An Educative Piece On The New Fuel Price Regime
My take on fuel-subsidy removal by the Buhari Administration
Flashback to 1 January 2012
Goodluck Jonathan removed fuel subsidy on New Year’s Day in 2012. This took fuel price from N65 to N141 at filling stations. This led to massive protests by civil-rights groups, labour unions, and Nigerians generally. APC, the opposition party at that time, took political advantage of the situation by identifying with the suffering and criticizing the Jonathan administration for removing subsidy. Goodluck Jonathan eventually backtracked. Fuel subsidy was restored.
4 years later President Buhari officially removes fuel subsidy. Millions of Nigerians are angry. Nigerians are understandably accusing the present administration of cowardice, deception, and hypocrisy. This may be true.
But are we not mixing up issues? Are the facts and figures under Goodluck Jonathan’s leadership from 2010-2015 the same under President Buhari’s leadership from June 2015 till date?
Let’s deal with the facts and figures.
The facts and figures under Jonathan and Buhari administrations are not the same.
Let’s start with the figures:
1. How much was oil price in 2011? Oil price was $113 per barrel. Today, oil price is $44 after going below 30 dollars early this year.
2. What about exchange rate? Under Goodluck Jonathan’s leadership, the exchange rate was $1 to N162. Today, exchange rate is officially N199 to a dollar; N320-N340 in the parallel market.
3. And foreign reserves? Nigeria’s foreign reserves stood at $35billion in January 2011 and $29.61billion as at 28 May 2015, the eve of hand over to President Buhari. Today, foreign reserve is $27.1 billion, amid myriad of restrictive measures to stem the steady slide in the economy’s external sector.
Now let’s move to the facts:
1. Under the previous administration, Nigeria was enjoying an economic-growth rate of 6% averagely. Thanks to Foreign Direct Investment (FDI) riding on the back of a devalued naira. President Jonathan also, largely, had the right economic mix. But corruption and terrorism were two of its greatest challenges. There were allegations of massive corruption, particularly what was reported to be a fuel-subsidy scam right under Goodluck Jonathan’s nose.
Rather than tackle these allegations by investigating and prosecuting those involved in the scam, President Jonathan decided to remove subsidy as the solution to the problem. The administration claimed removing fuel subsidy would free up funds for capital projects. But Nigerians had little or no trust in the administration.
The administration was incompetent and corrupt. How can it be trusted to save for the future? This was a fundamental issue. So #OccupyNigeria shot down Nigeria’s economy in January 2012, not simply because Goodluck Jonathan increased fuel price but mainly because millions of Nigerians did not trust the administration with the money it claimed it would “save” for the future. The rest is history. Today there are strong reasons to believe that if fuel-subsidy removal had been allowed in 2012, most of it would have ended up in private bank accounts.
2. Under Buhari administration, though partly due to some of its own reactive and over-restrictive economic policies, the Nigerian economy is sick. There is scarcity of foreign exchange. Oil marketers are finding it extremely difficult to import petroleum products into the country. FDI has nose-dived. The low international-oil price meant there was no need for it. So fuel price at filling stations became 86.5 per litre.
Now that international-oil price is rising again, prices are expected to go higher. This time, the APC-led administration, the same party that criticised the last administration’s removal of fuel subsidy has done exactly the same thing. No fuel subsidy in its 2016 budget.
It says it does not have the money it needs to sustain subsidy. National Assembly did not object. The budget was passed. Now that fuel price has increased internationally, we expect the government to subsidize to alleviate people’s suffering. The Buhari administration says ‘No.
We don’t have enough foreign exchange to do so.” Oil marketers are having difficulties opening letters of credit to import petroleum products. The result is that NNPC alone has had to supply over 90% of petroleum products since October 2015. This has not always been so.
3. NNPC used to supply 48% of petroleum products. Since NNPC does not have what it takes to supply so much, there will continue to be fuel scarcity. To tackle the scarcity problem, the government painfully decides to free up the oil-supply system by allowing the international-oil price determine fuel price locally without any fiscal intervention.
Oil marketers are now accessing foreign exchange (through secondary sources) to import petroleum products into the country since N145 naira per litre provides some reasonable profit margin after supply costs. Meanwhile, the government is taking measures to block leakages through zero budgeting, Single Treasury Account (TSA), and its Anti-Corruption Agenda (even though one-sided).
We are now talking about refineries, public and private-owned refineries that will eventually make fuel scarcity a thing of the past. For the first time, we are talking about oil reserves for the country. But for the actions of Niger Delta Avengers, I think Nigerians would have started feeling some of the efforts this administration has been putting in to correct some fundamentals in our oil-dependent economic system.
So don’t sell your memories for a litre of fuel. Goodluck Jonathan was an incompetent leader and his administration was fantastically corrupt (apologies to David Cameron). This administration's poor performance so far cannot redeem yesterday's corrupt leadership.
President Buhari may not be abundantly blessed with the intellectual capacity to change Nigeria as he hopes to, but his weaknesses cannot become anointing oil for making the former President a saint overnight. No, it can’t.