the reversal of clandestinely imposed increases in fuel prices and VAT by the expired Obasanjo administration in May.

The coalition also demanded a cancellation of the sale of Nigeria's refineries and the implementation of a 15% pay rise for workers. As usual, the government delayed negotiation with the unions until a day before the expiration of the ultimatum and belatedly acceded to most of Labour's demands but stalled on the issue of an additional N5 on the existing fuel price of N65/litre!

Labour strikes, like spiralling inflation, have a negative impact on development, growth and productivity of any economy. An economy that is already burdened with a severe handicap with infrastructure and high operational costs will gather speed towards collapse if further propelled by regular general strikes and numerous public holidays!

In Nigeria , a year hardly goes by without the debilitating effect of a general strike, invariably instigated by fuel prices, which rose from less than N20/litre in 1999 to its current government projected price of N70/litre, with adverse consequences on the purchasing power of all income earners as inflation became irrepressible and our people became poorer.

A cursory observation of the framework of our economy suggests that domestic fuel prices move in sympathy with increases in the international price of crude oil, which in turn has risen from below $30/barrel to its current level of about $70/barrel in the last 8 years; such a harmonious price relationship would be expected in a country without commercially viable crude oil reserves.

On the other hand, Nigeria, with the enviable endowment as a major exporter, increasing crude oil prices should mean increasing export or dollar revenue as evidenced by our burgeoning reserves in the last 6 years or so, when we were able to exit our, some say debatable debts, of billions of dollars with international creditors and still boast of idle reserves approaching $50bn.

Expectedly, our healthy reserve profile under a democratic and relatively stable dispensation should lead to a much stronger naira than N80=$1 in 1996, because, as crude oil prices rise, our naira will also rise in value and this will translate to stable or lower petroleum product prices.

Let us take a simple example: if crude oil is, say, $30/barrel, this would translate to N3,000/barrel at an exchange rate of N100/$1; an increase in crude oil to $60/barrel would fetch us double our erstwhile revenue at the same output and swell our reserves/savings.

If our consumption pattern does not change significantly as is currently the case, our exchange rate should improve against the dollar by up to 50%; i.e. the naira would exchange at, say, N50=$1 and the barrel of crude oil will still cost the same N3,000 (that is, no change in local price, inspite of 100% increase in international oil price!). If, however, the dollar falls below N50=$1, then of course, the domestic price of fuel will be less inspite of rise in crude price. (You may substitute pump price/litre for crude oil price in the above example and the result will still be the same.)

If, however, the international price of crude continues to increase, and inspite of our resultant heavier export earnings our naira exchange rate to dollar resists appreciation and shows an increasing propensity to depreciation, (especially when the dollar is falling against other currencies) then of course, our petroleum product prices will move upwards and create a burden for the economy.

Unfortunately, this is the prevailing economic framework that our government has adopted in the last 8 years with devastating consequences for our people. Within this context, we may have to look to our future with trepidation as crude oil prices are expected to continue on the rise and probably exceed $100/barrel before the close of this decade.

Inspite of the huge revenue we would derive from such fortuitous price movements, we should expect many more upward movement in petroleum product prices and many more general strikes to defend the depreciation on income values brought about by the inflationary push!

President Yar'Adua, like Obasanjo is confronted with a self destructive dilemma: price hike every time crude oil prices rise, will continue to invite wasteful and destructive strike actions and impede government's efforts to revive the economy.

At the same time, a resistance to a price hike in the face of the inevitable rise in crude prices would mean an increasing value of subsidy of petroleum products; such subsidy could easily exceed 33% (about N500bn) of the federal budget before 2010! This would constitute a colossal drain on our resources at the expense of infrastructural enhancement; NNPC may not survive with such leakages, and private investment in the downstream sector of the petroleum industry will continue to be just a wish as refinery operators, and independent fuel importers would be reluctant to sell their products below cost and hope to receive commensurate subsidy from government some time in an undefined future.

It is clear that President Yar'Adua cannot rely on the failed advices of the experts in the last administration to resolve the inexplicable dilemma of price hikes and subsidies and the paradox of so much poverty at a time of our best-ever export earnings! Mr. President will be better advised to resolve the puzzle by looking towards the instrument of a much stronger naira; as earlier demonstrated, a stronger naira will automatically bring down petroleum product prices inspite of rising crude oil prices!

I would strongly recommend that a significant appreciation (not stability) of the naira to double digit should be an XXinitial objectiveXX of Mr. President in the short term. In the medium to long term, we could restructure our currency by knocking two zeros off each denomination and subsequently realign the naira to a rate of N1=$1 (in the same manner that 0.94 Ghana cedi = $1 from July this year!).

This would, no doubt, promote and facilitate convergence and adoption of a common currency in the ECOWAS sub region, but more importantly, it would give value to our currency and even kobo coins would command value, petrol prices will fall; in place of subsidy, government will earn petrol tax.

Petroleum prices will become truly market controlled and private refinery operators will thrive, much needed capital machinery and raw materials would become cheaper in naira terms, production and capacity utilization will expand, more Nigerians will be employed, creating their own consumer demands; high employment will reduce insecurity, and minimal inflation will prevail.

We are confident that a stronger naira will quickly emerge once the CBN adopts the instrument of dollar certificates for the monthly settlement of dollar denominated revenue in the federation account, instead of first, unilaterally converting such revenue to naira before sharing.

The longer it takes to recognize this simple market economics compliant solution, the greater will be the dislocations in our economy, and the poorer our people will be in the face of plenty, and the more foolish we would all look in the eyes of the world!


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