The Issue Of Oil Price – Letter to President Obasanjo
Mr. Olusegun Obasanjo,
The Executive President of the Federal Republic of Nigeria,
Dear Mr. President,
The Issue Of Oil Price – Letter to President Obasanjo
Ever since your assuming office some two and half years ago, you have been hammering on the need for a drastic increase in the costs of petroleum products for, according to you, Government subsidy must go. For according to your opinion, the subsidy has made petrol cheap; as a result it is burnt carelessly by Nigerians possessing fleet of cars! In addition, the subsidy has continued to encourage smuggling of petroleum products into our neighbouring countries.
So, in effect your conviction for the removal of the subsidy will automatically do away with the problems as enumerated above and, more importantly, it will stimulate economic growth desperately needed by this country. Unfortunately, the price increase as contemplated has been opposed by the majority of Nigerians except the few within the administration and, in particular, the oil sector; and yet you remain ever determined to go ahead with your plan.
Well, I am certainly not an economist to be able to discuss adequately the soundness of your opinion in relation to the subsidy palaver. But as a mere spectator of economic activities, I beg to be allowed to ask you to refresh your memory on the performances of the past Governments since the clamour for the removal of petroleum subsidy had begun. Indeed, since then we have continued to witness incessant increases in the cost of petroleum products without the corresponding improvements of the economic growth.
Precisely, the increases have only achieved one thing – complete destruction of the economy and the petroleum smuggling continues to intensify unabated. The subsidy that was supposed to have been removed has continued to resurface again and again, emanating from tire galloping inflation. It is a vicious circle, alas! So, one wonders just how your strategy can do the magic in smashing off these ills you have correctly identified.
Now, let us get back to the so-called side effects of petroleum subsidy. The notion that Nigerians find petrol to be cheap is not true. It is the public office holders, strategic civil servants and their associates, who benefit generously from Government spending that display extravagance of the first order. They lavish profusely at the expense of the public, and this unfortunate situation will continue (bearing in mind the nation’s systems of doing things) no matter the cost of petrol.
A typical example, a legislator receives N5,000,000 as furniture allowance and is attached with 2 or more free cars with free maintenance, while the majority of Nigerians are wallowing in abject poverty and finding transport costs extremely unbearable. Even at the present high salary increase for civil servants, they only represent a minute fraction of the entire population.
Regarding the issue of smuggling, this practice will always remain, since price differential across the borders will always exist no matter the cost of petrol in Nigeria. Our neighbours do not produce petrol and will be glad to have some at any price. Admittedly, Nigerians find themselves in a similar circumstance sometimes when they are compelled to buy petrol at any price. They do so not because the petrol is affordable, but necessary, considering the crucial role of energy in their economic activities.
The cost of doing business in the country has undergone a phenomenal upsurge since the advent of sharp price increase of petroleum products. The unfortunate situation has undoubtedly rendered businesses extremely difficult to operate, and many have to be abandoned halfway or not started at all, resulting in large-scale unemployment and hyper inflation. The net effect, productivity has slummed considerably, giving way to massive importation of finished products – including, unbelievably, used tooth brushes!
The testimony points well to indisputable fact that the performance of our economic activities is extremely sensitive to any drastic rise in the cost of petroleum products. This is because transportation devices in the country are grossly inadequate, and the few owners are quick to raise transportation costs (quest for maximum profit) in line with any increase in the cost of petrol.
The resulting increase in transportation costs automatically pushes upward the cost of everything else, and the nation is instantly brought back to a worst start. The rise in the cost of petrol has, therefore, not paid off! Ours is a weak economic base and cannot be expected to absorb such a shock of price increase of petrol, unlike developed economy.
From the foregoing analysis, it can safely be asserted – based on empirical evidence – that, our economic trouble does not appear to have emanated from cheap oil price, for the simple reason that our economy since last 15 years has continued to suffer growth progressively with corresponding increases (rising inflation) in the cost of petrol.
Indeed, we have been holding out false hopes on haphazard measures as being appropriate in taking us out of our economic difficulties. The trouble is, the nation’s leadership since the recent past, has been shying away from attacking decisively the real obstacles retarding our progress. In essence, our nation all along has been barking up the wrong tree.
Accordingly, our nation has been confronted with high costs of refining crude oil because of the negative factors intrinsic in running public organisations, since our societal culture sets the overall framework upon which we operate. It is for this fundamental set-back that our refineries are just unable to produce economically. Therefore, it is unjust for the petrol consumers to continue to absorb the refineries’ liabilities usually referred to as high costs of production necessitating frequent increases in the cost of petrol.
In this regard, the Government’s proposal to liberalise refineries is in order, provided that prices of refined products are not freely fixed by the producers. Of particular importance, the Government will need to take appropriate control in ensuring that prices fixed are compatible with the nation’s overall economic objectives.
Presently, we are witnessing the liberalisation (deregulation) of banking services where interests are freely and ridiculously charged without the Government’s control – to the detriment of the nation’s economy. The banks are prospering extraordinarily well, while their customers are helplessly watching in despair. We are also witnessing the liberalisation of foreign currency purchases without Government’s control, and the resultant effect can be seen in the destruction of our economy.
The true source of our economic trouble emanates greatly from the chronic indiscipline engulfing the entire socio-political and economic systems of our nation, resulting in widespread mismanagement of valuable resources. This point has been mentioned time-and-time again by you, Mr. President. Unfortunately, little or nothing has been done to do away with this unacceptable ill.
The larger Nigerian society continues to tolerate mismanagement rather incredibly such that most of the operators of public organisations take due advantage to engage in financial recklessness, disregarding the organisational objectives. These groups of economic saboteurs boldly display their illegal-acquisitions without the slightest feeling of guilt; but in return, they receive immense glorification from the exploited society.
Thus, the monster, mismanagement in public organizations, has taken the centre-stage as the guiding philosophy for most Nigerians seeking success, while private businesses, which are the key areas for the creation of wealth, have been completely strangulated for lack of support. The enabling environment for economic growth cannot, therefore, be seen to exist, and it’s unlikely for any business initiative to make a substantial headway under this condition.
Bearing in mind the desperate state of our economy as that which has been unable to grow from its infancy, the Government should in the short run, discard its intention to raise price of petrol. Instead, let the present price be cut in order to substantially bring down inflation and make businesses prosper. Once the business grows, the Government can the tax them appropriately, in order to compensate for the benefit of enjoying subsidy, if any. There is definitely no harm in allowing the citizenry to benefit generously from Government’s subsidies. As a matter of fact, Government’s subsidies are necessary in the provision of the enabling environment for the business practitioners, especially in a fragile economy like ours.
This explains why most developing countries that have to pay so much for energy supplies are seen to be crawling continuously with no prospect of advancement. Experience has shown that most savings accrued from subsidy removal usually get wasted by public officers as they have more money to meet their recklessness, thus compounding the already high inflation.
There is, no doubt, earnings available to all the Governments in the country at present can stimulate and sustain economic growth leading to prosperity for the overall benefits within a short time. This assertion is based on the possibility of subjecting these earnings to judicious application, and this is what the citizenry expect from your government. If your government cannot do just that, but will subject the citizenry into a further hardship in the name of ‘subsidy removal,’ while allowing the few privileged ones continue to be the major beneficiaries of the nation’s wealth, it will amount to propagating injustice of the first order. Let it be known that injustice breeds crisis, which is unlikely to be contained by any level of security network.
Thank you for your attention.
Through the political adviser to the president
Aliyu Ari writes from: 2 Kafur Road, Off Isa Kaita Road, Unguwar Sarki, Kaduna.