Kalu Idika Kalu: What Tinubu should have done with fuel subsidy removal

•Setting up development commissions waste of resources; they should be scrapped

A former Finance Minister, Dr. Kalu Idika Kalu, has said fuel subsidy removal in itself is not a bad policy. He, however, queried its implementation by the President Bola Tinubu administration.

Speaking in an interview with Vincent Kalu, Idika Kalu, a former presidential candidate of the New Nigeria Peoples Party (NNPP) in 2003, also allayed fears over the rising debt profile of the country. He stated that nothing is wrong with borrowing so long as the money borrowed is for projects that pay for themselves.

He insisted that security is of utmost importance in every nation. He noted that no matter the best incentives and facilities in any country, that country would not work without adequate security. He also called for the scrapping of the six development commissions in the country, noting that they are additional administrative burdens.

The removal of fuel subsidy and the floating of the naira have brought about untold hardship for Nigerians. What actually went wrong?

We need to go back to the theory of subsidies. Subsidies are a totally permissible policy instrument; a totally allowed management principle for you to ease the development of enterprises – small, large and big. You subsidise to get an advantage; you cannot be subsidising to get a disadvantage of either higher price for the product or lower quality for the goods, chronically under development of the enterprise. Subsidies are stepwise policies to support the learning curve of the development of an enterprise. As the enterprise grows, you remove subsidies to allow you to compete, which will let it stand strong against competition not only locally, but also externally. That’s where really the story starts. There’s nothing inherently wrong with subsidy.

In fact, subsidies have been designed as a policy to assist in the whole range of economic policies for development, and it can range from subsidies for agriculture, for mining, for manufacturing and even for services. So, you provide subsidy because you expect that the subsidy will smoothen the path of learning, gaining experience of strengthening a fledgling enterprise so that it does not prematurely die because others have been developed earlier. Once you know that the prospects are good, provided that the thing can grow to where it’s efficient and strong, if you can afford it, you go ahead. 

To afford it means that you have to look at your total funding to know whether you have the room to withdraw funds from one sector and use it to subsidise another sector to let it grow. When people say that America subsidises this and that, it is because they have the room to withdraw funds from one subsector to subsidise another sector. If your industry is so strong, you are making profit, you are expanding, you are exporting, part of the contribution you get from there in terms of funds, you can use to support agriculture because you think your agriculture can grow faster instead of having to pay higher prices for all their inputs – fertilizer, interest costs, storage facilities, transport facilities, training of staff, and any item of expenditure. In effect, it’s always a very wide range of reasons to explain why you have subsidy.

Now going to the question, you said subsidy removal and the floating of the naira. These are really two different issues, although they are interrelated. When you are removing subsidy, you are helping the economy to feel the growing impact of what is the market rate for the service being delivered or for the goods being delivered. Therefore, if you do not do it regularly as the plant is growing as the economic history of the process grows, and you accumulate it, chances are that the best way to do it so that it does not create a big impact on the general price level is to phase it gradually.

If you started subsidy this season and you are removing it next season, of course, you can remove it. Chances are it is small in relation to the market price that you have subsidised. For example, the market price is 20 and you subsidise at 15, so you are paying five above the market price in order to maintain the flow of the goods or service, but if you kept on the subsidy and the market is growing 40, 50, 60, 100 and you are still maintaining it at 20, if you now want to remove subsidy, the idea should be to phase it up gradually from 20 to 30 to 40 to 50 until you now get 100.

So, part of the problem was that we had accumulated subsidy for so long and of course, it varies from one product to the other. By the time you decide to remove it because it is becoming inefficient, then, you say okay, instead of doing it in one fell swoop, no matter how attractive it seems, you do it in a phased fashion so that the overall economic impact must not be seen to be so severe. The same entity, state, federal, organisation or whatever, will be able to say, if we are voting 50 per cent for subsidy this year, in the next budget it will be 40 per cent, and the other 30 per cent, and so on. In this way, you are leading the market, the consumer, the industrialists, the importers to gradually face up with the market price.

It is the process of moving the product price to the market price that affects the exchange rate. It is not that you are necessarily floating the exchange rate. You can float the exchange rate and still preserve what you are subsidising, you can float the exchange rate so that the exchange rate is an efficiency price for resource mobilisation. You can make exchange rate the market rate that tells the small silver, the big silver, the small investor, the big investor, whether at home or abroad to know exactly the relative price so they can gauge the efficiency of their investments or their savings, but that is not tantamount to floating the exchange rate.

The removal of subsidy doesn’t mean you have floated the exchange rate, but it affects it because you are doing it with particular reference to the product for which you are removing subsidy. So, you can float the exchange rate, but you still have to manage the removal of subsidy. When you remove subsidy in one fell swoop, you are imposing a heavy burden because it takes time. I even talked about this several times, that even when you eat, you don’t swallow it; you take time to eat. How much less when you are producing what you are going to eat? How much less when you are planting what you have to eat? How much less when you are importing from outside the borders what you need to eat? So that lag should be taken into account. So also must you take into account the differential between the market price and the subsidy rate. You don’t take it off. There are very few items where you can just remove subsidies like that. And before you do, of course, you have to gauge the impact on the consumer, on the producer, on the importer, and all the other agencies that now have to face the full effect of raising the price from a subsidised level to the market level. But the objective for efficiency is to raise it to the market level to improve decisions on resource allocation, resource mobilisation, and so on and so forth.

Can we say then that it was the removal of the subsidy in one fell swoop that brought about this hardship in the country?

There are very few questions that you can just give one singular explanation. You can say that is perhaps the most important element there. Another element obviously, if you are going to remove it in one fell swoop, then you have to gauge the impact; you can then have to mitigate the impact. For instance, if you are going to remove subsidy on the price of imported fuel, you better have a stock of it so that the scarcity will not go to the full effect of your price adjustment. Apart from doing it gradually, you also have to plan all the mitigating factors; all the things you needed to do. Like if you are putting subsidy on one item and there’s a substitute like coal or solar power or something that has some competitive role to play, you make sure that there’s a relative abundance so when people want to substitute, they will go to that, they don’t have to all face the full impact of the removal you’ve done.

Apart from the fact of gradual removal being a factor, it’s also the extent to which we go in planning how to mitigate the inflationary pressure that comes up willy-nilly from the one fell swoop removal of the subsidy. There are so many things we have to look into to dampen this impact – supply whether through substitutes, imports to make sure that the scarcity is mitigated and of course, with that you can also provide all kinds of easier ways of getting those substitutes- soft loans, resources available, transport facilities and so many of all the things that you got to sit down and figure out all what the impact of that quick removal will do. Of course, the government tried to do a lot of that, but it’s always best to do it through the market because you can’t come up with the comprehensive list of all those things you have to do. You are buying foods, you are distributing to poor people, you are providing transport, you are providing coupons, you are providing all kinds of other things to mitigate the otherwise sharp inflationary pressure of a one fell swoop subsidy removal.

The debt profile of the county is about N140 trillion. What are the implications?

There have been discussions about the size of the budget, and people getting carried away about the increase in the budget. There is what we call money illusion. When prices change rapidly, of course, all those aggregates become much larger in monetary terms, but the real quantum of those aggregates may in fact be lower, depending on the inflationary impact coming from the change of prices, exchange rates, interest rates and so on and so forth. That is one way of saying you have to look at the debt for that kind of analysis in real terms. Presumably, you can say whatever has ballooned the debt will also balloon the returns for services in the debt.

But, what you are really concerned with is the relative size of that debt in relation to government revenue, government expenditure, and gross domestic product and so on and so forth. When you are doing that you have to compare them not only in nominal terms, but also in real terms so that you are adjusting for it.

The United States is among the heaviest borrowers; the heaviest debtors. It requires quite a bit managing the debt. The issue is not the debt increasing, it’s how are you managing the debt, how are you increasing your debt? Are you bringing in projects that pay for themselves? If you are bringing in projects that pay for themselves, you don’t have to ever worry about the increase in your debt because that debt presupposes that that additional debt is covered by the returns.

You begin to worry where a new debt is not covered by the returns. Of course, when you start talking about returns, the only way you can get the returns for your project is that administration is efficient, you are having a level playing field to realise the cash flow for which you borrowed.  If you borrow and you don’t do that then the question of repaying becomes a problem and that’s where debt becomes an issue. Other than that, as long as there are idle resources of materials, labour and the profitability – that is the differential between a potential income and the cost of providing that income, you never have to be worrying about the size of your debt. So, this agonising size of our debt is totally misplaced. Not because it is not a relevant thing to think about, but we should be worrying about how the debt signals bringing idle resources, including labour. You are creating employment, employment is creating resources and resources are creating profitability; you should continue to get the financing of mobilising those idle resources whether materials or human, regardless of how large it is. You have to manage your debts and move on. I am not going to be more particular about it.

Are you not scared about the security situation in this country?

Any Nigerian who is not scared is probably not thinking at all. Security affects everything. At the macro level, if there’s no security why would you want to go to your farm when you’ll be attacked in your farm? Why would you want to go into public transport when you could be attacked? So, it’s not even something that needs to be argued.

Some are saying that people should now defend themselves. Have we planned for people to defend themselves, have we planned for communities to take up arms? Is that the proper and efficient way to do it? When the communities are defending themselves, then who’s going to be producing food that will go beyond the communities as surplus to supply other areas that are producing other critical things that you need to consume?

There is no way we cannot realise the utter futility of letting insecurity get out of hand. We have set up security agencies, we have set up intelligence agencies. We set up militias and limited them by regions, by states, by councils. All these should be working together in tandem to protect the ordinary citizen who is always the one to think of how to make ends meet, to provide for themselves, their families, to supply essentials to needy areas, surplus areas, deficit areas, market surplus outside the borders. For everything you want to do, there has to be security.

When security breaks down, everything ultimately will break down. We are worried that in terms of manpower, security seems to be continually withdrawn from the generality of the population, which is a very bad policy. I know it may not be deliberate, but the people in power should be able to begin to have that hiatus, where you see one individual and he’s surrounded by 20 security personnel that he thinks he needs, while you see lots of people at their workplaces, at their educational grounds, travelling and so on, and they have no security. The government of the day at every level should know that it is their primary responsibility to provide security because with all the best incentives in the world, with all the best facilities in the world, if you do not provide security, this will not work.

Tinubu has created regional commissions and the country has six regional development commissions. What do you say of this?

These are political gimmicks. These are additional administrative burdens that we should be very careful to continue to create. It’s like layers of exhaustive expenditure; excessive expenditures that do not directly affect the efficiencies of our resources. We have disaggregated from the federal to states to zones to whatever, but ideally, development should be decentralised more and more. I don’t know why we are moving in the other direction of setting up zonal commissions. We have local governments; we have officers for various items as the local – supervisory councillors. This is what we should be strengthening. They should be providing security, transportation, information, systems of valorization of produce, refining more and closer to the farm gate, etc.  I don’t know what those commissions would do anyway. As far as I’m concerned, this is a waste of resources. It is a proliferation of administrative costs that has no clear revenue advantages to the local, to the zone, or to the state, or to a group of states, or whatever. I think this issue is scrapped.

What’s your take on the state of emergency imposed on River State?

This is a politically loaded concern. But, let’s just get to the fundamentals. I thought this was a very curious thing because by the time it got to that level, you can see practically every knowledgeable Nigerian would have gotten a sense of the urgency of the emergency involved. In trying to find out what could have led to this very radical and very sweeping development, you try to be fair.

From the other side, I started hearing stories about how the House of Assembly building was razed, how the Assembly was meeting with a few members, how the other members  were meeting elsewhere. In other words, things were happening and one would expect that the leaders of the state, the traditional rulers, the political leaders, party leaders, the national leaders would have questioned this thing, called this thing to order, and not to wait for it to become such a major source of concern that the next action would be to remove the governor and remove the legislature. I’m not one of those that will just say, maybe that was how it was planned. I am still to get the answer as to why the State Assembly building got destroyed, but everybody is talking about the removal of the governor. But what happened before then?  So, one would have thought that the very major decisions that were taken to apply such a drastic resolution should have been taken at the time when we were hearing about the Assembly building being burnt, and a faction of the Assembly was meeting in homes or offices or someplace taking decisions and so on.  These are serious issues. So the question is not just what do you think about the suspension of the governor and others, but why was no action taken at those levels by all the stakeholders I had mentioned earlier? If action was not taken, we would at least have thought that by the time the presidential power was being exacted, we would have seen quick summons and a query of all those involved. The National Assembly should have waded into this. The Governors’ Forum should have waded into this. That’s why we have layers of democratic work. Those who took the decision at the end, the question remains, where were they when those things were simmering at the level where you could respect the wishes of the people and call all these things to order?

There is mass defection of members of the opposition parties to the ruling APC. Are you not afraid that Nigeria may become a one-party state?

It’s a disgrace to this nation that 60 years after independence we have managed our polity such that we seem to be moving to one side wins all; one side takes all, where there is no sufficiency of competitive change in the democratic process. You come out with your ideas as a party; you govern in the best interest of the people at heart because that’s where governance should be weighed, and not in terms of the pockets of the party, but it’s impact on the people. You let the people decide whether Party A has done enough to earn a second term or Party B can be tried to correct what Party A has done.

The whole nation needs to be really sorry that we seem to be in a situation where people have been led across the aisle after they’ve reached agreements with the electorate. I don’t know what could be the symptoms, but you can smell if from a distance. That is this hankering after impunity, exclusiveness, usurpation of powers, and not sticking to the constitution of the country, constitution of the parties, and then providing everybody the right to speak their minds, the right to make their suggestions.

So, it is when this rising impunity gets to that level, and not everybody is strong enough to stand on their own. People are persuaded, and it is not necessarily a persuasion with juicy offerings. It could be subtle, more subtle threats – if you don’t do this, we’ll deal with you. If you don’t do that, we’ll deal with you.

So, this is a crisis we have on our hands. If there is no system for adjudicating this thing, you can imagine where it leaves the people. You don’t go back to your supporters and say, you are tired of your party, but you just cross over from one aisle; they pilot you to the other side of the aisle, while your supporters are out there wondering. Many of them may not even be aware of it.

Frankly, it’s a disgrace. There are maybe one or two reasons people can change sides, but let them get back to their constituencies and  say, because of this or that, I’m switching party and then your constituencies can re-elect you on the basis of your reasoning and your promises to serve them faithfully at the next time.

We probably need a constitutional amendment. Although that would be too rigid, people should be free to make decisions. We should be talking about honour and integrity as opposed to rigid rules and regulations to make sure that when we think we have a strong opposition to checkmate a government in power, that opposition should not just disappear for all kinds of reasons that are not clear to the electorate. It’s a very unfortunate development which all Nigerians should be concerned with. Representatives should have the honour to explain to the people before they start decamping the way they are doing. What are the security operatives, the intelligent operatives doing? If these are the ways we are deepening corruption influences, it is unfortunate. The EFCC, ICPC and also money laundering regulators should carry out simple checks to the financial systems to make sure that this thing cannot continue to happen with impunity, where people carry money from one dark night to another dark night, and people are crossing over the aisle. It is not good for Nigeria. We’ve had a very vibrant political process from pre-independence. Why must we come to 60 years after independence and we are indulging in these shenanigans.

Nigerians are going through hard times. How can the president set the country on the path to progress?

It’s not one man who will do it. In fact, that’s why there’s a political party. We shouldn’t throw it in Tinubu’s lap; we should throw it into the laps of the stakeholders and the party. Are we leading the party in the right direction? Are we providing leadership in the right direction, are we sustaining all the promises we made, are we setting up efficient systems, are we being sufficiently accountable, are we minding whose oxen are gored by the policies we undertake? Are we investigating issues of unfairness and prejudicial actions? Are we investigating issues of human rights, political rights, freedom of speech, freedom of association, right of assembly?

The political party has to ask itself these questions. Beyond the political party, the judiciary is supposed to be another important arm of government in a three-tier structure that we have – the executive, the legislative and judiciary. What of the legislature? You can talk about those three institutions. Even when you talk about the executive, it does not just consist of the president himself, but the president has the overall responsibility. As we say, the bulk, the naira, the pound, the dollar, whatever stops at his desk; and when it stops at his desk, it involves all those who are really around him – his advisers, his assistants, his party advisers, his professional advisers in various agencies, the governors and so on. This question goes to them. What are they doing to make sure that we get back to the path of progress that the people are entitled to at this time, given the fact that with our resources, the needs of the people can easily be met because we have the leverage to borrow effectively to supplement what we have and carry those benefits forward and pay back those we borrowed from and become even a lender to other people.

By now, Nigeria should be lending to others. We were lending to people in the 40s and 50s before we were independent. We were lending judicial officers, we were lending medical officers. Right now, Nigerians are all over supplementing the professional resources of so many countries. So, there is actually no excuse why we should have so many problems in education, in health, in the maintenance of critical infrastructure. If we have provided for the right system to encourage our own experienced professionals, for sure, some will go abroad, but we should be able to give enough incentive for those who need to stay home to sustain our system.

It is not just to the president, it is to the party, it is to the other arms of government. There is hope. We should not cast ourselves into the sea. We should just check ourselves that we don’t go and drown. We should begin to watch what can happen when you allow these things to happen. Last night, I was watching CNN, some head of a major agency in America left; he said he can’t take it anymore. If that can happen in America, it can also happen here. And it is for the people, and for the fourth estate.

The fourth estate must not be seen to be intimidated by perquisites to write or to support. The fourth estate should be coming clear and strong. The press should be strong enough to speak out and they should be fully protected and not to be accosted with pickup trucks to be taken to all sorts of places because they spoke their mind.

Nigeria is a major country. By 2050, they say we should be number three in population after India and China. Twenty five years to that destination, what do we have to show for it? A small girl will complain about cost of living in our private circles, and somebody starts challenging her to take down her social media comments. That is sickening. It’s an aberration.