The federal government of Nigeria recently removed subsidy on imported Premium Motor Spirit (petroleum) and increased price of fuel from 86.50 Naira to $145 Naira per liter. What that means is that official government price of a gallon of petroleum now cost 580 Naira, a little less than $2 per gallon. Prices of petroleum has been very low in Nigeria because it is heavily subsidized by the federal government.
Nigeria is the 6th largest exporter of crude oil in the world. The problem is that Nigeria turns around and import refined oil back to Nigeria for local consumption. Refined oil are re-imported because Nigerians are not able to refine the oil locally. Nigerian government have four refineries, but these refineries are operating at less than 10 percent capacity due primarily to corruption, mismanagement and lack of maintenance. Corruption in Nigeria oil sector has decimated the refineries in spite of billions of dollars that has been poured into its revitalization. Fuel subsidy has been a thorny issue for previous administrations that attempted to remove it. Nigerian Labor Congress always mobilize whenever any government attempts to remove the subsidy and has succeeded in preventing previous governments from doing so. A faction of Nigerian Labor Congress (NLC) embarked on an indefinite strike as soon as the price increase was announced.
President Buhari’s government was correct in removing the subsidy this time around because it is a program that has become unworkable and has devolved into corruption cesspool. It is unfortunate that President Buhari’s administration was not upfront with Nigerians during the political campaign that brought him to power. He went as far as explicitly telling Nigerians that the subsidy will not be removed under his watch.
Removal of petroleum subsidy is necessary because market forces of demand and supply should be allowed to correct the man-made and unnecessary inequities prevalent in that market today. What has happened as a result of government mandated price is that gas marketers are being forced to sell at below market price which has in turn led to hoarding which led to artificial scarcity and queue at petroleum stations and subsequent doubling and in some cases tripling of the petroleum prices in the black market. The end result is that Nigerians are losing in exorbitant black market price and availability of petroleum. What is remarkable is that as soon as the price increase was announced by the federal government, all the petroleum stations that posted no fuel in their station suddenly started selling the petroleum they swore they did not have earlier, and the queues started disappearing.
Another benefit of subsidy removal and liberalization of fuel import is that more businesses will now go into fuel import since they now know that they can now make more money and more businesses will be willing to build refineries since it will now make economic sense to invest. Federal government of Nigeria should immediately put up the four refineries for sale irrespective of the hue and cry and possible strike by the Nigerian Labour Congress. It should be recalled that former president, Olusegun Obasanjo privatized Port Harcourt and Kaduna refineries which was reversed by his successor, late president Umaru Yar’Adua. He promised Nigerians that it will be back to full operation in one year which never materialized. The refineries would have be operating at more than 50 percent capacity if privatized companies had remained in the hand of owners.
Time and time again, Nigerians government has demonstrated that they are incapable of managing companies. Major government owned companies such as Ajaokuta Steel Plant, government owned refineries, National Electricity Power Authority, Odua group of companies, state owned banks, Coal Corporation, NITEL, Nigerian Airways,textile companies etc. has been ran into the ground largely due to corruption and mismanagement. The way forward for Nigeria is to privatize the four refineries and cut our loses by shutting them down. It is not worth millions of Nigeria that has been poured into it. Even if the refineries miraculously start working under President Buhari, the rot will come back as soon as he leaves office. This government appears to be talking about bringing back Nigerian Airways. Bringing back Nigeria Airways is a bad idea that will go the way of other companies when the present administration tenure ends.
Nigerian Labor Congress strike ended in failure because Nigerians are already paying the prices they are protesting about. Same will happen when Naira devaluation is implemented because Nigerians are already buying dollar and foreign currencies at higher rate than the 290 or more Naira per dollar the government will implement shortly. The high cost of foreign currencies has already been factored into prices of goods. More so, devaluation of Naira will prompt Nigerians abroad and other foreigners to send more foreign currencies to Nigeria which will bring down the overall cost of foreign currency. Nigerian government should concentrate in building infrastructure and other social amenities and get out of the business of running companies because they will eventually fail in the long run. Also, one way to end corruption is to privatize it. Nigeria has adopted socialist based economy since our independence where the government ran major companies as such as refineries, banks, power company and communication companies and airline and these companies have failed. Let us try private sector powered economy and adhere to the law of demand and supply. It has worked in advanced countries and it can work in Nigeria as well.