_C. E. Oyibo
Finance Minister Okonjo-Iweala and Central Bank Governor Sanusi (as everyone in the public service) work for us, the Nigerian people. Indeed, we would not need to explicate this point if Nigerian public servants put more emphasis on the notion of service, rather than ruler-ship. But, yet, in that they are public servants, Okonjo-Iweala and Sanusi owe us the fiduciary duty of due diligence. Due diligence, in turn, requires these officials to act with a reasonable standard of care in administering the Nigerian economy.
This author, as many other well-meaning and right-thinking Nigerians, has argued that while the removal of the subsidy on the downsteam oil sector is an economically sound decision, the timing of such a removal has to be appropriate in order for such a removal to work to desired effect. Specifically, we have argued that a sudden removal of the subsidy, without enacting appropriate measures to mitigate potential economic risks, will result in severely adverse impacts to the people in the form of skyrocketing fuel prices, and, as a consequence, a rising in general prices. But, mark you, the resultant rise in price levels will be be different from that caused by a conventional inflation, where price levels rise in response to a boom in the volume of currency in circulation (i.e., more people have more cash in hand than there are goods and services available in the economy, driving prices upward as a result of the demand/supply differential). The general price increase engendered by a sudden removal of the fuel subsidy will be the direct consequence of the skyrocketing of the price of fuel – and as a result the prices of everything else, from transportation and foodstuff to rents and school fees. Worse, the overall purchasing power will decline (since prices are going up), further exacerbating the situation.
These are simple, common-sense arguments that people are making to the government: don’t rush headlong into fuel removal as though it poses an imminent threat to our economy (indeed, the subsidy has been in place for decades!). While this author and others fully appreciate the negative incentive system fostered by the regime of oil subsidy (for example, resulting in smuggling and other rent-seeking behavior), we nevertheless insist that the government should not put the cart before the horse by removing the subsidy first, before (attempting to) deal with the underlying structural issues. Specifically, we have argued that the order of business vis-à-vis the fuel subsidy debacle should be as follows: (1) Repair and bring the four state-owned refineries to optimum utilization and production capacity—which we believe, based on the available evidence, will satisfy local demand, and, as a result, forestall the requirement to import refined crude oil. (2) Develop a comprehensive plan for redeploying the current subsidy allocations—not just generalities and palliatives, but specific, concrete plans about which roads, schools, hospitals, commercial zones, etc. will be built, where, by when, and for how much. (3) Arrest crude or refine oil smuggling and other illegal activities. This requires political will and chutzpah, since the oil smugglers and “bunkerers” are themselves, or otherwise backed by, well-heeled political interests. (4) Engender a free and enabling environment in the oil sector (and across the economy), as a precursor to a fair and competitive basis for liberalizing the sector. This includes enacting a deliberate set of policies aimed at deregulating (i.e., removing government involvement from) the sector, and shoring-up social, economic, and political institutions and assurances like the rule of law (to protect private sector contracts, etc.) and security of lives and property. (5) (Only, after the preceding steps have been implemented with satisfactory results), then liberalize (i.e., finalize the planned deregulation of) the downstream oil sector through the removal of the subsidy. At this point, the country’s refineries are functioning at optimal capacity, local demand is satisfied by local production, smuggling is significantly contained (if not eliminated), the downsteam oil sector is open and competitive (such that any importation is purely a private sector activity, driven by the profit motive—where the potential for such profit might exist—and devoid of government subsidy). (6) Grant additional licenses to private sector participants to build and operate refineries in order to boost local production, spur economic activity, and target the export market for refined crude oil.
This common-sense approach requires single-minded seriousness about tackling the significant challenges facing the county, as well as the will to solve the problems holistically rather than sub-optimally. Rushing to remove the subsidy early next year might be easier for Okonjo-Iweala, Sanusi, and Jonathan, than fighting the entrenched criminal interests (the “cabal”) that benefit from the regime of moribund refineries and fuel importation. However, in doing so, they will not only have failed the people they purport to serve, but they would have created a different set of economic problems as a consequence of skyrocketing fuel prices, and, potentially given birth to a new cadre of rent-seekers who will position themselves to benefit from the resultant economic mess.
If Okonjo-Iweala, Sanusi, and Jonathan would prefer to rush headlong into removing the subsidy: that is to say, if they would rather turn against the masses by inflicting the pain of subsidy removal on them rather than fight the criminal (but politically-connected) powers by bringing the refineries to optimal utilization and fighting the smuggling, bunkering, corruption, mismanagement, waste, etc. that represent major costs to the economy, then this author demands—as should every citizen of this country—that the trio perform the due diligence that is required by their fiduciary duty to us, the people. They must provide us with detailed analysis that demonstrates to a satisfactory degree that (based on the conclusion they have reached from such analysis) removing the fuel subsidy in the immediate term will neither harm the economy nor adversely impact the populace.
This is the refrain that every Nigerian must sing in the days leading up to the end of the year, and into early next year: they must demand that Okonjo-Iweala, Sanusi, and Jonathan provide us with documented assurances that they have applied the highest possible standard of care to the economy by thoroughly studying the fuel subsidy issue. Such documentation of due diligence (as opposed to the ongoing barrage of jingoism and propaganda) will serve multiple purposes: it will (1) force these folks to be truly duly diligent about the matter; (2) document their positions and rationales in toto; and (3) provide us, the people, with a basis for holding them responsible for any adverse impacts to the economy should they insist, in spite of popular opposition, on removing the fuel subsidy next year.