By Uche Chris
Nigeria’s two most important agencies were in the news last week for the wrong reasons. The Nigerian National Petroleum Corporation, NNPC, and the Central Bank of Nigeria, CBN, are undoubtedly the live wire of the country and whatever they do or fail to do have direct consequences on the wellness of the people and the economy. The state of the economy and the standard of living of Nigerians is direct function of the performance or otherwise of the two organizations.
Last week, the NNPC announced that Nigeria was spending N120 billion monthly on subsidy, which has become unsustainable given the worsening condition of the economy, raising speculation that fuel may sell at N220 per litre soon. On the other hand, the CBN Monetary Policy Committee, MPC, of the CBN held its bi-monthly meeting, which as usual provided no hope of recovery for the sagging economy and the suffering people. Put together, the two developments were clear indications that the worse times are yet ahead of the country.
The poor performance of these two institutions point to the failure of this administration and the worsening condition of Nigerians since President Buhari came to power in 2015. Because of the structure of the Nigerian economy, which is mono-cultural and import dependent, managing these agencies seems to be the most critical assignment of the government in keeping the economy afloat. This begins with the leadership of the two bodies and their supervising ministers.
There could be no serious crisis in the economy without the input of either the NNPC or the CBN; and the last six years of this government have put this assertion beyond debate. Nigeria has been economically and financially buffeted under this government because of oil and foreign exchange; and President Buhari is directly in charge of both issues. He is the de facto minister of petroleum and the CBN governor reports directly to him.
Ordinarily, a strong and competent finance minister usually provides a countervailing oversight influence on the CBN governor. So, the performance of both agencies is symptomatic of the management ineffectiveness and poor political leadership of the president. But any oversight on the CBN ended with the premature departure of Mrs. Kemi Adeosun in 2018.
While campaigning for the office in 2015, President Buhari promised to do away with subsidy which he ignorantly alleged did not exist, but used by the government of the day for political patronage and corruption. By his faulty estimation, taking direct charge of the NNPC would remove this source of corruption and improve government revenue. Well, six years later, the subsidy, which they renamed under-recovery to avoid the pun on the president has jumped from N420 billion per annum to N120 billion per month.
In 2019, there was no budgetary appropriation for subsidy or under-recovery, yet the country spent N1.2 trillion on subsidy. From where then, did the money come to pay? The NNPC simply spent the money from its collected revenue and remitted the balance to government, resulting in the chronic revenue short-falls since the administration came to office. Fuel price was N98 per litre when the government came to power; today it is N162-167, which is still being subsidized and may hit N200 per litre very soon.
Why is the issue of subsidy intractable? There are two reasons: fuel import and bad politics. It is a crying shame that Nigeria depends 100 percent on fuel import for domestic consumption. The result is that the local price of fuel is directly associated with the international price of crude oil and the instability of the exchange rate.
In other words, as crude prices go up so will fuel pump price; also as the naira depreciates so will the price of fuel, which is imported with dollars and is actually the main driver of the pressure on the naira, as it get priority allocation, crowding out manufacturers and investors.
Meanwhile, Nigeria still spends N62 billion on the four 420,000 barrels moribund refineries yearly to sustained and maintain staff privileges with little contributions to the economy. Just last week, the government announced another contract of $1.2 billion for the turnaround maintenance of the Port Harcourt refinery, raising uproar among critical groups about is legitimacy and purpose at a time the Dangote 650,000 barrel refinery is nearing completion. Needless to say, it will be money down the drain, as this is not the first time.
Furthermore, when this government came to power, domestic consumption was put at 42 million by the opposition, which alleged massive fraud, although government claimed it was 34 million litres per day. Today, NNPC claims 50 million litres while government says it is 39 million litre per day, although operators allege it could be as high as 60 million litre. Inconsistency in records or figures is a veritable opportunity for fraud and corruption.
Also our bad politics has been responsible for the prolongation of the subsidy problem in the country, as government shies away from biting the bullet because of labour unrest, and the opposition taking political advantage of it. The Jonathan government was irreparably damaged by the attempt to remove subsidy in January 2012; yet the beneficiary government has worsened the situation. But without its removal, the economy will never recover.
On the other hand, the CBN has become a lame duck and a victim of its politics of correctness and enlightened self interest, as evident in the routine nature and outcome of its MPC meetings. In the past 24 meetings, 21 had been mere rituals, all sight and sound signifying nothing. Inflation, at 17.3 percent, which is already a death sentence on economic growth and development, is likely to hit the 18 percent mark by the end of April 2021. At his second term inaugural address governor Emefiele promised a single digit inflation rate. Little is heard of that again.
Now what about the crux of the matter – forex – which affects all the others issues in the economy. CBN core mandate is price stability and with inflation and forex rates hitting the roof, it cannot pride itself for doing a good job. With the CBN tied to the apron-string of the government, and at the president’s beck and call it is no surprise that things have turned out the way they are. CBN has been pursuing conflicting policies and could not possibly expect to have a better result or outcome. The economy is asking for leadership and direction, while the CBN is only content with a waiting game.
Pursuing inflation, foreign exchange and interest rates moderations simultaneously is a utopia that has never worked, especially in our kind of economy; but which previous governors have implemented leading to current situation. Why the CBN cannot learn from history is simply a matter of politics. We want to escape from paying the price of our senseless bad economic habits, yet we are paying it in installments without the intended benefits. We have entered a cul de sac, a vicious cycle that demands a shock treatment, which the CBN shies away from.
CBN must let go of inflation control and address the issue of investment, because it is in investment that lay the solution ultimately. Without investment we will continue to depend on importation with unemployment spiking further, and the naira on free fall.