Ahmed Adamu, PhD
President Buhari, in his speech, compared Nigeria's petrol price to other countries’ petrol prices to justify his recent
decision to abruptly inflate the petrol price amid economic and social crises
in the country. He argues specifically that “it makes no sense for oil to be
cheaper in Nigeria than in Saudi Arabia”. Now, the question is, how
appropriate is it to justify increasing the petrol price just so that Nigerians will buy petrol more expensive than Saudi Arabians?
First, Mr. President was supposed to look inward to
see the effect of his decision on his people, especially the poor. Generally,
petroleum inflation makes the economy of the poor man worst off. A 10% increase
in petroleum prices will at least reduce the purchasing power of a poor man’s
economy by 30%, accounting for the direct and multiplier effect of the surge.
The recent 11% increase in petroleum prices
in Nigeria has made the economy of the Nigerian poor worst off by 30.30% and
without any compensation or cushion. In fact, it came at a difficult time, when
millions of Nigerians lost their jobs and businesses weakened due to the recent
COVID-19 lockdown.
So, becoming oblivious of the consequences of his
decision within the country, and focusing on what other countries are doing,
Mr. President is being reckless and ill-advised. Every country is unique,
and Nigeria has unparalleled challenges and difficulties to the extent that we
cannot begin to compare ourselves to other countries.
The recent increase in VAT and stamp duty, as
well as border closure, climate conditions that threaten agricultural
productivity, insecurity, and dollar hikes, have all inflicted pains on
Nigerians and weakened their economies. Moreover, the increase in the price of petrol.
These bad circumstances did not occur exactly in the countries that Mr.
President tried to compare Nigeria with. So, Nigeria’s challenging circumstances
are different from the mentioned countries. Since our illness is different, our
medicine must be different.
It is not equally justifiable to say Nigerians do
not deserve to buy petroleum cheaper than what is obtainable in Saudi Arabia.
The only condition that Nigerians should buy petrol more expensive or equal to
the price in Saudi Arabia is when the Nigerian government provides equal and
affordable access to basic life requirements irrespective of income levels.
Despite the weaker infrastructures, Nigerians are
the ones responsible for their access to quality education, healthcare,
transport, security, water, nutrition, and energy. This is not the case in
Saudi Arabia. So, if a Saudi person conveniently pays N168 per liter, it does
not justify that a typical Nigerian can afford it conveniently. Saudi Arabia
has a better standard of living, better infrastructure, and adequate access to
basic life requirements.
The minimum wage in Saudi Arabia is 10 times more
than the Nigerian so-called minimum wage. Even after the Nigerian minimum wage
was increased, the government increased the cost of living by removing
subsidies and increasing taxes. So, the wage increase added no value to the
average worker’s income. In fact, it made it worse because of the wage push
inflation.
Looking at the values of currencies, it is not
economically justifiable to directly compare prices without adjustment and
considering the wealth and welfare of nations. For example, what N162 can buy
for you Nigeria is exactly what 1.630 SAR can buy for you in Saudi Arabia. This
tells you that Saudi Arabia’s currency is 99 times more valuable than the Nigerian
currency.
It means that if you hold a certain currency, you
will get 99 times more value in Saudi Arabia than in Nigeria. So, this explains
how bad our currency is and how much inflation we have in Nigeria. So, if the
value of our currency is 99 times less valuable due to Naira devaluation and
inflation, then we are not comparable to Saudi Arabia. Prices should not be
raised without increasing the value of the Naira. Nigerians should not be
punished for the government's failure to protect the Naira.
Saudi Arabia can sell cheaper due to the strength
of their currency and comparative advantage when it comes to petroleum, and
they have better wealth and welfare than Nigeria. So, it makes sense for oil to
be cheaper in Nigeria than in Saudi Arabia, because we have a lower level of
wealth and welfare.
The increase in petroleum price in Nigeria has a greater inflation multiplier than in Saudi Arabia, as such oil should be
cheaper in Nigeria to save further costlier inflation.
The only justification Mr. President could give
for his second-time petroleum subsidy removal was just to liberalize the
market. However, the timing and process of going about that are critical. It is
not recommended to liberalize the market yet, looking at the difficult time we
found ourselves: increasing inflation, health crisis, insecurity, zero refining
capacity, etc.
Certain conditions must be fulfilled before
removing the petroleum subsidy in a country like Nigeria. If necessary, the
removal must be in gradual phases. Alternative subsidies like targeted or quota
subsidy regimes could be considered.
Mr. President should by now be advised to begin
taking responsibility for his actions and shun blaming the past seeking an
excuse. Criticism is good, without it there would not be focus and improvement.
So, our leaders must be willing to listen and reflect on the criticisms labeled
against them and be willing to change their decisions upon new realization and
exposure to the truth. Finally, I hope Mr. President and at the same time, the
Petroleum Minister will revert to N145 per liter to enable the economy to bounce
back at least in the short run.
Ahmed Adamu, Ph.D., Senior Lecturer, and Petroleum Economics, Nile University of Nigeria, Abuja. ahmadadamu1@gmail.com
