The Nigerian Fuel Scarcity Palaver 4.0 — Back To Square One….And Then Further Back

“The first lesson of economics is scarcity: There is never enough of anything to fully satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics. When politicians discover some group that is being vocal about not having as much as they want, the “solution” is to give them more. Where do politicians get this “more”? They rob Peter to pay Paul. After a while, of course, they discover that Peter doesn’t have enough. Bursting with compassion, politicians rush to the rescue. Needless to say, they do not admit that robbing Peter to pay Paul was a dumb idea in the first place. On the contrary, they now rob Tom, Dick, and Harry to help Peter.” — Thomas Sowell

Nigeria’s ever recurring fuel scarcity problem is perfectly encapsulated in that quote by Thomas Sowell, particularly over the 31 months of the Muhammadu Buhari presidency. Between late 2015 and first half of 2016 Nigeria endured the most debilitating fuel scarcity in her 57 year history, the entire trajectory covered by the first 3 pieces in this series which can be found here, here and here. The entire issue was essentially a battle between Economics and Politics. The prevailing fuel price made no economic sense and naturally supply dropped, leading to a scarcity. What was required was an economic solution but with a Statist President still believing in his mandate to save the people, the issue was prolonged because the government believed it could make it work. Finally, as the economy shut down and the nation fell into a recession, economics won out with a 67% price increase and some semblance of normalcy was restored.

However, it was obvious to anyone with a little understanding that this was a band-aid approach as the fundamental issue of price flexibility was not addressed. While Minister of State, Ibe Kachikwu (a key protagonist in the entire saga at the time) had talked of his policy of “Price Modulation” which would allow the price to go up and down in tune with market forces, it remained to be seen if that would be allowed. Oil prices remained low and the price band set in May 2016 continued to work, until second half of 2017 when the gains from the OPEC policy of holding back supply began to work to great effect causing oil prices to rise. As a result, the price of petroleum products rose as well.

Price Modulation was put to the test and promptly failed. Instead, the Nigerian National Petroleum Corporation (NNPC) tried to fix a leaking pipe with tape by absorbing the cost differential while supplying to marketers at a price below the actual cost (NNPC supplies at N133 while current landing cost is N171). This would have been no problem if NNPC has limitless resources and is able to provide all of Nigeria’s requirement but this is not the case. Nigeria consumes between 40–45 million litres of petrol per day and NNPC at best was covering 50–60% while independent importers met up the difference. With prices not going up, it made no economic sense for independent importers to continue importing and so they stopped, waiting for government to make the necessary fix. It is pertinent to explain that importing fuel is not like going to the local grocery store to pick up plantains for supper, there is at least a 4–6 week lead time to get in product. With 50% of supply gone and no immediate replacement, it was inevitable that scarcity would set in.

Once again an economic problem arose and once again, true to type, the Buhari government has chosen to pursue political solution(s), refusing to learn from previous mistakes. This time around, they have taken it a step further by labeling marketers as saboteurs hoarding products, thereby inflicting hardship on the populace. The president is so invested in this idea that he mentioned it in his New Year broadcast to the nation, using such words as “collective blackmail”. He was building on actions by the NNPC Group MD, Maikanti Baru who has been going round filling stations freely giving away fuel found in these stations (he has made claims that these are illegal stations hoarding fuel, an indictment on himself as it is amazing how someone can set up an illegal fuel station and access huge volumes of petrol in full glare). Asides from the fact that this will in no way alleviate the issues at hand, it is a dangerous path to tread in a country with significant illiteracy, unemployment and latent anger, as it could lead to mob actions on marketers who could in turn shut down their stations for fear of attacks, exacerbating the supply issue.

One can understand the dilemma of the Buhari administration: it needs higher oil prices to finance its spending but is reluctant to increase fuel prices (an automatic outcome of higher oil prices) as that will “create hardship for the common man” a little over a year before the next elections. This could have been avoided if the deregulation had been allowed to take place in May 2016 but that didn’t happen as there was no political will (if you know, you know). The issue of fuel subsidy has reared its head again at a most inopportune time when the government is struggling financially, with actual revenue performance for first half of 2017 at 59% of budget. What makes it even worse this time is the zero transparency in the management of the subsidy process, as it is being managed by NNPC and not within the budget process. This means there is no oversight by the National Assembly as decisions on where to apportion scarce resources are being made unilaterally by the President and the NNPC GMD. To use Sowell’s analogy above, the education, health and security sectors are being robbed for a populist agenda of providing “cheap” fuel…..and the people have no say about it.

As happened in 2016, economics will win out. It is just a matter of when and at what cost. 2018 will be an interesting year for Nigeria as the jostling for power begins. It is important that Nigerians are clear on what they believe is critical to their individual wellbeing and shy away from making decisions based on some nebulous idea (the one for 2015 was corruption). Think about what persistent fuel scarcity takes away (in this case turning a festive season into a period of anguish and suffering), think about how poor economic decisions lead to job losses and inflation, which affect ability to put food on the table and send children to school. Think about continued insecurity all across the land as people get desperate, with armed robberies and kidnapping on the rise. Nigerians cannot afford to keep making the wrong decisions because they allowed the key theme(s) to be framed incorrectly. Nigerians must begin to ask the right questions and be clear on what they find acceptable.

Happy New Year and all the best in 2018.

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