REFORMS, THE NIGERIAN WAY.
The season of subsidy debate is upon us again, and it just seem to me that the political/bargaining interests of the various powerful groups like labour unions and others in the civil society on one side and the government on the other always drown out any understanding of the basic economic implications for the average Nigerian. I do not claim to bring any particularly new insight to the subject, rather I just want to put down my thoughts on the broad topic of economic policy using the fuel subsidy as a fulcrum.
BENEFITS AS PUBLIC GOODS
One thing that’s clear to me from talking to Nigerians about their discontent is that they see the subsidized price of petrol, no matter any reasonable submission on its inefficiency, as one of their rightful benefits from a governance system that does not care about them. Any policy that cuts or takes this benefit away is viewed as perfidious at best.
The political payoffs may not be hard to work out, even within a formal-analytical framework. This attitude was actively fostered by successive and chronically corrupt Nigerian governments. With a political and fiscal system that only seeks to centralize power, the only way to peacefully loot the proceeds of crude oil, our “national resource”, is to create an adjunct benefit from the said resource in the form subsidized petrol. The result is what we currently have where fixed and credible public goods like transport networks, power and cost-effective policymaking were neglected for decades.
The Jonathan government elevated this tradition to absurd levels with all kinds of “intervention funds” becoming the only policy response. The current government, despite its constant alarm about fiscal delinquency, has not shown any sign it will not continue this trend. What this means is that our economic woes will not abate. This abuse of the social contract is why Dangote could propose to fix a road in exchange for a generous tax waiver despite paying less than he should, and also the oligarchic arrangement where only the rich and government cronies can take advantage of economic opportunities.
PRIVATIZATION IS NOT LIBERALIZATION
This leads me to suspect, as Feyi Fawehinmi pointed out, that the subsidy may not be fully gone after all. One indicator is that the government is not signalling that this is a permanent move, only that it is unaffordable at the moment. Another is that the Minister is very vague on the specifics. But suppose we disregard the mixed signals and believe the government is serious about reforms in this sector, what are the red flags?
The most important reason to be suspicious is pricing. The Minister is promising prices will go down in six months without explaining why this would happen. Some commentators point out that the subsidized price was impractical and that petrol already sell higher in some states and the hinterlands. This is true but misses a crucial point. Production or technological efficiency and competition are what bring prices down. And both forces work best when combined. Suppose NNPC does become efficient through privatization (partial or full) and does become a net exporter by 2019, the chances are that the cartelization that was in place with the marketers/importers will resume in no time. As long as government retains a unitary pricing system.
Nowhere has this played out more vividly than power supply. Successive governments since 1999 has identified privatization as the magic wand that will banish darkness from our homes forever. There is nothing wrong with privatization, and given its history, the Nigerian government has proven incapable of managing basic services. But what most people happened to miss is that the private power companies would effectively be monopolies. This revived the concern of exposing Nigerians to greedy corporate interests and then as a remedy or a compromise with labour unions, government plugs in a “regulator” to control pricing. What the reform process should have prioritized are progressive rules that will guarantee the safety of investments and free entry for new practitioners. Imagine if Eko Distribution Co. could sell power to people in Ibadan and other distribution companies in the east could do the same in Ondo and all over the country with punitive measures that discourages anti-competitive practices like price collusion, power supply in the country would be in a better shape. And it eliminates the worry about the fleecing of Nigerians because all companies are competing. Some will drop prices to gain market share, others will because their technology can deliver power cheaply and more efficiently, while others in the same market will charge premiums because they think they offer superior services. Everyone will find their own competitive edge. The main function of regulation will be to ensure no one enjoys an unfair advantage. More importantly, Nigerians will have options!
What we currently have is an economy where anti-competitive practices is almost a national culture. Almost every industry and services from barbers to grinding vendors now have powerful associations that exert their influence primarily on prices. So next time you hear “corruption” remember that it’s not just politicians and bureaucrats stealing from you, they are also setting up markets and an economy that do.
Beware, dear reader, of change/transformation agenda, reform plan and privatization policies that have at the heart of them unitary pricing systems in the form of price ceilings or floors; or any such plans that ultimately seek to limit your options in the form of bans and import controls. They are never in your interest.
