By Olutayo Obadina
he economic problem facing Nigeria at the moment doesn’t require rocket science to surmount. We are complaining about removal of subsidy on fuel price, which has caused a hike in transportation, also affecting food prices, especially.
On the part of government, they are worried that so much is paid as subsidy while other areas like infrastructure, education and so on need urgent attention. Every right-thinking government will surely be concerned as the present government is.
However, there is a better way to solve this fuel pricing in Nigeria than it is being done. It is simple arithmetic calculation based on the dollar price vs. naira equivalent.
The international price of fuel is $2 per litre; it is the exchange rate that is our problem. There is no subsidy when naira is N80/$1 but when we devalue the naira the pump price of petrol becomes questionable. When the exchange rate rose to N400/$1 government raised the alarm that N600 subsidy was too much and they increased the pump price to N500 and later N600 to remove the subsidy.
In other words, the right price of fuel should be the international dollar price converted to naira. The dollar price of petrol doesn’t change significantly. It is our conversion rate that has been our problem.
During the reign of Gen. Buhari, naira-to-dollar rate was between N250 and N400 officially. Unsubsidized petrol price should have been N500 to N600. Perhaps that was why the Tinubu government increased fuel price to N600. Even if that step was good, a great mistake was made when the naira was equally devalued. The effect of devaluation is that the landing cost of fuel in naira has now increased. Using the black market conversion, petrol should now be selling for N3,200. I will not be surprised if by 2025 government comes again to increase fuel to N3,200.
If something is not done, I foresee Dangote refusing to sell petrol to Nigeria because the international sales income pays him better than selling at N600 per litre to Nigeria. If he does, perhaps he will be running the factory at a loss, because there are expenses of the factory that are dollar-based. Perhaps, he may sell more shares of the factory to NNPC before accepting to sell petrol to Nigeria, to avoid bearing so much loss.
Government is devaluing the naira because of round tripping. Round tripping occurs when one purchases dollar at the official rate from the bank and sells it in the black market, instead of using it for the purpose for which it was meant. Many people do it in small or large scale. Such action obviously denies those who need dollar from getting it at official rates. It means those people that need forex must go to the black market. Last year, when I wanted to travel to the USA, my bank could not get me dollars despite going through many conditionalities. I had to buy it at about double the official rate at the airport.
The reason the Central Bank doesn’t give enough dollars to those who need it is because we have not exported enough goods and services to earn much dollars. So many experts have made this statement. What is absent now is action. It is the federal government that should take the first action simply by directing the states to export so, so and so quantity of goods and bring back dollars to the tune of so, so and so.
This will happen when each state invests 10 percent of its budget in floating a company that will carry out that presidential directive. When the company is fully established, they will increase the share capital and sell additional shares created so that government will have 40% of the total shares in that company. The logic is that businessnessmen need to be guarded. They avoid risk. When the states have successfully set the ball rolling, they will come in.
I don’t have to mention what can be exported. They are what we have. We need a marketer to source orders from abroad. By the way, one ‘product’ we don’t seem to understand is medical doctors. We need to export them like crude oil. Their home remittances is our profit. Every year, two-thirds of medical graduates are interested in going abroad to make money. What we need to do is increase the intake of doctors so that we would still have enough here after those leaving have gone. We should help them to leave with fanfare and make use of their home remittances.
I want to accept that high cost of governance is annoying the citizens. Since I don’t have all the facts, I cannot recommend the percentage that should be taken off from senators’ salaries. Some people are suggesting a 75% reduction. The truth is that government must show by example by reducing cost of governance and the expensive lifestyle.
In summary, there is a mathematical balance that must be maintained between the naira value in the international market and the selling price of petrol in Nigeria. Even when our refineries start working, we must remember that smugglers are difficult to confront. It is better to balance our pricing than maintaining subsidy so we don’t have to feed the whole of West Africa with our petrol.
I must quickly add that this devaluation fromN400/$ to N1,600/$ has made our petrol cheaper to West African countries despite pump price of N600. The petrol pump price increase is lower than than the rate of devaluation.
•Dr. Obadina is a chartered accountant and credit consultant of over 47 years. He can be reached at [email protected]