Nick Agule
Email: nick.agule@yahoo.co.uk
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President Tinubu never lets an opportunity to slip to showcase the reforms embarked upon by his government chiefly of which are removal of petrol subsidy and unification of foreign exchange rates.
Recently in China, the President told a group of Nigerians that ““Nigeria is going through reforms, and we are taking very bold and unprecedented decisions. For example, you might have been hearing from home in the last few days about fuel prices.”
Taking a closer look, the question is whether the policy decisions taken by the government are reforms in nature.
Economic reforms are meant to disrupt the status quo, remove structural obstacles and distortions, unlock growth, attract investment, create jobs, prioritise innovation and generally deliver better benefits to the citizenry than previously obtained.
Let us therefore examine the policy pronouncements on this basis:
1. Removal of petrol subsidy
First of all, have we really removed petrol subsidy? What about the $6bn shortfall between the landing costs and selling price for petrol on NNPC books? It doesn’t matter that we don’t call it subsidy but if we are selling a product at a price below the costs we got it, it’s subsidy all day long!
Now even if we truly removed petrol subsidy, by so doing alone it falls short of economic reform. Simply removing subsidy while continuing to import inflation does not come close to disrupting our moribund downstream petroleum sector. Rather it throws the citizens under the bus who are earning N30k minimum wage but having to pay salaries of refinery workers in geographies where minimum wage is circa $3k! Oh yes! because each litre of imported petrol we buy in Nigeria, the salaries of the workers at the foreign refinery that produced the products is inclusive in the price we are paying so effectively we are paying the salaries from our comparatively small wages!
A reform will of necessity involve the unbundling of the downstream petroleum sector, sorting out the refineries, privatising the NNPC, creating the enabling environment for investment in new energy sources to be tapped, having a programme to transition the economy from fossil fuels to new energy etc. Ultimately the goal is to attain energy sufficiency and security at the lowest price possible. Is there such a reform plan by the current government? I have not seen any yet.
2. Abolishment of multiple exchange rates
Have we really abolished multiple exchange rates? We still have the CBN supplying FX to BDCs at rates different from the market!
But even if we truly abolished multiple exchange rates, it is not a reform by itself. It could be called a Govt policy on forex but certainly not a reform. Because a reform is intended to overhaul, streamline and make the situation better. But when you hike forex rates in an import dependent economy and do nothing else, you throw hardships on your people and nothing more as imported inflation eats into their disposable incomes leaving them even more impoverished!
A reform will involve a clear plan to switch around our import dependency to an export economy for which we are well placed given our rich resource endowment and comparative advantage on all fronts! Reforms that boost domestic output will tame inflation, create jobs, generate more export earnings and generally deliver better welfare to the people. The question is, what exactly is the Govt doing to turn us around from import dependency to an export economy?
The same applies to hikes in interest rates in a cost-push inflationary economy. The hikes is not a reform but a reactionary approach to tackling inflation that’s resultant from higher fuel costs, escalated electricity bills, poor agricultural yield, low power output (3kMW), poor manufacturing base etc. Reforms will tackle these structural deficits rather than using monetary policy alone!
Same applies to the power sector. By simply hiking tariffs is no reforms at all. Reforms will involve unbundling the sector, dealing with transmission and distribution and creating the enabling environment to energise Nigeria with new energy etc. Strangulating consumers to fund all the electricity companies when they are delivering only 3kMW is the worst economic policy that could ever have been implemented. The power sector companies were expected to invest to boost capacity and output to cut the unit cost rather than hike it. It’s what happened in the telecoms sector where MTN & co have invested over $100bn to boost output from NITEL’s 500k active lines to over 200m active lines today. This high output has crashed cost of lines to almost zero! This is what’s needed in the power sector too and only structural reforms can deliver it.
In conclusion, it is hard to see any economic reforms embarked upon by the Tinubu government. There have been economic policies but reforms are more holistic and meant to make things better not to add to the existing pains of the citizens. President Tinubu needs to begin economic reforms as soon as possible.
Nick Agule is a Nigerian citizen, energy expert and public affairs analyst.
