26/02/2024
AS TINUBU BUILDS THE COUNTRY OF OUR DREAMS - NIGERIANS SHOULD NOT REPEAT THE MISTAKE OF 2012
- By Ben Afolami
It is regrettable and pathetic that we Nigerians love to eat our cake and want to have it back.
Almost all facets of our public life as a nation have been subsidized; from PMS, to electricity and education, down to transport, and to everything the dollar can buy. After the government spends such a huge chunk of its revenues running into trillions to do subsidies yearly, we turn around to ask for good roads, portable water, stable electricity, good education, standard transportation facilities, good jobs, and a 21st-century security system among other dividends of good governance. No, it is not possible, we cannot eat our cake and also have it back.
As it stands today, It is better for renowned World Class Economists, in the class of Dr. Ngozi Okonjo-Iweala and the former CBN Governor Lamido Sanusi who saw all of these coming, and who knows that the worst is yet to come, not to comment on the present state of our economy and that of the nation, as they can be largely misunderstood not to have empathy or sympathy for Nigerians or be accused of been partisan. And let's forget, if anyone is telling you that Peter Obi or Atiku would have done better than Tinubu, the person is either uninformed, playing politics or deliberately deceiving you. Nigeria today is structurally defective. 1000 Abraham Lincoln can't perform any magic. Worst still is the fact that, last administration borrowed Nigeria into comma.
I have only chosen to objectively put this up to enlighten us. Because, another protest like the 2012 version to resist the ongoing economic surgical reforms, will throw Nigeria backward by another 50 years same way the 2012 protest took us 25 years backwards and of course where we are today. The endurance we rejected and failed to undergo in 2012, we are going through tenth of its folds just 12 years later. With total subsidy removal, GEJ and Dr. Okonjo-Iweala asked us to buy PMS at ₦141/liter in 2012. Today with 50% partial removal, we are buying at ₦600/l. We might eventually buy it at ₦1300/L. Time!!!
So, this write-up is only for those of us who seek knowledge to know the truths and face reality. You don't need to come for me o, as we are in it together. I am not a politician, neither do I hold any public office. I am only a concerned Nigerian who feels the next generation which my children will be among, should not face what we are going through now.
Ordinarily, this type of sensitization should come from the Government itself. There should be presently, ongoing town hall meetings across the country with opinion leaders, traders, artisans, religious and traditional leaders led by President Tinubu himself - sensitizing all of us on why the current tough policies are the only way out of the unfortunate circumstances our nation have found itself - why the future of our children and the prosperity of our nation we all seek, is directly dependent on these variables.
The sensitization sessions must come with all the data available. Telling the people how much is been saved. The infrastructural policies to pursue afterward and how it is going to ameliorate the sufferings of the common man in the long term. Unfortunately, President Tinubu is repeating the costly mistake GEJ made in 2012 - poor communication, sensitization, and strategy. Most Nigerians heard the word subsidy for the first time in 2012. Up till now, some PhD holders only hear the word, and use it every day but do not understand its workings. Unfortunately, too, President Tinubu led the 2012 protest – you say Karma is real?
Yes, it is an admissible fact that most Nigerian leaders are corrupt. From the politicians to the civil servants down to the altar. This is evident by the headlines of corrupt activities that dot our National dailies daily. However, it should be known that no country is free from corrupt individuals and leaders. Even the best and most powerful countries of the world have their share of corrupt leaders. Former US President, Donald Trump is currently facing criminal charges. At the height and heat of the Ukrainian war last year, Ukrainian President Zelensky took part of the donations to war victims in his country to buy one of the most expensive houses in Egypt and registered it with his mother-in-law's name. So, it is not corruption alone that has completely held us backward, though it is a fact that corruption had its fair share.
There are two realities that we Nigerians have failed to come to terms with as a developing nation. Firstly, we have a very poor economic system allegedly occasioned by different kinds of subsidies; from Fuel subsidies to electricity down to dollar subsidies. Secondly, we believe Nigeria is a rich country - Yes, we are rich, but compared to our population, Nigeria is a "Poor Giant".
LET'S TALK ABOUT SUBSIDIES.
Subsidy is a regime whereby the government pays a portion or percentage of the real cost of an item. As of today, the real and landing cost of PMS is about ₦1300 per liter, just like we find it in the price of diesel in Nigeria. In neighboring Benin Republic, PMS is equivalent to ₦1,600/l and as high as ₦2080/l in countries like Mali and Burkina Faso. In the US and Canada, it is equivalent to ₦1,000/l. These are countries without subsidies. Market forces dictate prices. In fact, what we have today in Nigeria despite the ₦600/l is partial PMS subsidy removal.
Now that we buy PMS for ₦600 per liter in Nigeria, who is paying for the remaining ₦700? - is it God or our ancestors? No, it is the government. The ₦700 extra and excess that you and I don't pay, which the Government pays on our behalf is what we call subsidy. And the ₦700/l is from the revenues of the Government generated through Oil sales. It means ₦700 per liter multiplied by millions of liters consumed in Nigeria daily. How can government have enough revenue to sponsor infrastructural programs, good education, research and development with a sound security system?
As of the last time I checked, the World Bank estimated that Nigeria needs a whooping $30 trillion to develop our infrastructural deficiency to full scale for an over 200 million population. That is $1 trillion capital budget for 30 years. Yet our total last budget is ₦28 trillion - equivalent to a paltry $18.6B, of which less than 50% of that money goes into capital expenditure. How many $9Bs is in 1 trillion dollars, to meet up with just a year's needed capital expenditures? So even if the government uses all revenue generated to invest in infrastructural development, we still have a very long way to go let alone they still have to pay subsidy from it.
We do not believe that Nigeria is a poor country? Okay, let's travel a bit.
Nigeria pumps just 1.4m barrels of Crude Oil daily for its over 200 million population. Saudi Arabia pumps 12m barrels daily for its just 35 million population. Russia produces about 10m barrels daily before the war for its 143 million population. And about 4m barrels per day for each of Canada and Iraq for their 38 million and 44 million population respectively. The United States is the highest producer globally, followed by Saudi Arabia, Russia, Canada, and Iraq in second, third, fourth, and fifth positions respectively.
Our last budget was equivalent to $18.6B the highest ever for a population of over 200m. The United States budgets an average of $5 trillion yearly for its population of 331m. The UK budgets €1.2 trillion for its just 67 million population. Saudi Arabia budgets $334B for its 35m population. Canada budgets $457B for its 38m population. Iraq budgets $153B for its 43m population. Yet, these countries still struggle economically and sometimes enter into recession. Can we now see how poor Nigeria is, in terms of revenue generation? Unfortunately, our remaining resources such as Bitumen, Gold, and Uranium among others are neglected because of oil.
Sadly too, out of the 1.4m barrels per day for over 200m people, the Nigerian government still uses almost 50% of the revenues for subsidies. And we in turn expect to have world-class infrastructural facilities and a booming economy like the US, UK, Saudi Arabia, Russia, Canada, and Iraq which don’t have such subsidies. No, it is not possible. Now we see, that to have the nation of our dreams, all subsidies including that of PMS must go.
A very unfortunate side of this subsidy issue is that, big businesses in Nigeria also benefit from PMS subsidies like we the citizens do to develop their companies. In order words, as it benefits the citizens, business sectors who should pay for everything used for the production of items that they intend to profit from also benefit from the subsidy to fund their operations. They too buy it the amount we do. This is aside from the monumental corruption that has greeted the subsidy regime in Nigeria. Imagine MTN, a South African company buys PMS for all their operational vehicles same price that we the citizens buy it, and afterwards repatriate their profits to South Africa.
Of course, it is pertinent to add that, ordinarily, PMS should be a luxury just like it is in most advanced countries and economies. The reason why the increase in the cost of PMS in Nigeria affects every sector of the economy is because we depend on it for every facet of our lives. In Nigeria, we need PMS to power our generators for private and business use, we use it for our daily transportation and in most cases, transportation of goods and services. So, when there is an increase in its price, it affects the cost of human transportation then goods and services.
But in the advanced economy, it is not so. From avalanches of coal and electricity-powered train systems to transport humans, down to the ones that transport goods and services. The train transport system covers almost every nook and cranny of those countries. In addition, we have busses that shuttle other short distances, all at a very affordable rate. In those countries, you don't need a car. Buying a car is a luxury, and so is buying PMS.
Now that we don't have such world-class transportation facilities, the Government needs money to put them in place so that we too one day will no longer need PMS before our lives can function. The cost of PMS will no longer affect our daily lives. But the Government doesn't have such money now. All the revenue they generate is not enough, let alone that they have to pay subsidies from the little they have. We can only endure, however, make them accountable for every kobo they safe from our sufferings just like they make the government accountable in advance climes too.
NOW LET'S TALK ABOUT THE DOLLAR SUBSIDY!!!
Dollar is unarguably the most prominent word in the mouth of every Nigerian these days. This is because, for everything you want to buy, you are been told that the "Dollar has Increased". You go to buy an item in the morning at a particular price, you get there in the afternoon the price has changed. Well, that is correct. Truly, the value and rate of dollar to naira has increased and largely galloping. But, did the rate actually increase? No.
The second fundamental economic policy to save the country from total collapse after the partial PMS subsidy removal on 29th of May 2023 by President Tinubu was the unification of the FX rate and allowing the rate to be determined by forces of demand and supply.
Before that bold and courageous step by President Tinubu, what the government did in the past due to lack of political will and to avoid an uprising as it is currently been drummed across the country, was to fix the rate of dollar to Naira. Fixing the exchange rate means the exchange rate in our country is not determined by market forces. The government pays for any excess that is accruable over the fixed price. Another subsidy you can call it.
In other words, before the unification of the exchange rate with that of the parallel market, the dollar sold at the official exchange rate for around ₦460/ dollar and ₦750 per dollar at the parallel market. The ₦460 is the fixed price by the government. The ₦750 at the parallel or black market is the price determined by forces of demand and supply. So, it means the Government had been subsidizing dollars with about ₦300 for each dollar we buy at the official FX. So as the government pays about ₦300, multiplied by the millions of dollars requested daily, we use the ₦300 subsidy for education abroad, BTAs, buying foreign wines and expensive shoes among other luxuries and things we naturally may not have needed if the government had not subsidized the dollar, because those items would have been much costlier as we today have them. Unfortunately, too, this dollar subsidy is still from the little revenue and meager FX the government generates from crude oil sales.
The reason why this new policy has scattered the whole country is because, Nigeria is a largely dependent country. We import almost everything we need. Yes, almost everything. We produce what we don't consume (Crude Oil) and consume what we don't produce such as refined products, machinery, and even the food we eat.
Now that the Government has stopped subsidizing the dollar, and almost all businesses in Nigeria import their inputs or even goods, aside from the dollar demands for foreign education, coupled with the activities of speculators and arbitrage, the rate of dollar to naira has continued to rise at a geometric rate. Noteworthy too is that there is a global inflation occasioned by the wars in Ukraine and Gaza.
Why is the dollar our headache, when naira is our currency? Let's discuss.
Why should we need dollars, if we produce all the cars we need? If we produce all the ammunition our military needs. All the clothes we wear. All the food we eat. And all the medications we consume. Why should the dollar be our headache when none of us go outside the country for medical check-ups or further education? So long as all of these things are not available in our country, and we have to import them, then we must remain a servant to the dollar.
The original meaning of Foreign Exchange is that, countries exchange goods and services. Saudi Arabia produces a massive volume of oil. They pay her in dollars. She then uses that dollar to buy ammunition and machinery from the US or Russia. So Saudi Arabia cannot produce ammunition, however, she has to use oil that she has to EXCHANGE for ammunition she cannot produce. However, Saudi Arabia does not import food, refined products, and major technical know-how and expertise such as aviation.
In the case of Nigeria, we produce very little oil, and we want to exchange it for a lot of things that we don't produce. From cars, to machinery, to ammunition, the clothes we wear, refined products, medicine, technical know-how such as aviation services, food we eat, and even fish. We depend on importation for almost everything we need for a paltry 1.4m barrels of crude oil that account for 90% of our Foreign Exchange (Dollar) And if you want the dollar to be cheap? It is not possible. The resultant effect is that as there is little available dollar that flows into the country from crude oil sales, there is massive naira chasing the little dollar for the plethora of demands that confront our imports. When demand exceeds supply, the prices continue to increase.
We have heard in the past that the naira was once higher in rate compared to the dollar. That is very correct. It happened in the periods of 1960s. Nothing has really changed about that same dollar. What has changed is our import demand. During that period, we do not import food, in fact, we had excess to export. We produced our own cars. We produced our own cloth and exported cotton. Malaysia came to take our palm tree seedlings. There was no demand for medical check-ups and there were limited requests for foreign education. The world literally depended on our palm oil, groundnut, cashew, and cotton. It was the excess money or dollars from those transactions that Awolowo was able to build the first Television Station in Africa even ahead of France. He also built Cocoa house and most of the major roads we use in South West up till today.
How is Tinubunomics Going to Help Nigeria?
The current Tinubu policies if allowed to stay will have multiple effects on our economy and how we grow as a nation.
Firstly, the policy is expected to make more money available to the government. By so doing government at all levels is expected to have more money for infrastructural development and expenditures. Take, for example, money saved on the subsidies should be used to massively develop our electricity generation to such an extent that an average village in Nigeria should have a 12-hour supply of power daily for a start. If we achieve this, demands on PMS and Diesel will reduce. And for the fact that electricity will be cheaper compared to fossil fuel, it will in the long run affect the prices of goods and services.
If the government is done with the electricity supply, the money saved further will be used for massive transportation facilities. There should ambitious plan for train system to link up the whole country such that we will no longer have any heavy-duty trucks on our major roads. Trains should transport our cement, rice, cocoa, and other industrial goods. Another positive effect of that is that there will be reduced pressure on our major roads and the government will not have to spend billions of dollars yearly to rehabilitate our roads. As pressure gradually reduces on government revenue we can begin to talk of an affordable and accessible health care system and good education can follow. Otherwise, we cannot eat our cake and have it back.
Secondly, the policies are expected to drive massive local production. How this is expected to happen is that, by the time the dollar continues to go out of our reach either to buy input for businesses or to import goods, we will turn to alternative ways of getting those goods and sources for those materials. And the only way left is to turn to our local sources for those demands such as massive agricultural investment, so with time, our demands for dollars will not only decrease but there will massive employment across all sectors. 80% of current Nigerian workers both in private and public sectors are into rendering services. Only 20% are into real production.
Lastly, the policies are expected to discipline us to eschew waste of resources. For every item or service that we enjoy, there is a cost for it. If you are not paying directly, someone is bearing the cost somewhere. In the case of Nigeria, the Government. It is in Nigeria that you will leave your home appliances and security lights on and travel for months. No one dares that in advance country. People buy foreign wines that have been subsidized through the subsidies on the dollar and just "pour champagne". It is in Nigeria, that an individual will have different types of cars for different purposes and outings only because PMS is cheap.
Take for example, since there was partial removal of PMS subsidies, most of us have cautioned ourselves on unnecessary travel and 24-hour running of generators. If we don't know, all these reduced wastages have in the long run reduced the demand for refined PMS and had a significant effect no matter how small on our FX demands direction. So, one of the fundamental purposes of subsidy removal is to ensure every consumption is valued.
Conclusively, I will urge the citizenry to henceforth make the government accountable for every kobo generated and appropriated. Every monetary infraction and corruption should be treated with the same ferocity as the hunger and anger we currently endure. All wastages of government and governance should be resisted in the strength of ENDSARS.
Labor Unions should not only ask for salary increases but mobilize the citizens for accountability advocacies, forums, and platforms. The Labor Union's demands for salary increase will only send the dollar to around ₦3,500 per dollar. The salary increase will lead to more money in circulation and more naira chasing the few available dollars and the rate of dollar consequently increases. In the end, the new increase returns to the old value.
Finally, in the long run, if the above measures come to play, pressure will reduce on both PMS and Dollars. And their prices will drastically come down. Time!!!
We have a great country called Nigeria, but we all must sacrifice to achieve that greatness. The future is bright and beautiful.
- Ben Afolami is a Financial Expert and Investment Analyst.
