Time for Reform is Now!


Patrick Okigbo

As the Nigerian adage goes, the wind has exposed the fowl’s behind and it is not pretty. For years, high oil prices glossed over Nigeria’s poor economic choices but a reversal in fortune has put Nigeria’s vulnerability on global display. Will Nigeria’s leaders – in government, civil society, and the private sector – use this opportunity to drive the needed reforms? There is a compelling case for the removal of the fuel subsidies and to drain that cesspool of corruption. The question is; can Buhari do it?

There is no good point from where to start this bad news. Take the 2020 national budget, for instance. The benchmark crude oil price of $57 per barrel is now at about $27; the same price level that triggered the 2016 recession. What was the basis for Nigeria’s projected sale of 2.18 million barrels of oil per day when data from the Central Bank of Nigeria (CBN) shows that the last time the country sold that quantity of crude oil was in January 2006? In fact, the last time Nigeria produced that quantity of crude oil was in November 2015.

Will the low crude oil prices recover? It depends on how the current crude oil price war is resolved. Saudi Arabia called for a cut in oil production as a way to increase prices. Russia refused and this led to a drop in oil prices. The United States, which needs prices to come back up to $40 per barrel, retaliated with sanctions against Russia who, late last week, indicated her willingness to negotiate. Oil prices have started inching upwards but many analysts are still forecasting a drop to about $10 per barrel. Nigeria’s revenue is still against the ropes.

A combination of a slowdown in global demand and the impact of the COVID-19 pandemic has triggered a global economic recession. Over 80 countries are already seeking support from the International Monetary Fund. Nigeria may not be spared the recession because she is vulnerable to a number of external factors that have already resulted in declining revenues. Last week, the CBN devalued the naira by 15 percent after it burnt through 16 percent of Nigeria’s foreign reserves in just one year. Unfortunately, Nigeria lacks the production capacity to take advantage of the expensive dollar. A lot needs to change.

Bad Economics

Every Nigerian president since 1973 has known that the fuel subsidy is not sustainable. However, they all lacked the temerity and tenacity to do the needful. These failures have resulted in a need for urgent reforms across all sectors of the economy even at a time when the country is very poor.

The intent is not to exonerate President Buhari from his responsibility. In fact, he has made many of his own errors. How can one justify his refusal to assent to the Petroleum Industry Governance Bill; an action that should have unlocked billions of dollars of investments in the petroleum sector? Similarly, he has had at least three opportunities (in 2015, 2016, and 2019) to eliminate the subsidy on Premium Motor Spirit (also now as petrol or gasoline) and stop the corruption.

He refused. To put things in perspective, Nigeria has wasted over N10 trillion on fuel subsidy from 2006 to 2018. This amount could have built and equipped at least three 1,000-bed hospitals in each of the 774 local government areas in Nigeria. Let that sink in, especially in the face of the ongoing COVID-19 pandemic.

Those opposed to a fuel subsidy reform will argue that the programme is in the interest of the poor. This is not true. There is now enough empirical evidence from Nigeria that it is the rich, not the poor, who benefit the most from the fuel subsidy. Isn’t it malevolent that kerosene – the product predominantly used by the poor – is not subsidized in Nigeria? By the way, in the event that the poor are impacted by the removal of the subsidy, there would be enough savings from the reforms to offer the right palliative measures.

No Ghosts in this Closet

One would understand if President Buhari is apprehensive about fuel subsidy removal. As the adage goes, he whose father was stung to death by a bee is typically petrified by a housefly. It was a similar reform effort in 2012 that helped coalesce the opposition against President Goodluck Jonathan. Buhari rode the public angst to Aso Rock.

The circumstances are different this time. The coalition that opposed the 2012 fuel subsidy reforms has shifted ground since then. A 2015 study conducted by Nextier Advisory, a public policy advisory firm, shows that, except for the labour unions, all the other parties now support the reforms: civil society organisations, stalwarts of the All Progressives Congress, many members of the National Assembly, agencies in the petroleum industry, and the state governors. In 2018, the “Enough Is Enough Coalition” that was at the forefront of that protest hosted a workshop advocating the removal of fuel subsidies. The economics of the subsidy is now clear to even the most dogged resister.

The labour unions are still holding on in opposition to reforms because their raison d’être is to protect the jobs of their members. Per the 2015 Nextier study, the unions want the government to “fix the refineries first” before removing the subsidy. They argued that the subsidy would not be necessary if oil was refined in Nigeria; a concern that is being addressed by investors such as the Dangote Group.

The main challenge is that President Buhari may not be inclined to deal with the subsidy. A December 2019 Political Economy Analysis conducted by Nextier Advisory showed that President Buhari genuinely believes that he is making the right decision for poor Nigerians. He is not. The poor who he might truly wish to protect are not the ones enjoying the subsidy. He needs to be open to what the evidence suggests.

Panadol; Not Brain Surgery

No reform process is easy but some are easier than the others. A fuel subsidy reform, at this time, is not as difficult or complicated as, say, a public service reform. This is because the drop in crude oil prices means that the reform will have minimal impact on the poor. The government must be commended for realising this fact. In March 2020, Petroleum Product Pricing Regulatory Authority (PPPRA) dropped the retail price of a litre of gasoline from N145 to N125, in the first instance, and then to N123.50, in the second instance. This is a move in the right direction but it has, again, stopped short of a full reform. The gains will not be sustained. They were not sustained when a similar programme was tried in 2016.

While Nigerians are thankful for the reduction in price, the review looks arbitrary. How did PPPRA arrive at this figure? Why is PPPRA the only ones anointed enough to talk to the gods and then interpret the revelation for the rest of us? Why is their pricing template not made public for other experts and market players to chime in? Using the 2016 PPPRA template, Nextier Advisory calculated that the current pump price should be about N100. If this is correct, why are Nigerians paying an extra N23.50 per litre?

President Buhari, this is the time to act. As was the case in 2016, you have another golden opportunity to remove the fuel subsidy and rout those who have continued to profit from the subsidy at the detriment of the masses. Let market forces determine the price of fuel as it does the price of garri. The government should ensure that marketers do not collude to set prices.

Shower Time

The current state of the world economy provides the government with the opportunity to resolve many of its fundamental economic challenges. Most Nigerians appreciate that the country can’t continue stumbling its way to the future. It needs far-reaching reforms. Nigerians still see President Buhari as bold enough to make difficult choices. They would understand if the President calls for a “big bath”, or that concept in finance where all of the defective decisions and pulled together for a one-time write-off.

The opportunity for reform is now. Not tomorrow. Now! No one knows what the state of the world would be in the morning. President Buhari should outline the major reforms and communicate how he has decided to sequence them. He should invite comments from Nigerians who already know that the country can’t continue to prioritise fuel subsidy payments over investments in education, healthcare, infrastructure, or defence. Nigerians are waiting for this clarion call from President Buhari. He should see this as his opportunity to define his space amongst the constellation of leaders.

Becoming Immortal

President Buhari, fear not. The labour unions are the only ones who would resist the reforms because of the potential loss of jobs at the government refineries. Counter their argument with evidence of the billions of dollars that have been spent on turn-around maintenance (TAM) of the refineries without any considerable success. There is no assurance that further spending on the refineries would make any difference. The government should be bold enough to propose a privatisation of the assets after putting in place a generous severance package for any staff who may lose their jobs.

The labour unions cannot argue about the negative impact on the masses if the reform is implemented now. The current low oil price regime means that there won’t be any increase in pump prices and so no increase in the cost of transportation for the poor. Fuel prices may go back up in the future but that will be after the world has defeated COVID-19 and opened up its doors. At that point, Nigeria can recommend a suite of palliative measures including but not limited to universal health coverage, conditional cash transfers, transportation vouchers, etc.

In conclusion, the current global challenges have presented an opportunity for President Buhari to provide a definitive solution to the perennial fuel subsidy. His ability to seize the moment could be what brings together his life’s work to its apogee. This could be that opportunity he has been looking for to strike one effective blow on corruption. Failure to address this problem could quicken the decline of this once-great nation. All eyes are now on President Buhari to see if you can rise to the occasion and do the needful. It would be a shame and a wasted opportunity if he doesn’t.

•Okigbo III is the Founder and Principal Partner at Nextier.