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Emefiele’s Agony on Nigeria’s Cheap Dollar Subsidy for the Rich and Lazy

Jun 22, 2022   •   by Tope Fasua   •   Source: Tope Fasua   •   eye-icon 761 views

I was recently graciously invited as one of the panelists at the star-studded maiden edition of the Central Bank of Nigeria (CBN) summit on how to drive the export market in Nigeria for more productivity and sustainability, one of the policy planks under the RT 200 (Race to $200 bn foreign exchange inflow) initiative. Mr. Godwin Emefiele, the CBN Governor had launched the RT200 idea earlier this year, in response to what is an existential problem for this country. Some people call it ‘dollar scarcity’, but what it actually is, is a perennial, permanent balance of trade crisis resulting in a balance of payment disaster. 


This crisis has been worsened and laid bare with increased vandalism and if you like, ‘nationalisation’ or privateering of the nation’s crude oil resource by criminals as well as communities. The communities have complained for long about injustice. I wouldn’t say I support all their claims. But now, elements in many communities have simply found ways of debarring the government from getting much. Organized criminals everywhere have also leveraged on the community angst, such that in some assets, when 200,000 barrels is pumped through the pipes, only 3,000 barrels is found at the other end. That is a 98.5% loss. Which serious company will maintain such an asset resulting in major losses? The asset that Tony Elumelu acquired suffered this fate.


Therefore, on the flip side, the industry has seen serious divestment in Nigeria. They also made some mistakes. The Minister of State, Timipre Silva said the other day that they were asked to cut down production by 100,000 barrels a day sometime in 2020 by the OPEC cartel to which Nigeria belongs. They mistakenly cut down 300,000 and till date have been able to recover only 70,000 in production. Nigeria is unable to meet even her OPEC quota, as only deep-sea production by the major IOCs (International Oil Companies) are assured these days, shallow water and land assets having been greatly compromised. The crude oil sector in Nigeria is as good as dead. What Nigeria manages to get from exporting below-OPEC- quota crude oil – which is like 30% of the value as reported by NEITI (the 70% bulk value being due to the IOC’s who actually produce the crude) – is totally cancelled out by the refine petroleum and other oils like diesel that we import. The Minister of Finance, Hajia Zainab Ahmed said this exactly at the recently concluded World Bank Nigeria Development Update. 


With crude oil no longer able to save Nigeria, we have all being caught swimming naked. Our rump is now in the open. But our behaviors have not been curbed. Nigeria is often left out of many analyses by serious entities these days, because we are an outlier – a very unique case study of how to totally mess up an economy. Contrary to what the banker types and liberal economic thinkers and pushers of ‘orthodox’ economic thinking would have us believe, the issue is not just the petrol subsidies. Imagine that people are pushing a developing, informal economy to adopt orthodox ideas od Adam Smith! The problem is much deeper, structural and historical. I don’t know why some of such guys – who are often powerful and have had great input in running our government – like to think very narrowly. Real economists do not think narrowly but systemically. I have to vent my profound fears, but these guys think in lockstep with multilateral agencies like the IMF and World Bank who have since focused narrowly on the need for Nigeria to remove oil subsidies. 


If Nigeria does that presently, I’m afraid we will collapse the country.  Not like we haven’t tried before though. Nigeria agreed when Buhari removed subsidy by raising the price of petroleum from N87 to N145 in 2016. What undid that ‘full and final’ removal of subsidy was the devaluation of the Naira that came right after. All of a sudden, N145 which had been equivalent to about 80 cents, became less than 40 cents, bringing back the subsidy, which was then termed as ‘under-recovery’ by the NNPC. I don’t think any serious economic argument went on under the Buhari administration. Or maybe what they lacked was honesty in painting the true picture for the president. Devaluation and deregulation, when you mark the market to the US dollar, do not go together. The same issue is sure affecting the power sector as we chase and elusive ‘market-reflective tariff’. The people are groaning. The economy is dying. Crime is rising. Inflation is rising. We are in another economic depression and something needs to be done urgently.


As far as the so-called ‘dollar scarcity’ is concerned, I think the use of that phrase by those who promote it – including manufacturers’ bodies apart from bankers – is escapist, lazy, and deliberately obliterates the importance of the trouble we are in. You cannot complain about ‘scarcity’ of money when you are not working or producing anything worthwhile for others to buy off you. You should get a job, or create something worth some value, and push it in a crazy, dog-eat-dog world that the market is. As far as a nation is concerned, we must understand that almost all the countries that matter want us to remain where we are – as markets for their manufactures and technologies, while the sometimes humour us by buying some of the crops that we produce. The African Growth and Opportunities Act (AGOA), promoted by the USA is one of such. The focus is on raw commodities (which they often reject for reasons of standards and traces of pesticides (what they call phytosanitary conditions). Indeed, the AGOA is dominated largely by crude oil from countries that produce in Africa.


The real problem with the Naira, and why it is important for the CBN to continue managing the rates very actively as it has done, lest Nigeria and the Naira falls into a bottomless pit, taking all of us with it (except those smart Alecs who have stashed dollars somewhere but don’t know that they will still be hurt by the collateral damage), is that we don’t produce much that is worth anything. I think it is important that we repeat ad nauseum, the fact that our top 15 imports – according to Trading Economics – are in each in several billion dollars range, while only two of our exports can be so categorized. Our chief import, year on year, is technology (hardware, software, machinery for our few industries, spares, cars, and the expensive gadgets of which we are very fond). Nigerians love carrying their expensive phones around, and they love their glistening luxury cars. But we can ill-afford these. 


The government that comes next has too much to do. I pity them. It will not be a walk in the park at all. Some decisions will rile the public but they must be taken. Those who will work with government MUST have to work for free. It must have to be a sacrificial government that will work so that coming governments may build on their sweat. But who cares? Who can see this vision? Well, after technology, our next biggest import is refined petrol. If we import technology, gadgets, phones and cars worth about $40 billion annually, we also import petrol and diesel of close to $20 billion. The problem is that we don’t make up to $20 billion from crude in some years – being our 30% share. In our list of imports are other top-hitters, like pharmaceuticals ($3 billion), plastics ($2.5 billion), cereals ($2.3 billion), fish and other crustaceans ($1.3 billion), Iron and Steel ($1.2 billion), and others like dairy products and sugar on which we spend about $900 million EACH! These are 2020 numbers.


On the export side, all we have apart from crude oil and the gas from NLNG, are oil seeds ($317 million), cocoa beans ($280 million, fertilizers ($180 million), cashew nuts and coconuts ($117 million). You can see how quickly we hit the floor. I haven’t even mentioned the fact that we spent $28,2 billion on foreign education in the last ten years. Call that $2.8 billion yearly. Could be more, because there was a slow down in the covid year. Some point to remittance of about $25 billion, and the CBN has tried to encourage more of that, but what about corruption that sucks out more than $200 billion or more, yearly? 


Even legitimate earners take their monies out. There are all sorts of things that put our currency under pressure. The gambling business which is now ubiquitous among Nigerian youths is one. Purchase of high-end foreign beverages like champagnes, brandies, whiskies, is another. Our women all wear foreign wigs. Almost all our building materials - including workers - are from abroad. All of our clothing is from abroad. Most components of our local shoes are from abroad.  Put all these together and we are looking at another $300 billion. One may see wanton laziness and a refusal to think on our part. But these are also great opportunities that Nigerians must take, and that must be incentivized by the government to save our souls.


About the Author

Tope Fasua is the CEO of Global Analytics Consulting Ltd. He can be reached vide [email protected] 

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