Oil subsidy, Government & Labour unions – The sweet-bitter pill.

Economic Confidential Magazine
The furore that has been ongoing about the removal of subsidy has shown the dogmatism, hypocrisy and inability of the key players and so-called stake-holders to articulate the key facts of the situation and proffer a solution.

I will not elaborate on the various arguments proffered for and against the removal. And indeed, some of these arguments from both ends of the argument are quite valid.

However, I will just enumerate my views on the facts as follows:
1. It is a fact that PTS (petrol) was being subsidised up until 1st Jan 2012.
My view is that subsidy in the current form is unsustainable and economically suicidal. I agree with SLS that subsidy for production as against consumption makes more sense and these should be the way forward. For example, in the UK subsidy is on diesel used for agricultural productions and such diesel cannot even be used by the farmer for powering their private transportation as they are of different colouration from that used for transportation. And the rule is enforced accordingly.  However, economic sense should be tempered with socio-economic situation in Nigeria. This is a country where an average worker earns a monthly salary below N20,000.00 and they are now expected to spend about 50% of their salary on transportation to/from work. Hence, majority of Nigerians will automatically fall into fuel poverty which occurs when more than 10% of one’s income is spent on fuel and fuel dependent services.

2. It is a fact that the size of government in Nigeria is too big
Government and public service size in Nigeria is too large. Until government in Nigeria is accepted as an essential non-value adding service to the economy, akin to non-value adding services like legal, accounting etc in say a manufacturing organisation. Government and public service does not contribute anything per se to the real economy, but, it is essential for governance, policy etc. It should not ideally be large to the extent that it gulps the largest proportion of the nation’s revenue.

The hullabaloo caused by the removal of fuel subsidy is aggravated by the fact that the government/public service is bloated, does not represent value-for-money and does not really contribute anything to the economy, but, spends probably the bulk of revenue generated by the real economy (private sector)

My view is that the size of government should be reduced drastically to no more than 1 public officer per 500 Nigerians or 0.2% of the population. For the populace to expect and believe belt-tightening is relevant and just, the government should demonstrate same. The private sector should be enabled to prosper and generate wealth as they are normally the engine for real growth in any economy.      

3. It is a fact that wastage and leakages occur in a large scale in government
Wastage and leakages in government, which most Nigerians do accept as corruption and patronage, is rampant in public service. It is irresponsible of the government to purport to be in the process of tackling a problem (government wastage) that is known to have been existing for decades, while the government is quick to tackle the only succour that majority of Nigerians see as their only benefit/dividend from the Nigeria Plc. In as much as the subsidy removal is necessary, it is my opinion that these leakages and wastage, if properly tackled can adequately fund the purported transformational agenda. The tackling of these endemic problems should be a pre-requisite to any measures like the removal of fuel subsidy which directly requires sacrifices by other hard-working Nigerians.  

4. It is a fact that elected & political post-holders’ salaries are too high
Majority of Nigerians will agree that public officers’, especially politicians’, remuneration is not in line with the value they provide in the economy. There is no reason why a senator or Rep should be earning anything more than a permanent secretary in the civil service or a professor in a university (or at the most extreme- 1.5 times).

My view is that the government should demonstrate seriousness by linking the wages of politicians to the civil servants and do away with bogus allowances currently in place.

5. It is a fact that the Palliative measures are a whole lot of hogwash.
The government’s lack of direction is evident in the so-called palliative measures for the removal of fuel subsidy. The list consists of measures that are the core business of government and should be what a responsible government provides in the normal course of governance. It is quite laughable to believe the completion of “abandoned projects” which were originally budgeted for qualifies as a palliative measure.

The knee-jerk reaction and fire-fighting approach of the government shows the provision of buses for mass transit. As if the buses will run on water and not the same fuel that is the sticking issue. And if the transit system is to be sustainable, it must be run in a business-like manner and generate profit to make it a going concern, else, it will be subsidised by the government which defeats the purpose of the removal of the fuel subsidy in the first place. It will also have additional impact on the private transit operators and thereby affect the GDP accordingly.

The hypocrisy is not more apparent in the proposed importation of 1600 buses (if necessary at all), thereby squandering more foreign exchange, while local manufacturers or assemblers of buses who would have generated local employment and reduce unemployment by executing the supply contract have been “left holding their dicks and pissing in the wind” (excuse my language).

My view is that the government needs to thoroughly think policies through and engage individuals that can think a problem through to logical conclusion. The current decision-makers bar two or three are incompetent, sheer carpet-baggers and just drains on the resources of Nigeria Plc.    

6. It is a fact that government is not very good at running businesses
It is generally accepted worldwide that governments have never been good in running businesses and they should general stick to their core remit which is governance, policy making etc. The proposed 3 refineries being flogged as one of the palliative measures, on which the savings on the subsidy will be expended, is another mirage to Nigerians. How do you trust a government that has run down 3 previous refineries in the past and was unable to maintain it at the time, even with the multi-billion Naira spent on the alleged reactive turnaround maintenance programme of Warri refinery.

My view is that government should hands off all commercial activity, including oil-refining, power generation etc. With the technical know-how of some of the upstream partners- e.g Shell, Chevron etc, it is not a rocket science to request contractually or by statue that all upstream partners should refine a percentage (say 20%) of all crude explored in Nigeria within the country. This will firstly save the country the capital cost of set-up and provide a technical expertise and transfer of technology that Nigeria require, especially with the extension of the remit of the local content act.    

7. It is a fact that Nigerian oil resource is not well managed
Most Nigerians, in the know, agrees that the management of Nigerian oil resources, and indeed all resources, are in the least, incompetent, inept and rife with corruption. The arguments from both sides has been all about the subsidy paid on imported PMS, but nobody seems to mention the additional income that must have accrued from crude oil sa
les which would have otherwise been processed in our refineries. The real cost of subsidy and the economics can be perused in an article titled “The real cost of petrol” by Dr Izielen Agbon, former ASUU chairman of UI and former HOD of petroleum engineering dept UI. Google to find article online.    

Nigeria is a country where the exact data of amount of crude oil explored is not available nor is the agency tasked with representing the Nigerian people, responsible to the people, either directly or through the elected representatives.

So, it not unexpected if the populace are disenfranchised, disillusioned and kicks against the removal of fuel subsidy, especially when the perceived belief (rightly so) is that the country is rich enough to afford the subsidy despite the obvious corruption in the oil industry.

My view is that NNPC should be scrapped and a more open, smaller and efficient organisation set up as a replacement. After all, there is no rocket science in buying and selling, especially when you do not even need to open a shop!

8. It is a fact that NLC, TUC, NBA, ASUU et al have lost the focus and are bogged down by single-issue campaigns

The trade & professional unions, despite their isolated successes, have lost their way and are usually bogged down with single-issue campaigns from minimum wage to extension of retirement age.

The unions are probably the only organisation left in Nigeria that can check the excesses of the government & other public officers.

It is my view that the unions needs to address the myriad of problems in Nigeria and proffer strategies to address them comprehensively and not in bite-size.  

Example is the minimum wage, which should have addressed the excessive wages of public officials (political & civil) or the present oil subsidy removal protest which, in my opinion, should include issues about the system in place within the oil industry, NNPC dissolution, farce of the palliative measures and a host of related issues.
9. It is a fact that the government proclaims adherence to the rule of law
The proclamation of adherence to the rule of law is not good enough. Prior to the application of the rule of law, the existing law must be enforced.

Nigerians generally believe, and to a considerable degree correct, that the bane of the subsidy removal will result to corruption of the savings generated. And all key participants will walk away with their loot. I am more likely to agree with that supposition than otherwise given the precedence in Nigeria.
It is only in Nigeria that an election is cancelled for malpractices by the courts and nobody is indicted to face criminal charges for the malpractices. Or a project and budget is deemed to be “abandoned” without any contractual redress for breach or criminal investigation for misappropriated of public funds belonging to Nigeria Plc.
The government cannot expect the populace to believe the need for the fuel subsidy removal when they see these injustices and sacred cows on a daily basis walking away when they should be gnashing away for looting the wealth of the Nigeria Plc.

My view is that zero tolerance should be applied to corruption (both private & public) in Nigeria. It is not good enough to identify misdeed or corruption without enforcing the law and then, subsequently applying the rule of law.      

My submission
Despite my view that oil subsidy at the current level is not sustainable, I believe the government as a caring leader needed to have led by example by carrying out demonstrable level of house-cleaning before requesting that Nigerians should lose what most Nigerians believe to be their only dividend from their own oil-rich country.

It is expected that a country would use all the natural and all other resources available to it to enhance it’s competitiveness in the world market, and Nigeria should not be an exception. Oil is one of the main Nigerian resources. However, if fuel subsidy will be used as a competitive edge and used successfully, it should be for production of tangible goods/services and not for consumption as earlier mentioned.

I will submit that the following should have been a pre-requisite to oil-subsidy removal, which in my opinion is inevitable, now or later down the line.

The government should have shown demonstrable resolve to:
a) Reduce the wages of politicians to parity with permanent secretaries/professors etc. The savings will pay for minimum wages of 30k. Ideally, the highest paid public officer should not earn more than 10 times the lowest paid public officer. After all, they shop in the same market and they drive on the same road.
b) Reduce the size of government (federal, local & state) to 0.2% of the population. This will pay for severance & re-training for retrenched workers in the short term and more infrastructure in the long term.
c) Plug leakages and wastage in government. The savings will address critical “abandoned projects” and other infrastructural development.
d) Enact law or contractually compel exploration partners, to open and run refineries in Nigeria without government interference. A percentage of oil explored must be explored in the country in refineries funded and run by the partners as a going concern. e) Government should hands of all commercial services and only concentrates on governance and provision of social services.
f) Replace NNPC with a more efficient, smaller and accountable body.
g) Tackle corruption squarely and apply a zero tolerance to both public and private
I am sure Nigerians will be amiable to fuel subsidy removal if the government shows empathy by cleaning it’s own house first. And indeed, there may then be no need for subsidy removal.
Regards,

Femi Olajide

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