Ending fuel scarcities by learning from Gala and Indomie
The first thing is personality. The president, President Buhari, is known for his stand against corruption for years.
Every Nigerian trusts him and every Nigerian knows here’s a man that would stand by his word. That, I think, is a very important part of all of these.
I think the country is ready for a change, I think everyone is saying this is the time to fight corruption, this is the time to get some discipline in governance. I just think that there is a sense that the moment is here. — Vice President Yemi Osinbajo
Your child is sick and he needs surgery. A man walks in, examines your child and says he’ll perform the surgery tomorrow. You ask the man what the surgery entails, he gives you a vague answer and begins to talk about how he’s a disciplined and strict man, you ask about his medical qualifications and previous medical experience, he says he has no tolerance for corruption and he lives frugally despite most of his colleagues living lavishly. Understandably, you’ll probably not allow that doctor operate on your child.
The doctor in this analogy is Buhari and the patient is the Nigerian economy. During the campaign, Buhari was portrayed as someone who was going to fix Nigeria with the force of his personality and zero tolerance for corruption.
With the Goodluck Jonathan regime making corruption it’s raison d’être, this narrative was like music to the ears of Nigerians and we danced to the tune of corruption free change sang by the APC.
It is becoming increasingly clear that competence is more important than personality, whether you are running a country or performing surgery.
China pulled 680m people out of poverty in 1981–2010, and reduced its extreme-poverty rate from 84% in 1980 to 10% now. They achieved this through deliberate industrial and economic policy and recognition of land rights. China achieved all this while still having rampant corruption.
Economists have found that good government policy, rather than a lack of corruption, drives economic growth. Here’s an excerpt from interesting article on the link between corruption and growth by Ricardo Hausmann
Probably the best measure of corruption is the World Bank’s Control of Corruption Indicator, which has been published since 1996 for over 180 countries. The CCI shows that while rich countries tend to be less corrupt than poor ones, countries that are relatively less corrupt, for their level of development, such as Ghana, Costa Rica, or Denmark, do not grow any faster than others.
Nor do countries that improve in their CCI score, such as Zambia, Macedonia, Uruguay, or New Zealand, grow faster. By contrast, the World Bank’s Government Effectiveness Indicator suggests that countries that, given their income level, have relatively effective governments or improve their performance, do tend to grow faster.
Incompetence, more than corruption, is hindering Nigeria from having inclusive growth. There are few more spectacular examples of this governments incompetence than the current fuel scarcity.
Here’s a video of the Petroleum Minister, Ibe Kachikwu outlining the reasons for the current fuel scarcity.
Most scarcities are due to corruption or greed. Either the *Association of People Privileged to Get Fuel Import Licenses(APPFIL) is hoarding petrol to sell at a higher price, or the *Group of People Supposed To Transport Fuel(GPST) is striking due to one real or perceived injustice. This one was largely due to poor foreign exchange policy.
The people privileged enough to get licenses to import fuel weren’t fortunate enough to get dollars, even the NNPC, which generates most of the country’s forex, struggled to get dollars to import fuel.
What competence looks like
I’ve loved Gala since I was young. It was my lunch throughout my school years. Here is the thing about Gala, it’s available all around Nigeria and for the same price. And as long as I can remember, there has never been scarcity of Gala. How can petrol(which is prone to various periods of scarcity and different prices all around Nigeria) be more like gala? What is Gala’s secret? Of course there’s no secret and tons of other products like Indomie, Coke and Close Up are all available all around the country at about the same price.
The Gala Model.
It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.- Adam Smith
Basically consumer goods are available in a way fuel is not because they operate in free markets, anyone is allowed to manufacture Gala and price it as he likes. Companies procure raw materials, manufacture final products and then distribute it nationwide. They do this because they are allowed to price the goods at whatever price makes the effort worth it. If the prices and margins get high enough, they attract more firms and this drives prices down.
What incompetence looks like
This is how fuel works in Nigeria. At the beginning of each quarter, the federal government decides how much fuel Nigerians need and hands out licenses for people to import that quantity, the federal government also imports a certain percentage of that quantity. The Federal Government then sets a price(currently 87 Naira, Nigeria has one of the cheapest fuel prices in West Africa) which fuel is to be sold for. Many factors affect the price fuel gets to Nigeria, from the price of crude oil, to the exchange rate of the Naira. These factors mean that most of the time it makes no economic sense to sell at the rate the federal government sets, so the FG previously covered the gap by providing subsidies to the petrol marketers.
Now the government has removed subsidies and is enforcing the fixed price with a pricing template that fixes margin for everyone involved in importing and selling fuel. The current margin only works with fuel landing in Nigeria at a certain price, which as I mentioned earlier depends on a lot of factors outside the control of the FG.
The government’s attempts to fix the price of the Naira and then the fuel price has inevitably lead to the same thing, scarcity of dollars and fuel.
The government’s role in the economy is to create the environment for the private sector to drive growth. The Nigerian government seems not to understand this, it’s the same in the the foreign exchange market, manufacturing sector and the power sector. The federal government interferes by setting prices and quotas, and this distorts the market, leads to scarcity, black markets and lack of growth.
What competence would look like in the fuel sector
The federal governments gives licenses to every one that wants to import fuel, acting only as a regulator, something like NAFDAC. Everyone that gets the license to import is allowed to price it at whatever price he sees fit, allowing demand, supply, competition and other market forces to price it appropriately.
Now, what does the NNPC and petroleum ministry do now that they have been freed from their favourite past time of deciding who gets licenses, setting prices, waddling in to settle all sorts of strikes, squabbles and fuel scarcities.
Well, now it can focus on what should be it’s main priorities, fixing our refineries, building and maintaining our pipelines and tackling environmental pollution and the Niger Delta crises.
With functioning refineries, and a transportation network for getting petrol all over the country, the NNPC can then sell through its own stations and then price that fuel at whatever price it likes whether 87 Naira or 8 Naira, while the private sector sells at whatever price they deem fit.
These ideas are by no means new, and the advantages of free markets over government controlled markets has been proven numerous times. Sadly, Nigeria seems to be run by a president with socialist leanings.
Until the President surrounds himself with people that have an understanding of how markets and development work in a modern economy, the force of his personality and his floundering anti corruption fight will not bring any meaningful development to Nigeria.
*Don’t google them, they don’t exist
This post originally appeared on my blog.
