Surviving in a deregulated economy: Odds before Nigerians
With the latest increase in the pump price of Premium Motor Spirit (PMS) otherwise known as petrol, Nigerians have, no doubt, begun to feel the pressure that comes with deregulation. On March 18, this year, the pump price of the product was reduced to N125 per litre from N145 per litre effective March 19. There was a further downward review of the price on May 31 when the Petroleum Products Pricing Regulatory Agency (PPPRA) announced a new pump price band of N121.50 to N123.50 per litre effective June 1. The reduction in price then followed a sharp drop in crude oil prices on the back of the spread of coronavirus, which saw the landing cost of petrol hitting a record low. Nigerians had welcomed the development with much enthusiasm but the party was short lived. The market forces soon began to dictate the opposite and the price has been on an upward swing since July, which necessitated the outrage that has been trailing the new price band of N165 to N170 that came into effect penultimate Friday.
Earlier this month, the electricity Distribution Companies (DisCos) had also commenced the implementation of the revised electricity tariff, which has resulted in some residential consumers paying as high as N53.87 per kilowatt of electricity instead of the initial N21.80. The tariff hike came following the Federal Government’s decision stop subsidising electricity and allow what it termed Service Reflective Tariff (SRT).
Although Nigerians have been decrying the burden these price hikes have placed on them, President Muhammadu Buhari recently enjoined Nigerians not to expect a reversal.
Speaking through Vice President Yemi Osinbajo at the two-day First Year Ministerial Performance Review Retreat at the State House Conference Centre, Abuja, the President said there would be dire consequences if the government continues with the business of fixing or subsidising the price of PMS.
His words: “There are several negative consequences if the government should even attempt to go back to the business of fixing or subsidising PMS prices. First of all, it would mean a return to the costly subsidy regime. Today, we have 60 per cent less revenues; we just cannot afford the cost.
“The second danger is the potential return of fuel queues, which has, thankfully, become a thing of the past under this administration. Nigerians no longer have to endure long queues just to buy petrol, often at highly inflated prices. Also, as I hinted earlier, there is no provision for fuel subsidy in the revised 2020 budget simply because we are not able to afford it, if reasonable provisions must be made for health, education and other social services.”
Also, while presenting the 2021 budget to the National Assembly on Thursday, October 8, the president noted that, “the new petrol pricing regime has freed up resources that was allocated to subsidise petroleum products.”
He also emphasised that, “the service reflective electricity tariffs will help resolve liquidity crisis in the power sector and make the sector attractive to foreign investment,” adding that, “these reforms have released trillions of naira for allocation to other priority areas.”
However, ordinary Nigerians who the administration insists would be the ultimate beneficiaries of these policies strongly feel hurt presently as a result of their impact on the economy.
“The cost of transporting my goods from Mile 12 market to Mushin increased drastically over the weekend because of the new fuel price. The transporters wasted no time in increasing the price of transportation and we the market women also had no choice than to board the vehicles and pay. But we transfer the extra cost on the consumers. So, this is one of the main reasons the prices of our goods are increasing steadily.
“The problem we have is that people refuse to buy not having in mind that it is not our doing. Some days are so intolerable that I have to sell with little or no gain just to be able to meet up with my needs,” said Mrs. Kabirat Olaoye, a resident in Lagos State.
Olaoye implored the government to come to the rescue of the people especially now that the festive season is fast approaching. Another resident, Deji Oye, lamented that he was finding it difficult to adjust to the current economic situation in the country.
“Since I lost my job during the pandemic, it hasn’t been easy for me. As the days go by, the prices of commodities are increasing steadily without any hope of things becoming better. I’m pleading with the authorities to come to our rescue before it becomes too late,” he said.
Although many other Lagos residents told The Guardian they have started adjusting to the present realities, they also insisted that government has a role to play to alleviate their sufferings.
Ibrahim Taiwo, a teacher in Ilasamaja area of Lagos, said: “I believe government has a role to play in alleviating the people’s plights. As usual, citizens are managing and adjusting whichever way they can. Take the high cost of onions in the market for example. I was a large consumer of onions. But the quantity of onions I bought for N350 last month now sells for N800. And to worsen the situation, they are even smaller in size. Isn’t that outrageous?
“Government can help citizens to adjust better by facilitating the bringing of these food items to the various markets so as to take the cost of transportation off the traders and final consumers.”
Nkiru Ezeilo, a trader in Amu market, Mushin, also said: “There is an adage that goes thus: Cut your coat according to your size. Due to the imbalance in the nation’s economy, I’ve learnt to attend to my needs and leave my wants aside.
“The coronavirus pandemic has also worsened the nation’s economy. The prices of commodities are too high and if there is one thing we business people are good at, it is to ensure that prices don’t come down once they go up. Things can only get better if our government gets to work and makes life easier for the people. People are suffering. Most times, I wonder if the government is happy with the current plights of the masses. ”
Some experts who spoke with The Guardian on the issue shared the sentiments of the masses. Others, however, argued that the government’s step was in the right direction, pointing out that the benefits of the policy would be felt in the fullness of time. Below are the excerpts from the interview questions they responded to:
‘Time Has Come For Nigerians To Minimise Consumption Of Discretionary Goods’
Mr. Johnson Chukwu is the Managing Director of Cowry Asset Management Limited. In this interview with ONYEDIKA AGBEDO, he cites many advantages of a deregulated economy, urging Nigerians to bear the pains that have come with recent increases in the pump price of petrol and electricity tariff. He advises Nigerians to prioritise their needs in the face of the present challenges.
Nigerians have been crying out over the recent increases in electricity tariff and pump price of petrol in the country following the deregulation of the sectors by the government. Do you think the economy is ripe for full deregulation?
There is no convenient time that deregulation can take place. At any time you deregulate the economy, the citizens are going to go through some difficulties. Therefore, there is no perfect time for deregulation. So, my approach is let the right things be done. The simple reason is that the fact that we had not deregulated the power sector and the downstream petroleum sector has led to the economy not attracting the kind of investment it should get.
Today we don’t have a functioning refinery despite the fact that we are a major crude producer. Our crude is one of the light crude in the world and it is well sought after. But really you can’t have a local refinery because nobody will expend money to invest in a refinery with the expectation that his/her major off taker will be the government.
So, if we fully deregulate, we are going to see investors coming to the country. That will domesticate the current export of labour that we are doing by importing refined petroleum products. Secondly, we are going to end up with a lower cost of refined petroleum products because we will eliminate a lot of costs. We will eliminate, for instance, the cost of freight, the cost of insurance, sea time and the financing cost of the delayed sea time. With that, we will end up with refined petroleum products that are cheaper. That will also create some other industries like the plastic industry that are by products of refining activities. We are going to conserve foreign exchange that we have been spending on the importation of refined petroleum products. So, ultimately the economy will be better off. But if we don’t take bold and difficult steps that will inconvenience many of us, we are not going to achieve that. That’s on the downstream petroleum industry.
If we look at the power sector, of course we have been a country frozen with less than 4,000 megawatts of power distribution principally because we have a tariff structure where there is no full cost recovery; and investors are reluctant to invest more in that sector if they cannot recover the money they have invested. So, now we have what the government has called cost reflective tariff, but I think the primary objective should be to have a cost reflective tariff that is strong on service delivery. Ultimately, you are going to see investors that will go to that sector that will build generation, transmission and distribution capacities and everybody will be better off for it. You really cannot have an economy with 200 million people and you are distributing just 4,000 megawatts of electricity. So, these are necessary difficulties or pains but you can liken it to a delivery pain that a woman has to go through to bring forth a child without which we would not be here on earth.
To what extent do you think the government prepared Nigerians ahead of time for this pain you have talked about because the people say it’s really excruciating?
If you recall, in 2011, there was mass demonstration against petroleum products price increase. That was under the Goodluck Jonathan administration. This is 2020; nine years down the line we are not still prepared. We will never be prepared. It’s just like if you have a dislocation. Nobody who has a dislocation will tell you that he/she is prepared to go through the pain of having an orthopaedic surgery; it is something that is a necessity for you to have your feet back. Nobody is ever prepared to take pains.
But are there measures the government can put in place to reduce the impact? Yes there are. Is the government doing enough of that?
Unfortunately, we waited for too long. As at now, the government does not have the economic resources to build a lot of palliatives; the safety nets are not there. The government is actually gasping for breath when it comes to financial resources. So, we have delayed this until it became inevitable and imperative.
But what do you think the government should be doing now assuming that resources are there?
My approach to life is that hand outs never work. Therefore, if the resources were there, my approach to it would be that the government should build an economy that creates jobs. What we need are jobs for the people and a strong economy such that workers can bargain for salary increase when the cost of living increases, which is what the policy is imposing on all of us. We are seeing our cost of living increasing.
So, the key thing is let’s have a productive economy. A productive economy will create jobs. When people are working and earning good salary, they can absorb increase in the cost of living.
Do you think we have enough regulatory policies in place to protect consumers from the exploitative tendencies of capitalists?
Well we have a Consumer Protection Agency, which I think has remained something else. As you can see they have not been very visible. But in terms of protections and safety nets, as I said, we don’t have that. In terms of regulatory oversight, the government is just trying to pass the Petroleum Industry Bill (PIB) that will create the regulatory oversight to ensure that in a market determined pricing environment, marketers do not take undue advantage of consumers.
Let me also say this. In a market driven economy where you have many buyers and many sellers, the product is going to become commoditised. As a commodity, it becomes difficult for anybody fix price. But because we have a monopolistic market, where basically it is only the Nigerian National Petroleum Corporation (NNPC) that determines supply, meaning that you have one supplier and many consumers, the consumers are not in a position to bargain. But once you deregulate, new refineries will come upstream, price competition will set in and the market power will move back to the buyer.
Look at what has happened in the telecommunications sector. When it was only NITEL, for you to get a line you had to bribe your way; and then they will TOS (temporarily out of service) your line every month so as to be able to extort money from you. But with a liberalised telecoms sector, the operators are competing among themselves to attract and retain customers and we have seen prices collapse. Remember, we used to pay N50 per minute of call; today I can’t remember how much we pay because it has become so low. So, that is what goes with a free market. Competition will set in and market prices will adjust downwards.
And you think the petroleum and electricity sectors are heading towards that?
What advise do you have for Nigerians towards coping with the policy? In other words, how can Nigerians survive in the face of the present odds?
One of the things I have to say is that the Ghanaian petroleum market is deregulated; Ivory Coast is deregulated; Senegal is deregulated. The electricity sector in the countries along the West African coast is also deregulated. Ghana is one of the strongest economies in West Africa despite being a much smaller economy than Nigeria. So, how are the Ghanaians surviving?
The reality is that we don’t need subsidised pricing regime for petroleum products to survive. We need an economy that works; we need an economy that creates jobs. We need an economy where a young graduate can go out there and get employed without knowing anybody. Such people will not necessarily need government to subsidise their consumption.
But are there adjustments you think the citizens can begin to make?
Well, the key thing is that when your purchasing power is eroded, you have to adjust your consumption pattern. You prioritise those things that are considered essential and minimise your consumption of what is called discretionary goods.
‘Deregulation Is Unjustifiable But We Have To Prioritise Our Consumption To Survive’
Martins Onovo is a public analyst, former presidential candidate and the Head Policy of the Movement for Fundamental Change. In this interview with IJEOMA THOMAS-ODIA, Onovo condemns the deregulation of the petroleum and electricity sectors but urges Nigerians to “consider more affordable alternatives and minimise our consumption” in the present circumstance.
The government is gradually taking its hands off public utilities such as electricity and petroleum products. Do you think our economy is prepared for full deregulation?
We do not think so. According to the constitution of Nigeria, the primary purpose of government is the security and welfare of the people. Therefore, whatever government does must be for the security and welfare of the Nigerian people. That is the primary responsibility of government. This attempt towards the deregulation of public utilities is unjustifiable, unlawful, irresponsible and disruptive. These are irresponsible, incompetent and unpatriotic decisions that have increased inflation, poverty, unemployment and crime.
It cannot be for the welfare of Nigerians to hand over essential public utilities to monopolies or cartels that are exploiting Nigerians viciously. For electricity, we have seen how DisCOs have continued to exploit Nigerians with outrageous estimated bills with impunity. For Premium Motor Spirit (PMS), we must blame the government for its neglect of our existing refineries and refusal to build new ones, a situation that has led us to heavy dependence on imported petroleum products.
Also, we must remember that the constitution of Nigeria requires that the government of Nigeria must control the ‘commanding heights’ of the economy. We recognise electricity and petroleum as parts of the ‘commanding heights’ of the economy. We also recognise them as foundational issues in national economic development.
Was there enough awareness to educate Nigerians about deregulation by the concerned agencies?
There was not enough awareness because it may be very difficult to justify these decisions morally, legally or economically. Nigerians will most likely counter this incompetent government position and expose the mediocrity that this government celebrates.
How much of regulatory framework is there to protect consumers?
We have the National Electricity Regulatory Commission (NERC) as the electricity regulator. We have the Petroleum Products Pricing Regulatory Agency (PPPRA) and the Department of Petroleum Resources (DPR) as regulators in the petroleum sector.
From our recent experiences, it is easy to conclude that regulatory capacity is very weak. We witnessed the oil subsidy frauds and we are still living with the inability of the NERC to control the fraudulent estimated billing system applied by DisCos.
How can Nigerians adjust in the face of the present situation to survive?
The adjustments necessary in the present situation will vary with the specific circumstances of the individual or unit. Generally, we will have to prioritise our activities, consider more affordable alternatives and minimise our consumption. Ultimately, Nigerians have to replace the current corrupt, incompetent and failed political leadership with an ethical, patriotic and competent political leadership.
‘A Deregulated System Pricing Regime Is Typically Volatile’
Muda Yusuf is the Director-General of Lagos Chamber of Commerce and Industry (LCCI). He spoke to DANIEL ANAZIA on how deregulation would impact the economy and how Nigerians could survive under the policy.
There have been increases in electricity tariff and pump price of petrol in the country lately following the deregulation of the sectors by the government. Do you think the economy is ripe for full deregulation given the outcry by the masses?
THE concept of deregulation is underpinned by the principles of market led framework in economic management. It is also typically characterised by the dominance of private sector players. The key features of a good deregulation regime or market led system are unfettered competition and a level playing field. The more players in a given economic or business setting, the better for the outcomes.
The value of this is that there will be little room for the private investor to exploit consumers. Abnormal profits will be reduced to the lowest possible level. One of the critical elements of the oil and gas sector reform, particularly the downstream sector, is the complete deregulation of the sector. This was the spirit of the Petroleum Industry Bill (PIB), which, regrettably, has got stuck in the legislative processes for close to two decades.
The reform of the downstream oil and gas sector would create a number of advantages for the economy. It will free resources for investment in critical infrastructure such as power, roads, the rail systems, health sector and education sector, among others; it will unlock the huge private investment potentials in the downstream oil sector especially in petroleum product refining; it will ultimately reduce importation of petroleum products and ease the pressure on the foreign exchange market as well as the burden on our foreign reserves. It will also eliminate the patronage, rent seeking activities and corruption that currently characterise the downstream oil sector as well as create more jobs for the teeming youths of the country in the downstream oil sector as investment in the sector improves
What effect do you think the policy is having in trade and commerce?
A deregulated system allows for the injection of private capital into the economy, which is good for the growth of the economy and the creation of jobs. An economy like that of Nigeria is in dire need of this private investment in practically all sectors. The capacity to attract private capital has always been the game changer for any economy. Competitive market framework enables deregulations achieve positive impact. The Nigerian telecoms sector story is a good example. To date, over $20 billion investments have been attracted to the sector. The impact on telecoms service provision, jobs and revenue have been amazing.
Do you think there are enough regulatory policies in place to protect consumers from exploitations by producers and service providers?
The hope is that the telecoms story would be replicated in many other sectors of the Nigerian economy. But for deregulation to optimally benefit the citizens, there are some critical success factors: There should be a strong regulatory framework to prevent the exploitation of consumers, especially in a market where there are few players. There is need for safeguards against the emergence of monopoly powers in the economy. Monopolistic situations pose a great risk of consumer exploitation. There should be level playing field for all operators in a given sector. Where there is a transition from government ownership to private ownership, the privatisation process must be transparent and credible.
However, nothing is absolute in any economic management system. There could be market failures, which would make government intervention necessary. This possibility is recognised in economic literature. Where the market is not able to deliver desired outcomes, government intervention becomes necessary. Intervention also becomes imperative when social costs of a market system become too high or unsustainable. The inability of Nigerians and the economy to benefit from the positives of deregulation is as a result of the Nigerian National Petroleum Corporation’s (NNPC) monopolistic supply structure. Government needs to urgently put appropriate structures in place to ensure a level playing field and for the deregulation regime to achieve its objectives, because private sector players were strapped for foreign exchange to import petroleum products, while the refineries remained comatose. A deregulated pricing regime is typically volatile, oscillating with global oil price. However, deregulation without competition would not give desired outcomes. We are still immersed in a monopolistic structure even as we claim to have deregulated the petroleum downstream sector.
What adjustments do you think Nigerians can make to be able to survive under this deregulated economy?
Not all sectors are amenable to complete deregulation of market delivery framework. There are services that only the government is best positioned to provide because of social considerations. There are also some services that may be of value to society, but which may not be attractive to private investors. It is the responsibility of government to fill such gaps.
To cushion the effects of petrol price increases on domestic prices, there is an urgent need to scale up investment in mass transit transportation systems. The power sector recovery programme should also be accelerated to reduce the dependence of Micro, Small and Medium Enterprises (MSMEs) on petrol powered electricity generators. These two areas of intervention would reduce the adverse impact of petrol price volatility on small businesses and impact on the welfare of the citizens.