tag:blogger.com,1999:blog-5526997402921326432024-03-05T03:37:34.496-08:00Dr. Ahmed AdamuDr. Ahmed Adamuhttp://www.blogger.com/profile/15307977251466368270noreply@blogger.comBlogger179125tag:blogger.com,1999:blog-552699740292132643.post-69113179386596979552024-02-26T13:13:00.000-08:002024-02-26T13:13:19.402-08:00 How a Dollar Will Be N160 in Nigeria: A Blueprint for Economic Resurgence<p> <b style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">How a Dollar Will Be N160 in Nigeria: A Blueprint for Economic Resurgence</b></p><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">By Assoc. Prof. Ahmed Adamu</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">The recent free fall of the Naira, plummeting from N460 to a staggering N1,600 at the official rate, has cast a dark shadow over Nigeria's economic landscape. With inflation soaring from 22% to 30% within a year, the consequences are dire – exacerbating poverty, fostering frustration, desperation, and fueling a surge in insecurity. The value of the Naira is the economic heartbeat of the nation, impacting the lives of every Nigerian. As the Naira weakens, so does the economic well-being of the average citizen.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">In this critical moment, the responsibility to protect and restore the Naira rests not only on the government but on the shoulders of every Nigerian. While the government bears a significant share of the blame, the path to redemption lies in collective action. Drawing inspiration from past experiences in countries like Germany, Zimbabwe, and Venezuela, the key out is straightforward and common. Here's a comprehensive blueprint for restoring the Naira to a value of less than N200 per USD1.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Nigeria should first leverage foreign investment for large-scale agricultural production and solid minerals development. The oil sector is bringing foreign exchange because there is a massive foreign investment in the sector, so also, if we want to grow the Agricultural and Solid mineral sectors, large foreign investment must be injected into the sectors. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Leasing agricultural fields to foreign investors, particularly for products with global demand, can stimulate economic growth. The federal and state governments must take the lead in the large-scale production of these global cash crops. We have high-potential cash crops that can generate a significant inflow of foreign exchange to Nigeria. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">For example, in 2022, Thailand generated up to $9 billion from exports of Cassava alone. While Nigeria is the largest producer of cassava worldwide, a lack of storage and processing facilities results in the loss of more than 30% of the cassava produced, with the rest being consumed, contributing very little to our export basket.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">There's no need to focus only on famous cash crops like Cocoa, Cotton, Ginger, Sesame, and Maize; there are other products like Cassia tora seeds, soybeans, palm oil, and others that also have high global demand. We can allocate a specific target of certain crops for some states, keeping a target export destination and quantity in mind.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Regarding solid minerals, state governments must play a vital role in attracting large investors to exploit the licenses they hold for large-scale mining. They also need to address illegal mining, which drives away legitimate large-scale producers. The mining sector should be standardized, similar to the oil sector. One reason why state governments are not so active in the mining sector is the monthly allocation they receive from the federation, providing no incentive for the development of solid minerals. Allowing states more access to resources and powers and discontinuing or reducing federation allocations could encourage states to maximize the untapped potential in agriculture and solid minerals. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Another strategy is reducing importation through import substitution to reduce the importation of non-essential goods that can be produced locally so that we can conserve foreign exchange. For example, within just last year's second quarter (three months), we spent N3 trillion importing manufactured goods. Most of this bill could be substituted for locally produced goods or alternative demand. Within these three months, Nigerians spent N734 billion importing used cars. If we can build adequate mass transport systems, the demand for importation of used cars will reduce.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Currency swap is an option too, but in a different way. This type of currency swap arrangement is where Nigeria receives foreign currency at an agreed-upon rate in exchange for access to agricultural and mineral resources, addressing both economic and resource needs. No country will agree to swap its currency for Naira, but many countries will accept swapping currency for agricultural and mineral resources.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Nigerians must stop treating the dollar like a commodity. Purchasing dollars not for any foreign transaction but solely to store value must be stopped. Nigerians, especially the wealthy and those in government, must refrain from converting their excess Naira to dollars for storage. Nigerians must be patriotic and sacrifice these illusional gains to save the Naira. The hoarding of dollars must be stopped by limiting the Naira in circulation, encouraging digital currency, and strictly monitoring cash movement. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">There are more dollars in the hands of people than in the banks, which is why the Central Bank of Nigeria (CBN) cannot control the market. Since the CBN has limited control, Nigerians should only demand the dollar when there is a genuine need for it, specifically for foreign goods or services. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Increased productivity, import substitution, and strict adherence to genuine demand for the dollar are essential. By doing so, the black market for dollars can be eliminated, as there will be enough dollars in the banking system to meet all legitimate demands.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">The government must cut its spending and prioritize key areas. A reduction in the deficit will free up more foreign exchange for market control. The government must cease borrowing, as the burden of debt makes it difficult to control the exchange rate when some of the available dollars are used for debt servicing.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">The CBN must halt the production of more Naira; making the Naira scarce could help improve its value. The scarcer the Naira, the more valuable it becomes. A scarcer and more valuable Naira will be critical in this strategy. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Redenominating the Naira notes could also be an option only after improving the export sector. This could be achieved by removing one zero from each Naira note to restore confidence in the currency. This would mean that a N1000 note would become N100 at its face value. If implemented today, the value of the dollar would become N160. This step could help build confidence in the Naira. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">People must have confidence in the Naira, regardless of the amount they possess. Confidence in the Naira is an essential feature of a strong currency. Other countries that faced similar challenges resorted to even reintroducing a new currency and, at some points, demonetizing their currencies, allowing any desirable foreign currency to be used as a means of exchange in their countries. This is the worst-case scenario.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">There are no two ways about it. The art of saving a currency is the art of production. No monetary or fiscal policy will work if we don’t produce for exports. A stronger Naira is possible only with stronger patriotism. Those hoarding dollars and using sentiment to inflate the value of the dollar are the true enemies of the economy; by hoarding the dollar, they are increasing inflation and thereby reducing the purchasing power of poor people's income and the purchasing power of what they will eventually gain in Naira value. So, they are digging a hole for themselves, too. With patriotism, increased production for exports, reduced importation, and adequate dollars in the banking system, the dollar could be pegged at below N200.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Ahmed Adamu</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Associate Professor of Economics</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Nile University of Nigeria, Abuja</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><a href="mailto:ahmadadamu1@gmail.com" style="color: #1155cc;" target="_blank">ahmadadamu1@gmail.com</a></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhVz1sHWz-vsVrZpL7-wSls2b1AGRz8tRdCmEI_uv3wh2xOLW3opN4mU4tkH8Q_a_-CZxkmnIs7JhDmr-MT4g9E5_yTF2efMQegXmOe2G_JmhC7C0Sh5B9UuZ1Q14_WapK4pbFoq07c-w7lzU_AEUtX1VfNNld6c_V6-Y2KQVHuNCNwpRVApM9he-nRSAx3/s630/Naira.jpeg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="300" data-original-width="630" height="152" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhVz1sHWz-vsVrZpL7-wSls2b1AGRz8tRdCmEI_uv3wh2xOLW3opN4mU4tkH8Q_a_-CZxkmnIs7JhDmr-MT4g9E5_yTF2efMQegXmOe2G_JmhC7C0Sh5B9UuZ1Q14_WapK4pbFoq07c-w7lzU_AEUtX1VfNNld6c_V6-Y2KQVHuNCNwpRVApM9he-nRSAx3/s320/Naira.jpeg" width="320" /></a></div><br /><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div>Dr. Ahmed Adamuhttp://www.blogger.com/profile/15307977251466368270noreply@blogger.com5tag:blogger.com,1999:blog-552699740292132643.post-39038340098203366362023-06-14T17:17:00.002-07:002023-06-14T17:17:47.346-07:00Single Exchange Rate in Nigeria: Conditions and Process<p> <o:p> </o:p><b>Ahmed Adamu,
PhD</b></p>
<p class="MsoNormal">In 1985, one Naira
was equivalent to one dollar. In 2023, one dollar equals N760, representing a 75,900%
Naira depreciation in just 38 years. In the previous eight years, Naira
depreciated by 265%. Based on the trend, the dollar may keep increasing towards
N1000 per dollar if nothing is done.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p>This depreciation implies that the things we buy abroad are
75,900% more expensive in just 38 years and 265% more expensive in the last eight
years. The items we purchase are costly because of exchange rate inflation. If the
Naira value falls, the cost of importation and inputs becomes more expensive.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p>A Naira/Dollar exchange rate affects our income and
spending. Once the dollar becomes more expensive, our pockets are slighter and
our spending smaller. Inflation will also go higher. Businesses will incur more
costs and reduce their employment potential, increasing unemployment.
Unemployment leads to insecurity and cripples productivity. So, all our
problems are caused by the Naira depreciation.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p>The Naira's weakness to the dollar affects the exchange rate
with other currencies too. For example, if $1=N710 and $1=£0.82,
then £
to N becomes 0.82/710 =£0.001 for N1. Making all imports from
all destinations more expensive.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p>The Central Bank of Nigeria (CBN) is primarily responsible
for the bad management of the exchange rate regime and its complacency in
brokering the dollar for personal gains. One of the problems with the exchange rate
is the two different dollar markets. We must merge it into one, but how?</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p>First, we must evaluate the current exchange rate regime to
assess the reasons for having a dual exchange rate regime and its associated
challenges.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p>The Central Bank cannot meet the Nigerians' demand for
dollars. As a result, a separate market allows Nigerians to source and sell
dollars at a willing-buyer-willing-seller rate. This created two markets for the
dollar; the one that CBN sells to banks and the open market, commonly called
the black or free market.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p>Rent seekers are taking advantage of the two markets and conspiring
with bank officials to divert the dollars to the black markets. Customers with
genuine demand could not get the dollars and were forced to buy at the expensive
black market.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p>The continuous arbitrage and rent-seeking are partly
responsible for the expensiveness of the dollar in the free market. The inefficiency
of the official market led to an increase in dollar demand in the black market.
People import raw greenbacks (paper dollars) into Nigeria for sale. The dollar
supply comes with no value addition but just for some personal gain purposes.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p>The CBN had abolished selling dollars to BDCs because no one
brings dollars to the banks, and everyone takes their dollars to black markets.
Exporters do not remit to the Nigeria Export Proceeds (NXP) account.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p>The CBN will get drained and cannot continue like this. Even
if they continue, it will not meet the demand, and the dollar will still be
scarce. The CBN created windows for people to become billionaires through the
two exchange windows in a few weeks. So, why the double losses - loss of reserves
and loss of naira value?</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p>Having two markets for the dollar, one cheaper and the other
expensive will always create arbitrage, which makes the economy lose for some
people’s gains. Therefore, having two exchange rates is bad for the economy. Therefore,
there should be only one exchange rate market.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p>One of our best options is the managed floating exchange
rate. Under this regime, a particular currency band will be set, beyond or
below which the exchange rate will not pass. The CBN will clear any extension
beyond the bands to keep them back within the band by flooding the market - band
realignment. So, the two markets should be unified, starting at a specific
equilibrium rate that is fair for both markets but blocked within a range.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p>Unification under managed floating will discourage
speculators. Speculators anticipate the future and act now. If they expect the
dollar to appreciate more, they will buy forward. If they anticipate the dollar
to fall, they will sell forward. They are profit driven. However, when the exchange
rate is blocked within a range, there will not be a high speculation motive.
The market will be for only commercial needs.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p>The currency band could be +/-2% from the equilibrium point
daily or 10% annually. This will continue until the maturity of the export
sectors and more forexes are received. The government can then flexibly appreciate
or depreciate the currency through the demand and supply of foreign currency. This
regime will be highly effective when we have huge reserves.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p>The quantity of Forex that CBN is spending on incentivizing
rent-seeking within banking systems and other windows should be used to
stabilize the market within the threshold. The CBN should block the
black-market rate to reduce its volatility.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p>This system is suitable for stabilizing the currency and
bringing in more investors. Countries practicing this regime include China, Brazil,
South Korea, South Africa, Mexico, Israel, Turkey, New Zealand, etc.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p>The government should avoid making abrupt announcements to
migrate into the managed floating regime. It should get involved in the black
market and gradually flood it to decrease the exchange rate. The CBN should phase
out its dollar allocation to the banks. The banks will have to source the
dollars at the market. The black and official markets will converge into a
single market. The rate at the single market should be pushed lower down
through monetary and fiscal policy means.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p>The money in circulation is already being reduced, the
removal of petroleum subsidy has reduced the purchasing power of Nigerians’
income, and spending substitution is in effect. Therefore, the demand for the dollar
will be reduced, while its supply will be high through the CBN action.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p>With the liberalization of the petroleum products markets,
upcoming local refineries, and expected improvement in oil production, the CBN
foreign exchange reserves will increase to enable it to manage exchange rate
fluctuations within the band.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p>Rather than an abrupt shift, the government should consider
a gradual convergence towards the single exchange rate regime. Initially,
narrow the gap between the two exchange rates by reducing the spreads and
minimizing distortions. This can be achieved through market-based reforms and easing
restrictions on foreign currency transactions.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p>The government must carry the citizens along, explain the
new system’s benefits to them, and create room for addressing people’s concerns
and uncertainties. The political appointments in the economic sector must be
based on merit. The CBN governor should be an Economist. We can consult other
countries that have transitioned to a single exchange regime to learn from
their experience and adapt the best practices to our country’s specific circumstances.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p>Most importantly, for any policy to work, Nigerians must
play their roles. At this moment, the government cannot do it alone. It
requires everyone's sacrifice. People must learn to be patriotic and forfeit some
gains that hurt the economy.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p>Nigerians must believe that they are somewhat responsible
for this country. More than half of the foreign exchange crisis in Nigeria is
because of our attitude. These attitudes range from rent-seeking, dollar
hoarding, dollar brokering, and preferring foreign goods and services to local
ones to extravagance and excesses.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p>Another condition for the single regime is that we must make
people from foreign countries come and seek Naira. And to do that, we must
produce what those people want locally. That is the way to create demand for
Naira, which is exports. We should focus on building the solid mineral and agricultural
sector to achieve this objective. That is why the Nigerian constitution should
be amended to allow states to own and develop solid mineral deposits in their
states.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p>According to a PWC report, Nigeria is losing over 10 billion
dollars annually from Agro export worldwide. With value addition, the gain
might be higher. These are quick ways of creating demand for the Naira. Our
comparative advantages are mainly solid minerals and agriculture. We should
focus on them first and then diversify into industrialization.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">One of the fiscal actions to stabilize the exchange rate is
to reduce government foreign spending. The cost of governance should be
reduced. Dollarization within government institutions should be reduced as
well. Fixing the dollar issues is
solving Inflation. All exchange rate policies fix the inflation problem. </p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><b>Ahmed Adamu,
PhD<o:p></o:p></b></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;">Petroleum
Economist<o:p></o:p></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;">ahmadadamu1@gmail.com<o:p></o:p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhjuK7QykW_DuHWl9BQlcjqRNEVlxQtOk0dbZkxmhaT2ReyyrB2isMYy54dleEqhIoNHxalp2UR5Zkz9dOGec_i5olCozXRAnXSBwLJRlzE2tV7B2B0goEOaa7fsgsw-SGmX8odTQhe7kwVHvwW3yalENqZEo4a8eJbWU7k64S7nOwJ6wEheBV9RetFUQ/s612/dollar.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="367" data-original-width="612" height="192" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhjuK7QykW_DuHWl9BQlcjqRNEVlxQtOk0dbZkxmhaT2ReyyrB2isMYy54dleEqhIoNHxalp2UR5Zkz9dOGec_i5olCozXRAnXSBwLJRlzE2tV7B2B0goEOaa7fsgsw-SGmX8odTQhe7kwVHvwW3yalENqZEo4a8eJbWU7k64S7nOwJ6wEheBV9RetFUQ/s320/dollar.jpg" width="320" /></a></div><br /><p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><br /></p>
<p class="MsoNormal"><o:p> </o:p></p>Dr. Ahmed Adamuhttp://www.blogger.com/profile/15307977251466368270noreply@blogger.com2tag:blogger.com,1999:blog-552699740292132643.post-77610617474268466342023-05-31T14:52:00.005-07:002023-05-31T15:26:50.983-07:00Finally, Petroleum Subsidy is Gone: The Implications<p>The final removal of petroleum subsidy in Nigeria is a welcome development. It means the market will determine the fuel price, i.e., willing buyer, willing seller price. It also means that many companies can import petrol and sell it at a price they want to recover their costs and make a profit. <br /><br />Many suppliers will be posting their market prices. We will see variations in posted prices by companies—no more regulated prices by the government.<br /><br />The petrol price will fluctuate periodically as crude oil prices and dollar exchange rates change. NNPC Limited and other importers will post their prices whenever there is a change in the variables that affect the cost of their fuel. These could be the distance from which the fuel is imported, its quality, or variation in profit margins. <br /><br />NNPC Limited posted prices will be the benchmark for the petrol market because it is a fairer and stronger player. <br /><br />Prices will be coming down in the event of lower crude oil prices. However, there could be collusion by the importers to stick to a higher price even at a low crude oil price. But, higher prices attract more supply, and less demand, leading to excess supply, which brings prices down.<br /><br />When the Dangote refinery starts operation, the petroleum products importers will then buy from the local refiner, thereby saving the extra costs of distance transportation costs and foreign inflation from the source country. They will be able to reduce their posted prices then. <br /><br />The marketers will get Dangote's fuel at least N30 less than the imported fuel per liter. They will enjoy Dangote's economy of scale (producing more at cheaper costs) and local production. This cost-saving could be higher due to cheap labor in Nigeria. However, this does not remove the possibility of some marketers sourcing the product cheaper elsewhere. <br /><br />Marketers that buy from the Dangote refinery will sell first. And if they can meet the local consumption, those that import expensive fuel will be pushed out of the market.<br /><br />With the sudden increase in fuel price by more than 170% due to the subsidy removal, the economy will shrink in the short run as productivity reduces. There will be less demand for petrol, and overall spending will decrease. Businesses will lay off staff to cope with the increasing cost of doing business, and general welfare will reduce. <br /><br />However, there will be new inventions as people start looking for alternatives. They will explore alternative transport systems or fuel or adjust their lifestyle. More business opportunities will emerge from this development. People will now begin to organize collaborative transportation means to share or reduce the cost of transportation per head. <br /><br />There will be efficiency of demand and reduced wastages, and Unnecessary trips will reduce. There will be fewer cars on the road and reduced carbon emissions. The NNPC Limited remittance to the government will increase because the cost of the subsidy is being removed. This enables the government to do more development projects and borrow less. <br /><br />Even though the approach by President Tinubu needed to be more systematic, it has minimized the chances of prolonged speculative buying by retailers in the event of scheduling the removal on a designated future date.<br /><br />However, because of his sudden announcement, there are now excessive supplier surpluses. Retailers of petrol that bought their products at a subsidized price just before the announcement are selling them at higher market prices, causing consumer losses and abnormal profit for the suppliers. That is the immediate effect of such a sudden pronouncement.<br /><br />For example, a retailer that bought a truck of 45 thousand liters at an ex-depot price of N179 per liter just before the announcement is now selling it at N540 per liter, making a surplus of more than N15 million per truck.<br /><br />Consumer losses are still inevitable even if a future date of the removal is announced, as retailers will engage in even more speculative buying ahead of the date to hoard as many large inventories as possible, wait for the removal date, and make abnormal profits.<br /><br />The good news is that many filling stations will open, and long queues will disappear, but consumers will lose. One of the conditions for removing the subsidy is sufficient local refining capacity. With the Dangote refinery, there will be a lower price of about N30 or more per liter compared to the imported one due to the advantage of local production. <br /><br />The Dangote refinery will reduce Nigeria's import bill because, as of now, imported petroleum products are the biggest bill in Nigeria's import basket. So, the Dangote refinery will reduce the supply of Naira, leading to its appreciation. It will positively affect Nigeria's balance of payment due to the exports of petroleum products by the refinery. <br /><br />Other countries will also bring their crude oil for refining in Nigeria and pay in dollars, thereby growing the impact of the oil sector on GDP. However, Dangote will buy Nigeria's crude oil in dollars, sell the refined petrol in Naira only to Nigerians, and exchange any desired quantity of the Naira receipts for Dollars at the CBN. <br /><br />Therefore, from the economic perspective, these two developments favor the economy's growth. They will create new business opportunities and lifestyles. The short run will be challenging, but the long run will be stable.<br /><br />Ahmed Adamu, PhD<br />Petroleum Economist,<br />ahmadadamu1@gmail.com </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiG0Ew5rfdnEYHjPZJ7oG2CcHZmnjzP-dc9fG28IqTe8ylARf9tA_oe1cHEkII9_LmpG-xpf4P2oDwD9QcDXWYwdatUUa94hAEbqcwUUwXk8-cK5cIsvSnonHwyh_0L9RO0XBfCKW_44YducSrYgmzxdjE70A0BiaZW-QyIOHMe9yHQmA1Hm-ll5qdgKw/s680/tinubu.jpg" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="365" data-original-width="680" height="172" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiG0Ew5rfdnEYHjPZJ7oG2CcHZmnjzP-dc9fG28IqTe8ylARf9tA_oe1cHEkII9_LmpG-xpf4P2oDwD9QcDXWYwdatUUa94hAEbqcwUUwXk8-cK5cIsvSnonHwyh_0L9RO0XBfCKW_44YducSrYgmzxdjE70A0BiaZW-QyIOHMe9yHQmA1Hm-ll5qdgKw/s320/tinubu.jpg" width="320" /></a></div><br /><p><br /></p>Dr. Ahmed Adamuhttp://www.blogger.com/profile/15307977251466368270noreply@blogger.com10tag:blogger.com,1999:blog-552699740292132643.post-51919313481134657292022-11-28T11:48:00.003-08:002022-11-28T11:48:23.970-08:00Kolmani Oil Discovery: What it means<p class="MsoNormal">Ahmed Adamu, PhD<o:p></o:p></p>
<p class="MsoNormal">Some Nigerians had some euphoria as the game-changing oil
and gas discovery in Kolmani, a Northern Nigerian area, was announced. It is
the first Northern Nigerian proven petroleum reserve, sixty-six years after
petroleum discovery in southern Nigeria. "What does this discovery mean to
us as Nigerians and northerners," someone from the north called and asked
me.<o:p></o:p></p>
<p class="MsoNormal">An estimated proven reserve of 1 billion barrels of crude
oil and 500 billion cubic feet of natural gas were found in an oil field that
straddles Bauchi and Gombe states, known as the Kolmani oil field. The
commercial quantity of the oil reserve in this area could increase in the
future. <o:p></o:p></p>
<p class="MsoNormal">Anywhere oil is found in Nigeria belongs to the federation.
The only benefits to the host community are the 3% of the oil operating cost in
the area from the preceding year and the constitutional 13% derivation funds to
the state government. The new oil-rich states will benefit from these two
sources.<o:p></o:p></p>
<p class="MsoNormal">The 3% is only for the oil-bearing communities; other
non-oil-bearing communities will not benefit from it. At the same time, 13% of
all the revenue generated from the oil produced in the state will go to the
state government. Oil-producing states and their host communities could get
more than N100 billion in a year from these two sources alone. <o:p></o:p></p>
<p class="MsoNormal">Other extended benefits to the new oil-rich states could be
direct jobs for high, medium, and small-skilled labor. Already some Indian oil
companies have shown interest in becoming partners in developing the onshore
Kolmani oil fields. <o:p></o:p></p>
<p class="MsoNormal">Onshore oil production in Nigeria, like the Kolmani field,
is not attractive to major oil-producing companies. The five major oil
companies operating in Nigeria are divesting from onshore and shallow water oil
fields despite the recent reduction in taxes and royalties in the PIA. Oil
companies prefer deep water oil production to avoid hostilities from restiveness,
vandalism, and insecurity associated with the onshore oil production areas. <o:p></o:p></p>
<p class="MsoNormal">Because of what is stated in the PIA relating to the 3% for
host communities, the Kolmani oil production should not experience restiveness
and vandalism. The PIA said, "In any year where an act of vandalism,
sabotage or other civil unrest occurs which causes damage to petroleum and
designated facilities or disrupts production activities within the host
communities, the community will forfeit its entitlement to the extent of the
cost of repairs". Host communities' benefits are now tied to the smooth
running of the oil production in their area.<o:p></o:p></p>
<p class="MsoNormal">NNPC limited will be the Kolmani oil and gas concessionaire
and will lift Nigeria's profit oil and gas from the oil field and transfer the
proceeds to the Nigerian Petroleum Upstream commission after deducting its
service cost. However, the profit oil could only be derived after cost recovery
by the developers of the field, known as contractors. <o:p></o:p></p>
<p class="MsoNormal">The New Nigeria Development Company (NNDC) is the lease
owner for petroleum mining on the field. But, could NNDC be able to develop
this new oil field? No. NNDC may not have the technical and financial readiness
to develop the Kolmani field yet. Therefore, oil companies must be contracted
to spend millions of dollars and provide technical expertise to develop the
area. <o:p></o:p></p>
<p class="MsoNormal">There will not be a profit oil and gas from the field until
after some years of production to allow the contractors to recover their cost,
but this depends on the oil price and contract agreements. Mainly the cost
incurred by the contractor in developing the field is amortized and may take up
to the first five years of production, and then the profit sharing will start.
This is to allow the operators to recover their costs of development. The
government will transfer the exploration costs to the operator, which will add
to the total cost of oil. <o:p></o:p></p>
<p class="MsoNormal">The only money that will be accruing to the federation
account in the early years of production will be the royalty crude and
hydrocarbon taxes (only if there is a profit), which are 15% and 30% of the
crude oil produced, respectively. It could take between five to ten years to
develop the field. So, any financial benefits will be after developing the
area. <o:p></o:p></p>
<p class="MsoNormal">Would the focus be on developing crude oil only or both
crude oil and gas? Natural gas has far-reaching economic benefits, but
developing it is more expensive. With the ongoing gas pipeline projects, there
could be more gas supply from this field which will help industrial growth in
the country. <o:p></o:p></p>
<p class="MsoNormal">Now, some states will begin to suspect their possible oil
and gas reserves. We can now conclude that every part of Nigeria has a possible
oil and gas reserve. With the first oil discovery in the north and with the
creation of the Frontier Exploration Funds, more exploration will be undertaken
in the north. The Frontier Exploration Fund is funded by 30% of the NNPC
Limited profit oil and gas and 10% of all rents on petroleum licenses and
leases. <o:p></o:p></p>
<p class="MsoNormal">Many states are facing debt and development issues and might
wish to have more control and access to the natural resources in their states
to fix their problems. More oil, gas, and other natural resources could be
harnessed when state governments are given the right to control those
resources. States will maximize their potential resources to outcompete each
other. <o:p></o:p></p>
<p class="MsoNormal">In the event of states' resource control, people ask, how
could border states handle shared oil and gas fields that cross their borders?
Just like the Kolmani oil and gas field, which straddles across Gombe and
Bauchi states. Any state that produces more at the border areas may draw more
oil from the neighboring state. So, who drills first captures the oil.<o:p></o:p></p>
<p class="MsoNormal"> To avoid
over-production and damage to the environment at the border areas, the
neighboring states should unify the oil field, appoint a single operator, and
share the profit based on where the field lies in relation to the boundary.
State governments in a geo-political zone could undertake this kind of
unification. <o:p></o:p></p>
<p class="MsoNormal">Even after states' resource control, further oil
explorations will continue to search for more oil and gas reserves in the
states that do not confirm their petroleum deposits yet. So, non-oil-producing
states could become oil producers eventually. <o:p></o:p></p>
<p class="MsoNormal">With oil fading away and growing restrictions on the use of
fossil fuels, we can maximize the utilization of our endowed petroleum
resources to build infrastructure and the economy and fund alternative energy
sources and consumption. <o:p></o:p></p>
<p class="MsoNormal">Finally, more oil reserves without growing and functioning
refineries will not make any difference. The focus should be on functioning and
adequate refineries locally to stop importing refined petroleum. Imported
refined petroleum is the biggest bill in our import basket. Having local
refineries will help restore the value of our exchange rates. Government
refineries must be privatized as soon as possible, and modular refineries
should be encouraged to grow their efficiencies and capacities. So, the
discovery of oil and gas in the Kolmani area is not a given benefit; it is a
potential benefit, so celebrate not yet. <o:p></o:p></p>
<p class="MsoNormal">Ahmed Adamu, PhD<o:p></o:p></p>
<p class="MsoNormal">Petroleum Economist<o:p></o:p></p>
<p class="MsoNormal"><o:p></o:p></p><p>ahmadadamu1@gmail.com </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjGjvguNzqZV5SfEd2I4E4uKAfZ7IR-I8ilVua-us5cReJMh3YZU-9F2fmA8SG0XseDnVDbOLxjpJ9TKci9qCrTzCSfIW-OPpWorPIY5R8kqizlv5eYlmxlpdcZ1T21BiVOKnOSSLOWbOYJFALxamhRMqH9T5mWJMsFkz_teR6rAUKpwFLFQWsgcriA3w/s2048/Kolmani%202.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="1536" data-original-width="2048" height="195" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjGjvguNzqZV5SfEd2I4E4uKAfZ7IR-I8ilVua-us5cReJMh3YZU-9F2fmA8SG0XseDnVDbOLxjpJ9TKci9qCrTzCSfIW-OPpWorPIY5R8kqizlv5eYlmxlpdcZ1T21BiVOKnOSSLOWbOYJFALxamhRMqH9T5mWJMsFkz_teR6rAUKpwFLFQWsgcriA3w/w260-h195/Kolmani%202.jpg" width="260" /></a></div><br /><p><br /></p>Dr. Ahmed Adamuhttp://www.blogger.com/profile/15307977251466368270noreply@blogger.com6tag:blogger.com,1999:blog-552699740292132643.post-86667159344157515562022-06-08T14:17:00.002-07:002022-06-08T14:17:39.527-07:00 How Subsidy Removal on Diesel causes Scarcity and High Price of Petrol in Nigeria.<p><span style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Ahmed Adamu, PhD</span></p><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">The removal of subsidy on Diesel coupled with the increase in the international oil price led to the increase in the price of Diesel by 180% in just a year. This caused some banks to close early because they cannot afford the higher diesel prices. Other businesses and commercial centers also shortened the duration of their services. This slows down the economy. The cost of transporting goods and petrol has more than doubled, as a result, hence the unprecedented inflation, which was 17% as of April 2022.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Removing subsidy on Diesel have more effect on inflation because heavy transportation of goods and fuels are done using trucks that use Diesel. Commercial and industrial centers are more affected by Diesel inflation than petrol inflation. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">The cost of doing business and producer transportation is largely affected by the Diesel price increase. To avoid increasing the cost of production, countries like Brazil delayed removing the subsidy on Diesel until after the successful removal of the subsidy on jet fuel, gasoline, and LPG.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Petrol, known as PMS in Nigeria, directly affects the cost of mostly human transportation. Despite subsidizing the PMS price, inflation is still going high and fuel scarcity is becoming worse because diesel prices are increased.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Now, what is the link between diesel price hikes and fuel scarcity?</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">In the Nigerian PMS pricing template, marketers of the fuel are paid for the bridging cost to ensure price equalization across the country, now that the marketers are paying more for every distance because of diesel price increases, they are demanding more to pay for their inflated transportation costs. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">However, the government wants to stick to the existing N165/liter pricing template, which allows for a lower bridging cost. Marketers are now left with the option to either stop operations or sell at a more expensive location to recoup their transportation costs.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Locations like Abuja where officials can easily trace any violation of the pricing regime suffer the most. Marketers avoid Abuja because they are forced to sell at a lower price than they wanted. They would rather take it to other locations that have little or no supervision and sell it at their desired prices. Higher prices always fix excess demand, that’s why queues are less outside Abuja.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">On the other hand, the government is shying away from adjusting the pricing template because it will mean paying more for the bridging purpose, which is a form of additional subsidy. Already, the government planned to spend N3 trillion on subsidy this year, and additional bridging costs are going to add to the subsidy burden.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">The Nigerian government has only six months since the passage of the PIA to stop all kinds of fuel subsidies. This means subsidies cannot exceed June 2022. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">President Buhari has no plan on how to convince Nigerians or deal with the subsidy removal. He is now scared of the public resistance and the implication of that for his party in the forthcoming election. That is why President Buhari must send a bill for the amendment of the PIA to enable him elongate petroleum subsidy, otherwise, petroleum subsidy is illegal from the end of June.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">With the landing cost of about N600 per liter, removing the subsidy will make the government save N29 billion every day, and will help clear all the queues at the filling stations. However, the pump price will be above N600 per liter. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Is Buhari’s administration ready for this reality? Keeping subsidies or removing subsidies; both options have painful consequences, the best thing to do is to go for what is best for Nigerians for a longer period even if it hurts more now.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">With the price of oil being $126 per barrel as of June 2022, the highest oil price in more than a decade, Nigeria stands for no gain. The only oil-exporting country that does not benefit from the high oil price. Because higher oil prices mean higher subsidy payments, where a 1% increase in oil prices leads to a 1.58% increase in subsidy spending.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Sometimes, the Nigerian government would prefer low oil prices to avoid higher subsidy bills. In just 20 years, the Nigerian government has paid over N14 trillion on petroleum subsidies. Imagine the opportunity cost of that huge amount. That amount would have been enough to build refineries, but we are still left with no working refining capacities.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Our refineries are big liabilities, as Nigerians’ money is used to keep them alive even without refining a single liter. Now, that NNPC is commercialized, refineries are open for grabs, but even NNPC limited is afraid to take the refineries because of their liabilities. So, if the government cannot handle the refineries, they must be sold, because billions of Naira are lost to the refineries that are not working.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">One thing that will take Nigeria off the hook is full deregulation, President Buhari should stick to the PIA calendar for the subsidy removal and the refineries should be privatized too. However, there are certain steps, conditions, investments, and lifestyle reforms that must be in place for subsidy removal to be seamless.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Ahmed Adamu</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Petroleum Economist</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><a href="mailto:ahmadadamu1@gmail.com" style="color: #1155cc;" target="_blank">ahmadadamu1@gmail.com</a></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">.</div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh0JJs412Uko6uddS1AJEGae0DxpHijE_fOllgqnmpvhsboiB2gymv9pEPggaNwBXpQIysbyrVq7ZdNcE-oKSd1gLI3-t7Nmb2drQlCWdre4ipDYG-_uK-LmD5jg4jfiRnpRFjlLdn8xGrXWyDM5vfvE8DTY73rpNPP52WJu5wkEZrKOcAgm4W82mT-MA/s612/istockphoto-814706602-612x612.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="408" data-original-width="612" height="213" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh0JJs412Uko6uddS1AJEGae0DxpHijE_fOllgqnmpvhsboiB2gymv9pEPggaNwBXpQIysbyrVq7ZdNcE-oKSd1gLI3-t7Nmb2drQlCWdre4ipDYG-_uK-LmD5jg4jfiRnpRFjlLdn8xGrXWyDM5vfvE8DTY73rpNPP52WJu5wkEZrKOcAgm4W82mT-MA/s320/istockphoto-814706602-612x612.jpg" width="320" /></a></div><br /><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div>Dr. Ahmed Adamuhttp://www.blogger.com/profile/15307977251466368270noreply@blogger.com1tag:blogger.com,1999:blog-552699740292132643.post-58454248459168522672022-04-20T14:46:00.003-07:002022-04-20T14:46:31.364-07:00Big Economic Crisis Looms in Nigeria<div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Ahmed Adamu, PhD</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">As Nigeria heads to a decisive election in 2023, attentions are largely on the candidates and political parties and intrigues in between. Little do Nigerians know about the impending danger their economy faces. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"> </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">The Nigerian currency faces the worst devaluation ever as Nigerians shun away from their local currencies. There are now competing dollar queues in Nigerian banking halls. Nigerians are rushing to open dollar accounts and converting their savings into dollars. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">People prefer to store their money in dollars than in Naira, as keeping the dollar alone is now a lucrative investment due to the continuous Naira devaluation. The increasing demand for the dollar increases the supply of the Naira and hence its continuous devaluation. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Most of the demand for the dollar is not for transaction purposes but speculative reasons. Hoarding the dollar and waiting for it to increase value to sell it is disastrous and treasonous economically. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Dollar hoarding and speculation increase the supply of Naira in circulation and fuel even more inflation. Already the headline inflation is as high as 16% as of the first quarter of 2022. More Naira in circulation will increase inflation to above 20%. As the 2023 election season has started, election and campaign spending by politicians will fuel even more inflation. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Naira is losing value in the eyes of Nigerians, and that’s why it will continue to deteriorate. Some hotels, landlords, and schools in Nigeria charge in dollars instead of Naira. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Trading local goods and services in dollars is the surefire way to total economic collapse. Even government transactions and spendings are also in dollars. These created huge dollar demand and scarcity and shot its value high, which as of April 2022, stands at N590 in the parallel market. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Foreign investors are now finding it difficult to repatriate their revenue from Nigeria in foreign currencies. Some international airlines have complained about their inability to repatriate their revenues in dollars, which forced them to now sell their tickets only in dollars. This development will further increase the demand for the dollar and the oversupply of the Naira and further devalue the Naira.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">The continuous devaluation of the Naira is putting enormous pressure on Nigeria’s foreign reserve, which was questionably reported to be around $40 billion as of February 2022. The parity fixed exchange rate policy is widening the depletion of the foreign reserve. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Sometimes, authorities might not be open about the reserve depletion to protect the integrity of the economy. However, if the effect explodes, it will be catastrophic. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">The increasing cost of pegging the dollar will soon become unbearable. However, liberalizing the exchange rate market will increase the dollar value to about N1,000 or more. This will cause hyperinflation, increasing unemployment, and capital flight. It is the trap Nigeria found itself in.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Investors are already avoiding Nigeria due to the fluctuating and unreliable forex policies. Existing investors are already thinking of divesting. Foreign Direct Investment inflows are at their lowest in a decade. The main source of forex in Nigeria is crude oil sales, and that is also reducing due to the crude oil swap system. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Investment analysts highlighted severe social, market, and political risks of investing in Nigeria. These range from insecurity, insufficient infrastructure, and government interventions to political unrest and instabilities.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">These risks caused an almost a collapse in the non-oil exports in the country, leaving the economy very susceptible to oil market volatilities. It also makes imports susceptible to exchange rate fluctuations and foreign inflation. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">The local manufacturers struggle to acquire expensive dollars to import capital and inputs. These are conditions for hyperinflation, a serious economic crisis that could destroy the Naira. Once the Naira collapses, so does Nigeria’s economy.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">With the increasing capital flights, imports, borrowing, and budget deficit, one can only wait for the inevitable explosion. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Very soon Nigeria’s government may become unable to peg the value of the dollar, and once this happens, then the worst catastrophe will befall the Naira. The collapse of the Naira will demolish the purchasing power of people’s income and usher in more hunger and poverty. Once these happen, the total anarchy will set in.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">However, the above impending agony can be prevented by taking certain decisive actions. First, the Central Bank of Nigeria (CBN) must be checkmated to fish out excesses and effectively manage the forex policy through transparency and fairness. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">The CBN must meet the demand of the foreign investors and airlines to enable them easily repatriate their income in foreign currency. This will boost investor confidence by having the guarantee of liquidity of their returns in their desired currency. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">The unnecessary discharge and sale of dollars must be stopped. There should be new reforms to discourage trading physical dollars in the country. The government should set a maximum target for using dollars for official activities and transactions. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">The government should minimize the need for dollars in its transactions. We have to add value to our locally manufactured products and services to increase the supply of forex through exports. Citizens must be conscientise of the importance of valuing the local currency and the danger of saving or transacting locally in dollars.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">For us to manage our economy, we have to manage inflation and restore confidence in Naira, and this can only happen through economic reforms such as import substitutions, forex reforms, and investment in infrastructure. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">We have to develop our major mineral resources and build the agricultural value chain for exports and attract forex. Foreign investors can only come if we can strategically address the social, economic, and political risks in the country.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">The next administration has a herculean task to rescue the sinking economy first before rebuilding it. That is why the focus should be on which candidates understand the economy and the solutions. Otherwise, we will all be doomed and fall into serious economic crises like what happened in Asia in 1997, Zimbabwe in 2008, and recently in Sri Lanka. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">The 2023 election is not just a common election between parties, it is a decision on the fate of our economy and by extension our survival. Therefore, it is not about a region, party, or ethnicity, it is about the vision that could overturn the current mayhem.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Ahmed Adamu, PhD</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Petroleum Economist</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><a href="mailto:ahmadadamu1@gmail.com" style="color: #1155cc;" target="_blank">ahmadadamu1@gmail.com</a></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">@AhmedAdamu</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi3lyBehw-lkW3l1aSfvec7GCZXZ1VYDSiTdsye9ZiGg5Q9Xe4qNnw1Wut9OCp37kfuxTL-8AT4N5MW3HDUKCYnh1kDoYct6yV6zjSwgDLkMjS_6V8nBv7wJFJeRYbKuhK0k27tRoFnYVd5N5lKJ4wprQPczFTQa9eSVA6kKSSBVhD3pT3dhGt51NPYsg/s612/economic%20crises.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="408" data-original-width="612" height="213" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi3lyBehw-lkW3l1aSfvec7GCZXZ1VYDSiTdsye9ZiGg5Q9Xe4qNnw1Wut9OCp37kfuxTL-8AT4N5MW3HDUKCYnh1kDoYct6yV6zjSwgDLkMjS_6V8nBv7wJFJeRYbKuhK0k27tRoFnYVd5N5lKJ4wprQPczFTQa9eSVA6kKSSBVhD3pT3dhGt51NPYsg/s320/economic%20crises.jpg" width="320" /></a></div><br /><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div>Dr. Ahmed Adamuhttp://www.blogger.com/profile/15307977251466368270noreply@blogger.com1tag:blogger.com,1999:blog-552699740292132643.post-46174414533010349472022-02-20T08:22:00.002-08:002022-02-20T08:22:28.074-08:00 Fuel Scarcity: Issues and Solutions<p><span style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Ahmed Adamu, PhD</span></p><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Most refineries are designed to produce certain specifications of petroleum products, depending on the market requirement. Though, some modern refineries are equipped to produce varying specifications of the products. This enables marketers to buy petrol and blend it with some chemical substance to meet varying destination requirements.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Each country has a specific chemical composition requirement for their petrol. The marketers or refineries can blend the petrol to suit each country’s specifications.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Methanol is a chemical substance added to petrol for smooth running in car engines. It helps in increasing fuel efficiency and reducing energy intensity and CO2 emissions. The Nigerian gasoline-powered vehicles are compatible with petrol blended with up to 5% methanol. Some countries allow only 2-3% of the methanol in their petrol. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Early February 2022, Nigeria imported 200 million liters of petrol from Belgium through a crude oil swap arrangement. The imported petrol contained methanol up to 20%, which is far above the methanol content threshold in Nigeria. This petrol is called off-spec petrol for Nigeria. For any Nigerian vehicle to use this petrol, it has to be retrofitted. Countries like Brazil and Germany who retrofitted some of their vehicles may use this kind of specific petrol.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Nigerian officials were not aware of the off-spec petrol, and they allowed it to enter the Nigerian market. Some vehicle owners started noticing some damages and malfunctions in their vehicles after taking the off-spec petrol. That was when Nigerian officials realized that the imported petrol was not suitable for Nigerian vehicles. They have to call all the petrol back to the depots.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">The withdrawal of the 200 million liters of petrol created a supply glitch in the country, hence the scarcity. Since Nigeria is vulnerable due to its sole reliance on imported petrol, Nigerians have to wait on filling stations queues until the next importation. Any slightest petroleum import glitch always affects Nigeria significantly.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Had it been Nigerian officials have tested for the methanol content, they would have noticed it since from the departure country or at least at the arrival of the vessels at the Nigerian seaports. Nigerian officials only test for vapor pressure, benzene, sulfur content, and density. From this experience, Nigerian officials should start testing for methanol content levels for any imported petrol.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">The resultant scarcity has created a window for unscrupulous petroleum sellers to charge exorbitant prices. Unconfirmed reports suggested that a liter of petrol is sold at N1000 in some places. The welfare of the people has been negatively affected as a result. People sleep in the queue at filling stations. The movement of people and goods have reduced significantly, slowing down the entire economy and pushing inflation further high. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">For the supply to stabilize, more petrol has to be imported to clear the queues and meet the subsequent usual daily demand. The Nigerian officials committed to buying 2.3 billion liters of petrol to bridge the supply gap. The importer of the adulterated fuel must take it back and re-supply its equivalent with some additional penalties.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">It might take weeks or months to bridge the supply gap. The 2.3 billion liters of emergency import will add to spending on the side of the government for petroleum consumption. Already the government is planning to spend N2.6 trillion for petroleum subsidy consumption. These are huge burdens just for petroleum importation and subsidizing petroleum consumption in Nigeria.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">No administration will ever succeed without stopping petroleum importation and removing petroleum subsidies. However, the removal of the subsidy must be under certain conditions and through a certain gradual process. These conditions include sufficient local refineries, exchange rate stability, and single-digit inflation. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">The steps for removing the subsidy include petroleum consumption auditing to ascertain and track petroleum consumption. The next step is the petroleum consumption reduction program, which will target reducing the daily liter consumptions in Nigeria from 70 million liters to about 30 million liters. This is possible by targeting large consumption cities like Abuja, Lagos, and Kano.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">The program will require investment in mass transport systems, which include convenient public trains, light rail transit, and busses in these cities. The idea is to impose car taxes to discourage people from using their cars and incentivize them to use the public transport systems. This will reduce the energy per capita consumption in these cities and encourage the use of alternative fuels like CNG and LPG in these mass transport facilities. The program could be extended to other major cities gradually.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Imagine a scenario of ten people going to the same office daily, using ten different cars at the same time, and consuming the same quantity of fuel each. If coming and going to the office consumes 5 liters daily, it will mean 5 liters multiplied by 10 people, which is 50 liters of petrol daily. But when they all use one vehicle, the energy consumption will be only 5 liters daily, which means petroleum consumption is reduced by 90%. The payment of subsidy for these people will reduce by 90%. That is the energy conservation process of removing the petroleum subsidy.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">But the public transport systems must be in place first. The private sector could be mobilized for such investments. Then, the next step will be the implementation of the targeted subsidy, which I explained clearly in my previous article.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">The subsidy issue has been and will continue to be an issue and a great burden on the government. After fixing the current petroleum scarcity, the government must come up with a strategic roadmap for addressing the subsidy issues. The current scarcity is one of the serious shortages Nigerians have experienced in a decade.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Lastly, the question now is why and who imported the off-spec petrol into Nigeria? Was it deliberate? Was it the refiner or the marketer? This investigation must be conducted, and Nigerians must be informed. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Punishing the culprits would also serve as a deterrent to others. It might be possible the marketers might have blended the petrol on the sea during the transit, or it might be the refiner that mixed the wrong quantity of the methanol. Whatever, Nigerians will be waiting for an explanation and looking forward to measures that will prevent future occurrences of the situation.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Ahmed Adamu, PhD</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Petroleum Economist</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><a href="mailto:ahmadadamu1@gmail.com" style="color: #1155cc;" target="_blank">ahmadadamu1@gmail.com</a></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">.</div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgU60S4-n_9b1W3SEfn0e6k2nU30tzlNt_UOd-rzEZKo2oqTTV5hwuhIkIanUNiTrKSd5Gszy8_sQHYygEVl_dGKvLeod3U501rwhgy8Vkz_xtcZDI97QPLBjSGry8BahwFmKSglfX_Z8nCd2jESJQrYK1Yz9wlq6d5ClulZ5SPvs11RWSISNg-mO61LA=s1080" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="843" data-original-width="1080" height="250" src="https://blogger.googleusercontent.com/img/a/AVvXsEgU60S4-n_9b1W3SEfn0e6k2nU30tzlNt_UOd-rzEZKo2oqTTV5hwuhIkIanUNiTrKSd5Gszy8_sQHYygEVl_dGKvLeod3U501rwhgy8Vkz_xtcZDI97QPLBjSGry8BahwFmKSglfX_Z8nCd2jESJQrYK1Yz9wlq6d5ClulZ5SPvs11RWSISNg-mO61LA=s320" width="320" /></a></div><br /><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div>Dr. Ahmed Adamuhttp://www.blogger.com/profile/15307977251466368270noreply@blogger.com4tag:blogger.com,1999:blog-552699740292132643.post-61147658095390871332022-01-26T14:50:00.000-08:002022-01-26T14:50:01.690-08:00 The Petroleum Subsidy Trap and The Way Forward<p>Ahmed Adamu, PhD</p><div dir="auto"><div dir="auto"><br /></div><div dir="auto">Lack of refining capacities and Petroleum subsidies have caused Nigeria to lose significant foreign exchange and its ability to fund infrastructural development. </div><div dir="auto"><br /></div><div dir="auto">The Nigerian government's share of crude oil averaged around 900k barrels per day in 2021, and at least 70% of that was exchanged for petroleum products, which means only 30% of our crude oil exports brought back dollars. </div><div dir="auto"><br /></div><div dir="auto">Going by the above, Nigeria received an average of only $20 million per day from oil exports in 2021. On the other hand, Nigeria loses a minimum of $45 million cash to crude oil swaps every day. </div><div dir="auto"><br /></div><div dir="auto">Instead of receiving dollars after selling our crude oil, we receive refined petroleum to fill the local refining capacity deficiencies and meet the outrageous local petrol demand. </div><div dir="auto"><br /></div><div dir="auto">That has caused the flow of foreign exchange into Nigeria to reduce drastically, which caused the deterioration of our foreign exchange reserve, dollar scarcity, Naira devaluation, and hence inflation. That is the cost of not having sufficient local refineries. </div><div dir="auto"><br /></div><div dir="auto">On top of that, the Nigerian government is spending more than N150 billion monthly on petroleum subsidies. These funds would have been for infrastructural development and job creation programs. Nigerian government loses a significant amount of revenue due to petroleum regulation. </div><div dir="auto"><br /></div><div dir="auto">The subsidy also leads to serious supply leakages, where more than 40% of subsidized petroleum is being arbitraged in neighboring countries. Nigeria is creating a business opportunity for rent-seekers to buy the Nigerian subsidized petrol and then sell it at an expensive market to make a profit. This is a big revenue leakage that petroleum subsidy causes. </div><div dir="auto"><br /></div><div dir="auto">Petroleum Subsidy is an "evil necessity" at the moment; Despite the above challenges, the government must continue with petroleum subsidy. There is no doubt that the petroleum subsidy is not sustainable for now, but the question is when and how to remove it? </div><div dir="auto"><br /></div><div dir="auto">In the meantime, Nigerians cannot afford the unsubsidized price of petrol. Without petroleum subsidies, petrol prices will be more susceptible to fluctuations in crude oil prices and exchange rates. Prices at filling stations will fluctuate to any change in the exchange rate and crude oil price. These fluctuations could happen on daily basis. </div><div dir="auto"><br /></div><div dir="auto">The deregulated petrol price will be anything above N300 per liter at the moment; this will cause further inflation because everything links to the petrol price. The resultant inflation will harm the economy more than the subsidy harms the economy at the moment. Now, this is the trap.</div><div dir="auto"><br /></div><div dir="auto">Now, to answer when to remove subsidy. The best time to remove petroleum subsidy is when there is a minimum of 500k barrels per day of local refining capacities, when the exchange rate is stable, and when inflation is at a single digit. </div><div dir="auto"><br /></div><div dir="auto">Dangote refinery is still at a "maybe" state; there is no specific time when it is likely to start operating, but if it does, it will help satisfy the first and most important condition. </div><div dir="auto"><br /></div><div dir="auto">Achieving the first condition will enable us to achieve the second condition of exchange rate stability, but that has to be complemented with import substitution strategies. Fulfilling the first and second conditions will automatically make the third condition achievable.</div><div dir="auto"> </div><div dir="auto">But the how-to remove the subsidy is the main question. We have options of targetted subsidy or quota subsidy as phasing out strategies. Let us look at the targeted subsidy strategy first.</div><div dir="auto"><br /></div><div dir="auto">Under this regime; any Nigerian that wants to benefit from the petroleum subsidy will have to enroll in the subsidy program, where his biometric data will be collected and linked to his vehicle details. A person will receive an electronic sticker that will be scanned to verify his national identity, biometric data, and vehicle specifications at the point of purchasing the subsidized petrol.</div><div dir="auto"><br /></div><div dir="auto">Petrol stations will have to enroll in this subsidy regime, and it is only the affiliated filling stations that will be selling the subsidized petrol. The government should incentivize filling stations to sign up for the subsidy regime. </div><div dir="auto"><br /></div><div dir="auto">Other filling stations that did not join the program will be selling the petrol at the market price. So, you will have two sets of filling stations: the ones that sell at a subsidized price and the others that do not. </div><div dir="auto"><br /></div><div dir="auto">Nigerians that can afford the unsubsidized petrol will conveniently buy from the unaffiliated filling stations. While others will have to consume at the filling stations that signed up for the subsidy program. That is why the government should ensure many filling stations, especially in the rural areas signed up for the program. </div><div dir="auto"><br /></div><div dir="auto">By doing that, the consumption of subsidized petroleum will be limited to only Nigerians and the subsidy spending will reduce drastically. The government may target a certain subsidy payment threshold every month. Every beneficiary should have a maximum number of allocated liters per month to avoid round-tripping. </div><div dir="auto"><br /></div><div dir="auto">By implementing this, only less than 30 million liters per day will be subsidized, as against the reported 70 million liters, which automatically makes the Nigerian government save up to N90 billion every month and still provide the subsidy to the poor people. </div><div dir="auto"><br /></div><div dir="auto">Another alternative phasing out strategy is the quota subsidy, where a certain number of liters are allocated proportionately to categories of consumers monthly. The consumer categories will include commercial vehicle users, industrial vehicle users, and private vehicle users. </div><div dir="auto"><br /></div><div dir="auto">This will narrow down the subsidy more to the poor and consumer goods production processes. The need for the government to fund palliatives may not arise, as the masses will continue to enjoy the subsidy. </div><div dir="auto"><br /></div><div dir="auto">Finally, the savings from the reduction in subsidy spending may be used for railway construction to interlink the country for easier and cheaper transportation. This will translate into cheaper consumer products. The government should stop giving cash palliatives but implement capital projects that ease businesses. </div><div dir="auto"><br /></div><div dir="auto">The government should be honest and transparent in dealing with petroleum subsidy issues. Delaying the subsidy removal until after the election is purely political, unpatriotic, and patronizing. Punishing Nigerians after using them for electoral votes is treason. </div><div dir="auto"><br /></div><div dir="auto">Ahmed Adamu, PhD</div><div dir="auto">Petroleum Economist</div><div dir="auto"><a href="mailto:ahmadadamu1@gmail.com" target="_blank">ahmadadamu1@gmail.com</a> </div><div dir="auto">.</div><div dir="auto"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiZSDmvwDsLyO68pXdGF4_G8F-Foj8fTOL7qxftVHLFWW_huUk8dMkNEtncOH2CjMzLcePgiwgS5gZjtc6XSn_BXr2YW5iwlg5Jw0MCEQSK-g4QERjwx4bURkxekJWl3tMpApOg1FD2pZPl/" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img alt="" data-original-height="800" data-original-width="1293" height="198" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiZSDmvwDsLyO68pXdGF4_G8F-Foj8fTOL7qxftVHLFWW_huUk8dMkNEtncOH2CjMzLcePgiwgS5gZjtc6XSn_BXr2YW5iwlg5Jw0MCEQSK-g4QERjwx4bURkxekJWl3tMpApOg1FD2pZPl/" width="320" /></a></div><br /><br /></div></div>Dr. Ahmed Adamuhttp://www.blogger.com/profile/15307977251466368270noreply@blogger.com0tag:blogger.com,1999:blog-552699740292132643.post-43657087787853687942021-12-19T15:35:00.001-08:002021-12-19T15:35:08.148-08:00How to urgently fix insecurity in Northern Nigeria<p class="MsoNormal">- Ahmed Adamu,
PhD<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Since the recent exacerbation of terrorism in northern
Nigeria, there have not been serious legal actions to punish the culprits.
There should be an emergency court for trying the criminals and immediately
convict them. <o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">There should be a special law that dictates the kinds of
punishment for every kind of complicity in banditry and kidnapping. The
punishment should be severe and in the public view. It will serve as a
deterrent to others who might be tempted to be involved in any kind of
terrorism.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">The government cannot fix this level of insecurity in a
short while, that is why the citizens have to come in. For northern Nigeria, there should be an
independent body or forum that will unite the expertise and resources of all
active and retired professionals and elites from the region. <o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">The forum will be independent of the government and should
have a structure down to the local government levels. It will be managed by
highly respected and experienced people in the region. The forum might be named
“Arewa Development Forum”.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">The forum will feed the various state governments
individually and as a group with ideas and strategies and help harmonize their
approaches toward combating the insecurity. <o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">The body will establish “The Arewa Development Trust Fund”,
where every working and capable northerner will be contributing a willing
amount of money monthly. The funds will be used for compulsory education for
all and some basic infrastructural development in the northern rural areas.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">The extent of the abject poverty in the north is
unimaginable. There are still villages where they don’t have schools and no
access to electricity. These villages have no road and potable water, and their
population is growing. <o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">The Arewa Funds will be used to build infrastructure in
these kinds of villages. It will be used to build schools and sponsor every
child’s education, especially in remote areas. It will be used for free
education for every northerner. New teachers will be trained and recruited and
paid well from the funds.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">The Funds should be used to address street children begging
and hawking. The Forum will conduct a census of the “Almajiri Child” for a
database of their locations and their homes of origin, with a plan to send
every child back to their parents. <o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">The parents should be incentivized for keeping and
supporting their children's education. The Funds can also be used to support
modern and mechanized farming, including animal rearing and ranches. It can
also be used for capital seed for women's entrepreneurship and businesses.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">All the international donor agencies and NGOs that want to
work in Northern Nigeria should work with the Arewa Development Forum. The idea
is to harmonize the resources for efficiency, devoid of duplication. <o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">The governments of all the northern states should contribute
to the funds. International Organizations and Foundations should be solicited
to contribute to the Funds. The idea is to generate and spend at least N2
trillion for only education and basic infrastructure in rural areas of the
region.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">If we can have up to ten million northerners who will be
contributing at least N20,000 every month, we will raise N2.4 trillion in a
year. <o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">On top of this, we can receive donations from the state
governments, NGOs and international agencies, and foundations. Nigerians in the
southern region might wish to contribute as well.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">The local government branches of the Forum should maintain
education and development statistics and a database of the people under their
jurisdiction. The information will help for the appropriate allocation of these
resources.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">There should be a new law that will convict any person or
their parent for not acquiring a minimum of secondary school education in the
North. The Education must be compelled and made free for all.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Banditry and all kinds of terrorism are ideologies.
Ideologies are groomed by certain circumstances, and they can travel
everywhere. The only thing that prevents it is education. <o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Only education and empowerment can fix insecurity. If we
don’t come together to kill this ideology, it will kill us. It is now time to
stop expecting too much from the government. We have to rise and do it
ourselves.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">It is not surprising that Northern Nigeria is facing this
level of insecurity because despite being the region with the highest
population growth rate (with an average woman giving birth to six children),
more than half of the girl children aged six and above are not having an
education. <o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">The region also accounts for 9 million of the 14 million
out-of-school children in Nigeria, with the northwest alone having five million
of them. Northern Nigeria's poverty rate is put at 86%. Any region that has a
high level of poverty and lack of education like this has fulfilled the
conditions for insecurity.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Traditional rulers have to be actively involved in
information and intelligence gathering. They are closer to the people; they
could provide relevant information and strategies unique to their territories. <o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">War should be declared in the affected areas. A large number
of Nigerian armies should be deployed and given the order to clear the
terrorists and ensure peace in the region. <o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Ultimatum could be given to some of the terrorists who are
willing to lay down their arms unconditionally, beyond this chance should be
death. There should be immediate rebuilding and infrastructural development of
the areas where these bandits come from so that they will have options of a new
life in their towns or face death.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Finally, the APC administration must fix insecurity before
the 2023 elections, because the APC and President Buhari were voted mostly to
fix insecurity. The next administration should not inherit another insecurity
challenge. <o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">The next administration should focus on addressing other
issues. We cannot afford to waste a complete eight-year tenure of an ex-Army General
without addressing insecurity in Nigeria. <o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">I call on all Nigerians to take responsibility and act, we
should stop relying absolutely on the government to fix insecurity.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">If you do have other ideas on how to fix insecurity or you
want to respectfully challenge or support my submissions above or my previous
article on the subject matter, you can send me an email. <o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal">Ahmed Adamu, PhD<o:p></o:p></p>
<p class="MsoNormal">ahmadadamu1@gmail.com <o:p></o:p></p><p class="MsoNormal"><br /></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEizvdQJZWLve9Lx1RKnen9nrwmF0ArJxz2MNMWaOfuc9--uPIdSnncGgPNGSN_YPEGYAWEsfZ5-qRMPZBmYuLRZrwLXoDaE40GkBffeiq_vnOuCgpkZvcHt6Xq4nRARb3FZwM5jooUawjd1WGirUHCbKUlH9CGKMTfArs0GAQxA_J81AXMVMD5jI-LUYA=s1280" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="720" data-original-width="1280" height="180" src="https://blogger.googleusercontent.com/img/a/AVvXsEizvdQJZWLve9Lx1RKnen9nrwmF0ArJxz2MNMWaOfuc9--uPIdSnncGgPNGSN_YPEGYAWEsfZ5-qRMPZBmYuLRZrwLXoDaE40GkBffeiq_vnOuCgpkZvcHt6Xq4nRARb3FZwM5jooUawjd1WGirUHCbKUlH9CGKMTfArs0GAQxA_J81AXMVMD5jI-LUYA=s320" width="320" /></a></div><br /><p class="MsoNormal"><br /></p>
<p class="MsoNormal"><o:p> </o:p></p>Dr. Ahmed Adamuhttp://www.blogger.com/profile/15307977251466368270noreply@blogger.com0tag:blogger.com,1999:blog-552699740292132643.post-49989432722032040132021-12-14T04:02:00.002-08:002021-12-14T04:02:35.641-08:00How to Fix Insecurity<div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">I have listened to two interviews with some terrorists from Northwest Nigeria, and these are my deduction and suggestions for the insecurity in Nigeria. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">The issues:</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">The terrorists claimed that security forces are only attacking innocent people, not the armed terrorists.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">They claimed that the Nigerian security forces have never attacked them and they cannot dare to attack them.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">They said, they sometimes sympathize with their captives and their families, but some of the captives do not deserve sympathy.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">They claimed that the vigilantes also engage in crimes and excesses.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">They said, some of the armed gangs are willing to repent and reconcile, but some are not willing.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">If the government will do justice, they are willing to drop their arms, they are conscious that what they are doing is bad.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">They said, one of the conditions for peace is to provide education for their people so that they can equally have opportunities.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">The majority of their people are not educated, they said. If a Fulani person is educated, even if he does not have cattle, he can survive.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Now, the reason why they have taken arms is that they were sent out of their farmlands by vigilantes and now they can’t rear their cattle, and they don’t have education, in this situation the gun is the only way out.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">The terrorists have different groups, and they live inside the forest. They come out to rob shops and steal food and go back to their hideout. Some people supply them with arms.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"> </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">They take drugs and substances before they undertake any operation.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">They recruit new gang members daily. They promise them financial incentives. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">The solutions</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">There are two approaches to the issue: Curbing and Preventing</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Curbing: this involves proactiveness and aggression prior to and after any attack. This involves aggressive use of the arm to prevent, repel or revenge any imminent attack. There should be a military aggression and footage tracing of the terrorists, immediately after any attack.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Excessive use of military force should be deployed in the confirmed hideouts of the terrorists. Deployment of technology, surveillance cameras that detect human movements and voices. Tracking of mobile phone communication and use of auto drones and unmanned fire jets on the suspected areas.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Technological Security controls, surveillance, and highway patrons, as well as heavy security escorts, should be deployed on the highways for public use. The President should be visiting the attacked areas to see the level of damages and sympathize with the families and ginger the security personnel to avenge all attacks. There should be some media broadcast on each attack and the subsequent actions of the security personnel.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Preventing: Population management: This includes effective database management of Nigerians and monitoring of all entry and exit to and from Nigeria, Family education, and population to resources matching policy. </div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Our capacity to provide educational, medical, housing, nutrition, and security needs of our population should match with the size of the population so that no one will be lacking the basic needs of living.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">If these things are not properly implemented, we will keep producing another disgruntled set of people who will continue to use arms to show their frustrations and ignorance.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Ahmed Adamu, PhD</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgG-p2fJtyJiRdSy-Hz49Umlo8eOulxmcM4OGEhFbZ3oxOEgpQpvTxalgek-qPneoFm8_76nGhxlfqfTPJgQaXspIgVLd2-A9ALMGPNJYRCWSLK3IyeqoqOQVbDxjRSH7tuzLzp-COsXT7AhBh8Eacy73-Izem01Z1ynF5owfYc4ckgkee18ioxBWBBzQ=s1280" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="720" data-original-width="1280" height="180" src="https://blogger.googleusercontent.com/img/a/AVvXsEgG-p2fJtyJiRdSy-Hz49Umlo8eOulxmcM4OGEhFbZ3oxOEgpQpvTxalgek-qPneoFm8_76nGhxlfqfTPJgQaXspIgVLd2-A9ALMGPNJYRCWSLK3IyeqoqOQVbDxjRSH7tuzLzp-COsXT7AhBh8Eacy73-Izem01Z1ynF5owfYc4ckgkee18ioxBWBBzQ=s320" width="320" /></a></div><br /><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div>Dr. Ahmed Adamuhttp://www.blogger.com/profile/15307977251466368270noreply@blogger.com0tag:blogger.com,1999:blog-552699740292132643.post-23904126044693029022021-11-17T15:33:00.001-08:002021-11-17T15:42:04.670-08:00Reducing Unemployment through Migration<p>Ahmed Adamu, PhD</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">There are more than 130 million Nigerians who are either
unemployable, unemployed, or underemployed. This situation exacerbates extreme
poverty and fuels increasing insecurity. <o:p></o:p></p>
<p class="MsoNormal">Despite the continued government borrowing and various
interventions to address these menaces, the situation is exacerbating. A different strategy has to be in place to
achieve a different result because it is insanity to keep doing the same thing
and expect a different result.<o:p></o:p></p>
<p class="MsoNormal">One of the out-of-the-box solutions to unemployment is an
organized migration program where Nigeria should plan to send up to 20 million
Nigerians to work abroad in ten years.<o:p></o:p></p>
<p class="MsoNormal">Irregular migration is growing in Africa, with Nigeria
recording the highest number of illegal migrants, mostly young people. Economic
hardships are pushing more people to leave Nigeria to migrate illegally in
search of better lives. <o:p></o:p></p>
<p class="MsoNormal">Hypothetically, three-in-ten Nigerians wish to leave Nigeria
in anticipation of a better life abroad. A young Nigerian said he better die in
the desert trying to migrate than to stay in Nigeria. And most times, these
illegal migrates are exposed to severe threats, violations of human rights, and
slavery. And yet, they are willing to pay money to be trafficked abroad.<o:p></o:p></p>
<p class="MsoNormal">Nigeria is one of the countries with the highest surpluses
of the small and semi-skilled labor force, and new job opportunities always
seem too small. <o:p></o:p></p>
<p class="MsoNormal">For every decent job opportunity created, at least one
hundred people will apply for it. There are no corresponding opportunities to
meet the growing number of small skilled laborers in Nigeria. This situation
creates an enormous redundant labor force. Then what do we do with them?<o:p></o:p></p>
<p class="MsoNormal">The Nigerian government should design a migration program to
create opportunities for this redundant labor force. It will enable eligible Nigerians to register to join the migration program. The program will
create a pool of capable Nigerians who fulfilled some technical and medical
requirements for recruitment in some selected foreign countries.<o:p></o:p></p>
<p class="MsoNormal">The government will enter into a bilateral agreement with
some developed countries that need a labor force. These countries will also
establish a pool of employers in their countries who may wish to choose from
the Nigerian stream of prospective employees/laborers. <o:p></o:p></p>
<p class="MsoNormal">Each country will specify its labor force requirement,
including technical and language skills that will enable Nigerian laborers to
fit in and start working immediately upon arrival.<o:p></o:p></p>
<p class="MsoNormal">Eligible Nigerians will sign up and indicate three top
countries of their choice. They will state their competitive skills and spoken
languages. There will be one-year preparatory training for all Nigerians who
made it to the pool to enhance their employability abroad. <o:p></o:p></p>
<p class="MsoNormal">The training will be specific to the intended country of
destination. For example, people that want to go to Japan would need the skills
that the Japanese employers need. And
they will have to learn the Japanese language. <o:p></o:p></p>
<p class="MsoNormal">The Nigerian government will send the CVs of those that
successfully learned these skills to the Japanese employers’ pool for
selection. It is the prerogative of the employers to choose who they want to
pick.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">The Nigerian government will negotiate for the wages of the
beneficiaries and ensure their proper placement. The government should be
responsible for their flight ticket once for the initial trip to the intended
destination.<o:p></o:p></p>
<p class="MsoNormal">The program is an employer and employee matching pool, where
employers search to find their perfect marching employees. There will be some
contract agreements to ensure the employers and the employees fulfill their
obligations.<o:p></o:p></p>
<p class="MsoNormal">With this organized migration policy, young Nigerians will
not be risking their lives to irregularly migrate as they stand better chances
to go to their destination with dignity.<o:p></o:p></p>
<p class="MsoNormal">I initially posted my speech on this policy on my social
media, and subsequently, many Nigerians, including professionals, indicated an
interest in this program. It means that there are many more Nigerians who may
be interested in this program.<o:p></o:p></p>
<p class="MsoNormal">Exports of natural resources are not limited to mineral
resources but also human resources. Exporting human resources will improve
Nigeria’s balance of payment. <o:p></o:p></p>
<p class="MsoNormal">In the last quarter of this year, Nigeria’s value of imports
stood at N7 trillion, while non-oil exports stood at N1 trillion. Sending
Nigerians to work abroad will increase international remittance. It will also
increase the receipts in the components of the balance of payment of Nigeria.<o:p></o:p></p>
<p class="MsoNormal">This policy will also help fix the exchange rate crisis in
Nigeria since international remittance will increase the supply of the dollar
and then appreciate the value of Naira, which will reduce inflation and
increase job opportunities. <o:p></o:p></p>
<p class="MsoNormal">In 2019, Nigerians working abroad sent in about $26 billion
to Nigeria. This kind of remittance is the second-largest source of foreign
exchange receipts after oil revenues in Nigeria.<o:p></o:p></p>
<p class="MsoNormal">Increasing international remittance will reduce poverty.
Nigerians working abroad will be sending money to their relatives back at home,
which will help alleviate poverty among households. This kind of opportunity
will also reduce the pressure on the available job opportunities in the
country.<o:p></o:p></p>
<p class="MsoNormal">Someone talked about the brain drain that this policy might
lead to, but there will not be a realization of the full benefit if you asked
all the capable Nigerians to stay in Nigeria to work. Because if they do, they
will be frustrated and perform far below their potentials. So, keeping some of
them is wasting them for now.<o:p></o:p></p>
<p class="MsoNormal">Other countries like the Philippines, Pakistan, Ethiopia,
and Bangladesh are also implementing a similar policy. And it is adding a
positive impact on their economy. There
should be other complementary unemployment reduction programs in Nigeria, as
this policy alone cannot fix unemployment.<o:p></o:p></p>
<p class="MsoNormal">Finally, this program will help increase government tax
revenue, as the government can charge taxes for each dollar remitted. The
government should use these receipts for building infrastructures that will
incentivize new job opportunities.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;">Ahmed Adamu,
PhD<o:p></o:p></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;">Nile
University, Abuja<o:p></o:p></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><a href="mailto:ahmadadamu1@gmail.com">ahmadadamu1@gmail.com</a><o:p></o:p></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;">18<sup>th</sup>
November 2021<o:p></o:p></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;">..<o:p></o:p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgmVY08MIkwXwrE-1LANRCDn3EfNY4j9vZNAgKyGVhkbkMPNURXektUDdGmaE3x0IgAnr7HXoFVcIuUTuvR2w3Cu9sQAGcaloi4KVOxuuXizZun9aC1d8NHzHKium3sY2rIca3Xs3ZbEHZ9/s1280/migration.jpg" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="640" data-original-width="1280" height="160" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgmVY08MIkwXwrE-1LANRCDn3EfNY4j9vZNAgKyGVhkbkMPNURXektUDdGmaE3x0IgAnr7HXoFVcIuUTuvR2w3Cu9sQAGcaloi4KVOxuuXizZun9aC1d8NHzHKium3sY2rIca3Xs3ZbEHZ9/s320/migration.jpg" width="320" /></a></div><br /><p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;">CGM</p>Dr. Ahmed Adamuhttp://www.blogger.com/profile/15307977251466368270noreply@blogger.com3tag:blogger.com,1999:blog-552699740292132643.post-59864914769295067662021-09-22T18:11:00.011-07:002021-09-22T18:11:55.902-07:00Watch some of my videos here<span style="font-size: large;">Technology is the Next Nigeria’s oil<br /><br /></span><div><span style="font-size: large;"><iframe allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="" frameborder="0" height="360" src="https://www.youtube.com/embed/6Jn6b-KrF88" title="YouTube video player" width="640"></iframe> </span></div><div><span style="font-size: large;"><br /></span></div><div><span style="font-size: large;">Forum of Commissioners of Finance<br /><br /> <iframe allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="" frameborder="0" height="360" src="https://www.youtube.com/embed/WsDjz8H7xlg" title="YouTube video player" width="540"></iframe> </span></div><div><span style="font-size: large;"><br /></span></div><div><span style="font-size: large;">Dollarization problem in Nigeria<br /><br /> <iframe allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="" frameborder="0" height="360" src="https://www.youtube.com/embed/HWuHZCxrhH0" title="YouTube video player" width="640"></iframe> </span></div><div><span style="font-size: large;"><br /></span></div><div><span style="font-size: large;">Explanation on Petroleum<br /><br /> <iframe allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="" frameborder="0" height="360" src="https://www.youtube.com/embed/vKib0dJONVw" title="YouTube video player" width="640"></iframe> </span></div><div><span style="font-size: large;"><br /></span></div><div><span style="font-size: large;">Leadership Training in Ghana<br /><br /> <iframe allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="" frameborder="0" height="360" src="https://www.youtube.com/embed/BcBWeyF8aMQ" title="YouTube video player" width="635"></iframe> </span></div><div><span style="font-size: large;"><br /></span></div><div><span style="font-size: large;">Causes and Solutions to Insecurity in Nigeria<br /><br /> <iframe allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="" frameborder="0" height="360" src="https://www.youtube.com/embed/Wqo5VPMhXb4" title="YouTube video player" width="640"></iframe> </span></div><div><span style="font-size: large;"><br /></span></div><div><span style="font-size: large;">The Implication of the new Petroleum Industry Act in Nigeria<br /><br /> <iframe allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="" frameborder="0" height="360" src="https://www.youtube.com/embed/dGJ188SQKKg" title="YouTube video player" width="640"></iframe> </span></div><div><span style="font-size: large;"><br /></span></div><div><span style="font-size: large;">The Right Values<br /><br /> <iframe allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="" frameborder="0" height="360" src="https://www.youtube.com/embed/Nmbbsa2etrQ" title="YouTube video player" width="640"></iframe>
<br /><br /></span></div><div><span style="font-size: large;">Leadership Gap in Africa<br /><br /> <iframe allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="" frameborder="0" height="360" src="https://www.youtube.com/embed/5Vaieq6-JFo" title="YouTube video player" width="640"></iframe></span></div>Dr. Ahmed Adamuhttp://www.blogger.com/profile/15307977251466368270noreply@blogger.com0tag:blogger.com,1999:blog-552699740292132643.post-46322928187586162292021-03-12T13:23:00.000-08:002021-03-12T13:23:19.727-08:00Petrol Price Hike: The Subsidy Dilemma <p> <span style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Ahmed Adamu, PhD</span></p><div class="adn ads" data-legacy-message-id="17828413c67f8ce8" data-message-id="#msg-a:r-2000930596032421589" style="background-color: white; border-left: none; color: #222222; display: flex; font-family: Roboto, RobotoDraft, Helvetica, Arial, sans-serif; padding: 0px;"><div class="gs" style="margin: 0px; padding: 0px 0px 20px; width: 864px;"><div class=""><div class="ii gt" id=":2si" style="direction: ltr; font-size: 0.875rem; margin: 8px 0px 0px; padding: 0px; position: relative;"><div class="a3s aiL " id=":2sh" style="font-family: Arial, Helvetica, sans-serif; font-size: small; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: 1.5; overflow: hidden;"><div dir="ltr"><div dir="auto"><div dir="auto">It was not a surprise the real price of petrol in Nigeria is now N212 per liter, I have predicted this in the past. In fact, it could still reach N300 per litter depending on the market situation, particularly crude oil price and exchange rate. If there are no sufficient local refining capacities, there are going to be continuous shocks in the petrol prices. </div><div dir="auto"><br /></div><div dir="auto">Nigerians could not cope with the exposure to the volatility of the oil markets, because petrol price is associated with the general price level and there are no cheaper alternative public transportations. Since prices are sticky in the drop, frequent volatilities push and stick prices are higher levels, thereby reducing the purchasing power of people’s income and making more people poorer.</div><div dir="auto"><br /></div><div dir="auto">The Nigerian government will not want more increases in petrol prices since we have had series of them from N87 per liter to now supposed N212 per liter in just 6 years. The trap is that the government had already proclaimed removal of the petroleum subsidy, which means undesirably exposing Nigerians to shocks in crude oil and money markets since 100% of the refined petrol is imported solely by the NNPC. </div><div dir="auto"><br /></div><div dir="auto">Though petroleum subsidy removal is generally regarded to be a right policy, the prerequisite conditions have not been fulfilled in the case of Nigeria yet. One of the most essential conditions for removing the subsidy is sufficient local refining capacities so that everything will be processed locally, from extraction to refining, and there will not be involvement of foreign currency in the supply value chain and costs of international transportation will not be involved. </div><div dir="auto"><br /></div><div dir="auto">Already, today’s price hike announcement had already caused long queues in many of the operating filling stations selling at N212 per liter, and other filling stations have closed waiting for the confirmation of the higher price. This untold hardship had already sent a negative ripple effect on the major macroeconomic indicators like Income, Production, Employment, and Price levels. Therefore, the damage has been done. </div><div dir="auto"><br /></div><div dir="auto">Even though the agency responsible for determining the petroleum prices has denied imposing the market reflective price of N212, but the market has already responded, and it is truly the appropriate market price now. But, due to political ramifications, the circular had to be stood down. If that is the case how much will now be spent on the unofficial subsidy?</div><div dir="auto"><br /></div><div dir="auto">Even last week, the Senate accused the NNPC of spending hundreds of billions of Naira for the subsidy, the question here is that if the government still pays for the subsidy, then why Nigerians were exposed to the continuous price hike? Was there any significant compensation or development of the sector since the removal of the subsidy? The economies of average Nigerian have worsened off since the subsidy removal. Therefore, the marginal costs of the subsidy removal outweigh its marginal benefits. </div><div dir="auto"><br /></div><div dir="auto">Therefore, the Nigerian government should revert to N145 per liter and reintroduce temporary subsidy until when Dangote’s refinery comes on stream. It is very good news that Dangote agreed to sell his refined petroleum in Naira, thereby uncoupling the continuous dollar inflations from the petroleum supply chain. Even then, the subsidy should be removed in phases. In my previous posts, I recommended various subsidy regimes that could be implemented to phase it out.</div><span style="color: #888888;"><div dir="auto"><br /></div><div dir="auto">Dr. Ahmed Adamu</div><div dir="auto">Petroleum Economist, Nile University, Abuja.</div><div dir="auto"><a href="mailto:ahmadadamu1@gmail.com" style="color: #1155cc;" target="_blank">ahmadadamu1@gmail.com</a></div></span></div><div class="yj6qo"></div><div class="adL"></div></div><div class="adL"></div></div></div><div class="hi" style="background: rgb(242, 242, 242); border-bottom-left-radius: 1px; border-bottom-right-radius: 1px; margin: 0px; padding: 0px; width: auto;"></div></div></div><div class="ajx" style="clear: both;"></div></div><div class="gA gt acV" style="background: rgb(255, 255, 255); border-bottom-left-radius: 0px; border-bottom-right-radius: 0px; border-top: none; color: #222222; font-family: Roboto, RobotoDraft, Helvetica, Arial, sans-serif; font-size: 0.875rem; margin: 0px; padding: 0px; width: auto;"><div class="gB xu" style="border-top: 0px; padding: 0px;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgbg52q8VH6oXoRLelP7A9dwubd334qzI4Qb4M_uyIYjvd1JesuFF4d9MqiPhvP7OQc53BCJ5cxLm7cryqEILCLQeWKlIJA6an4c_uQ82HOYfgPD3GzETrvFvcVlLkEqq3IgftF5XBRiLfo/s297/hike.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="170" data-original-width="297" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgbg52q8VH6oXoRLelP7A9dwubd334qzI4Qb4M_uyIYjvd1JesuFF4d9MqiPhvP7OQc53BCJ5cxLm7cryqEILCLQeWKlIJA6an4c_uQ82HOYfgPD3GzETrvFvcVlLkEqq3IgftF5XBRiLfo/s0/hike.jpg" /></a></div><br /><div class="ip iq" style="border-top: none; clear: both; margin: 0px; padding: 16px 0px;"></div></div></div>Dr. Ahmed Adamuhttp://www.blogger.com/profile/15307977251466368270noreply@blogger.com0tag:blogger.com,1999:blog-552699740292132643.post-36484943981007017562021-01-18T15:27:00.000-08:002021-01-18T15:27:02.882-08:00Obstacles and Tips for Entrepreneurs<p> <span style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Blaming leaders for your poverty and refusing to take your primary responsibility and not willing to start with small ideas are obstacles to successful entrepreneurship. The rewarding skill is not hard work, but innovation. Responsibility is leadership, and it is Entrepreneurship. </span></p><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Your University degree is a limiting factor, the greatest limitations to your success are your certificates. Certificates have 3 traps: it makes you feel you arrived, want only white-collar jobs, and limit your scope of work. Delay gratification, suspend present enjoyment for the future.</div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;"><br /></div><div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">Obstacles to success, steps, and tips for successful entrepreneurship, life vision, degree trap, and leadership issues were highlighted in my speech during the Katsina Youth Dialogue. Startups and small business owners shared their challenges, and advice was given to them, the complete speech can be watched from this YouTube link:</div><iframe allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/uQuK5tx2hag" width="560"></iframe>Dr. Ahmed Adamuhttp://www.blogger.com/profile/15307977251466368270noreply@blogger.com1tag:blogger.com,1999:blog-552699740292132643.post-32918025383890486712020-12-02T08:12:00.000-08:002020-12-02T08:12:15.393-08:00Should the rich be taxed more?<p></p><div dir="auto">Ahmed Adamu, PhD</div><p></p><div dir="auto"><br /></div><div dir="auto">The former Vice President of Nigeria, Alhaji Atiku Abubakar has suggested that the rich should be taxed more as a short-term measure to save Nigeria’s economy from total collapse. Is that the right call? What is causing these continuous recessions in recent years? And what are the way forward?</div><div dir="auto"><br /></div><div dir="auto">The frequency and severity of the economic recession in Nigeria are attributed to the failure of the Nigerian government to diversify the economy, cut spending, and apply appropriate tax policies. If the Nigerian economy is diversified, the frequency and depth of the recession would not have been this much. In fact, the real recession in the country is more severe than just the reported recession. Increasing poverty, psychological depression, and insecurity illustrate the deepest recession being experienced in Nigeria.</div><div dir="auto"><br /></div><div dir="auto">If a government cannot provide security, there will not be investment and production, and by extension, there will not be diversification. So, the current administration is to blame for the continuous deepest recession in the country.</div><div dir="auto"><br /></div><div dir="auto">Atiku is correct, in the period of economic downturn, it is time for a sacrifice to support the collapsing economy. It is wise to tax the rich more because they can conveniently make that sacrifice, and that will set the pace for the Robin Hood Effect. “Robin Hood effect is when the less well-off gain economically at the expense of the better-off.” In fact, taxing the super-rich serves as a payment for the security of their wealth, because, if the economy continues to crash, people will become angrier and might lead to anarchy and destructions.</div><div dir="auto"><br /></div><div dir="auto">In the period of anarchy, the rich will not be safe and their wealth will be destroyed. We have seen a spark of such anarchy in recent days. So, paying more tax to save the economy is an investment and protection for their wealth. This will also serve as a redistribution of income, which will help reduce the inequality gaps in the country.</div><div dir="auto"><br /></div><div dir="auto">However, before the rich pay more tax, the government must show some level of commitment and credibility. No one will want to pay more tax to a government that spends money on unnecessary things. The rich will not pay extra tax if taxpayers’ money is being used to pay lavish allowances and excess spending by the government officials.</div><div dir="auto"><br /></div><div dir="auto">If anyone must pay extra tax, the government must sacrifice first. The government must cut down these excess allowances and spendings to save more. The government must also stop the excessive borrowings and look inward to see what it can save from the cost of governance. That is when the rich and even the poor will be willing to pay extra taxes, because, then we know it will not be wasted. So, it is time for this administration to cut down the cost of governance to save our economy.</div><div dir="auto"><br /></div><div dir="auto">This is time to support the lower class, instead of increasing VAT, removing petroleum subsidy, increasing electricity tariff, and introducing new charges on the common man, it is time for social support. Taxing the rich and cutting the cost of governance will enable the government to sufficiently provide social support and spark some economic activities targeting diversification. The government should fix the insecurity at foremost, otherwise, no investment and no production in an insecure nation.</div><div dir="auto"><br /></div><div dir="auto">Therefore, Atiku Abubakar’s call for taxing the rich more is one of the best short-term strategies to stabilize the economy. Even though some people will blame this second recession on Covid-19, but the severity and real negative effect of the recession are terrific in Nigeria and the fact that this is not the first one shows the negligence of the government and its poor economic policies.</div><div dir="auto"><br /></div><div dir="auto">It is time to heed the advice of patriotic Nigerians, who are passionate about the development of this country, who are willing to always offer suggestions and advice without caring who or which party takes the credit.</div><div dir="auto"><br /></div><div dir="auto">Dr. Ahmed Adamu</div><div dir="auto">Nile University of Nigeria, Abuja</div><div dir="auto"><a href="mailto:ahmadadamu1@gmail.com" target="_blank">ahmadadamu1@gmail.com</a></div><div dir="auto">.</div><div dir="auto"><div class="separator" style="clear: both; text-align: center;"><br /></div><br /><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg6yVwJMg1Gs2vSZ2ph8g5AiQ9jEO_WiZmSXbJbZb8d7Ovpr6PjGofzmCW-3uBZWs39XNqR6DVQF-VaxHcjbM4wRXVl7UOS-MOBgAQBaRZzydPiF-FvH8FPhF-3dWCzewfhxxJQF8_tzdmY/s1000/tax+the+rich.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="667" data-original-width="1000" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg6yVwJMg1Gs2vSZ2ph8g5AiQ9jEO_WiZmSXbJbZb8d7Ovpr6PjGofzmCW-3uBZWs39XNqR6DVQF-VaxHcjbM4wRXVl7UOS-MOBgAQBaRZzydPiF-FvH8FPhF-3dWCzewfhxxJQF8_tzdmY/s320/tax+the+rich.jpg" width="320" /></a></div><br />Dr. Ahmed Adamuhttp://www.blogger.com/profile/15307977251466368270noreply@blogger.com1tag:blogger.com,1999:blog-552699740292132643.post-13986765346220369882020-10-02T13:07:00.006-07:002020-10-02T18:19:19.690-07:00Is it appropriate to benchmark Nigeria's Petrol Price to Saudi Arabia’s Petrol Price?<p><b>Ahmed Adamu, PhD</b></p>
<p class="MsoNormal" style="line-height: 106%;"><span style="mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;">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?<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 106%;"><span style="mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;">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. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 106%;"><span style="mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;">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. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 106%;"><span style="mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;">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. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 106%;"><span style="mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;">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. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 106%;"><span style="mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;">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. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 106%;"><span style="mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;">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. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 106%;"><span style="mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;">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. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 106%;"><span style="mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;">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. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 106%;"><span style="mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;">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.<o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 106%;"><span style="mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;">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. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 106%;"><span style="mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;">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. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 106%;"><span style="mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;">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. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 106%;"><span style="mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;">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. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: 106%;"><span style="mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;">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. <o:p></o:p></span></p>
<p class="MsoNormal" style="line-height: normal; margin-bottom: 0in;"><b>Ahmed Adamu, Ph.D.,
Senior Lecturer, and Petroleum Economics, Nile University of Nigeria, Abuja.</b> <b>ahmadadamu1@gmail.com</b></p>
<p class="MsoNormal"><o:p> </o:p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjv8NBDJdGSup54gUz-eG_XSYzxgf34kTDnfi6OJ0WRfH1J_H8wJASzAURea0uc_jmcvTYN5V_chkK2wvqHrD-dzd0R6vQiYxDcr5rQBDLVTv8NdgnAkS2RL9dxzXH8mpKSFpeaG3-sfqWS/s600/independence+speech.jpg" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="400" data-original-width="600" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjv8NBDJdGSup54gUz-eG_XSYzxgf34kTDnfi6OJ0WRfH1J_H8wJASzAURea0uc_jmcvTYN5V_chkK2wvqHrD-dzd0R6vQiYxDcr5rQBDLVTv8NdgnAkS2RL9dxzXH8mpKSFpeaG3-sfqWS/s320/independence+speech.jpg" width="320" /></a></div><br /><p></p>Dr. Ahmed Adamuhttp://www.blogger.com/profile/15307977251466368270noreply@blogger.com6tag:blogger.com,1999:blog-552699740292132643.post-64227141849966452982020-06-27T14:44:00.001-07:002020-06-27T14:44:45.867-07:00The Transformation Nigeria Needs<div dir="auto">
Ahmed Adamu, PhD</div>
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Hitting the snake-tail would not stop it from biting. The compounding economic and social challenges keep on biting Nigerians, and we have not yet identified the roots of these issues. Untold poverty, growing inequality, acute hardships, and alarming insecurity and deprivations have been threatening the fundamental human rights of living freely and safely in Nigeria. We are already on the verge of anarchy, and it seems too little too late to do something about it, but there is a window opportunity to hit the snake on the head. I will show you how.</div>
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When the right-minded young people struggle so hard to earn a living but get nothing in return, frustration and desperation are being bred. When you have a society where passion and hard work do not pay, you will face despondency. When people realize that hard work does not work, they will switch to easy and bad ways. When money rules and when scarce resources are subjected to steep competition due to overgrowing population, desperation and insecurity proliferate.</div>
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I recently traveled for a friend’s wedding, and along the way I saw some eagerly young hawkers, selling petty things ranging from bottled water, groundnut to bread. Daily, these young folks are scorched by the sun and beaten by the rain, yet they endure. I noticed how some of them were distracted and lost into the admiration of the luxury and exotic cars that pass them by. They wish and imagine themselves living that conspicuously comfort life. This temptation makes them anxious, and on top of that their unpaid hard work makes them frustrated. When you have anxiety and frustration, you will have desperation.</div>
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Once people are desperate, they do desperate things. Would you wonder if some unscrupulous individuals approach some of these desperate young people and present them with a bad opportunity to earn some money and they accepted it? Of course, you will not. Some of them may willingly do anything as long as they will get money to live those comfortable lives they admire. Because every comfort is a function of money.</div>
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When people are exposed to persistent hardships, their mental reasoning abilities fade away, and they lose their self-value. When people live a miserable life continuously, they lose hope and give up, and this makes them not even value their own lives talk less of other people’s lives. They will feel it is better for them to leave the world anyhow than to continuously be living that woeful life.</div>
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The biggest source of these kinds of frustration and desperation are from young people who are not educated and not doing anything to earn a living. These are the dangerous and quickest source of these bad desperation, and they are the roots of all these ills. Young people that fall into this category are growing rapidly. That is why insecurity keeps growing by the day. Even yesterday one of our neighbors was kidnapped right across our estate inside Abuja, I overheard the gunshots.</div>
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The middle-class population is also facing their own frustration due to the growing responsibilities, expensive living, and dwindling income. The upper-class population is also desperate to maintain their status and protect their children from falling into those hardships. So, everyone is desperate, and this makes people willing to do anything to get the money.</div>
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Money has become the ultimate goal in Nigeria, who becomes what and who gets what is influenced by money. If you want your child to get a quality education, that depends on how much is your income. If you want to get quality healthcare, potable water, security, a means of transportation, or mortgage, that depends on your income. If you have money, you get everything, and if you do not have the money you get nothing. Even your survival is dependent on your money.</div>
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If what you get and your access to basic living standards are absolutely dependent on your money, then the money rules and everyone will do anything to get the money since everyone is their own government, they have to provide almost everything for themselves.</div>
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Insecurity, corruption, and all other vices proliferate because of too much pressure on the money. We can fix insecurity and corruption only by destroying the current system where everything is centered around money.</div>
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If there is no system that will enable people to have equal access to basic healthcare, quality education, nutrition, housing, and security irrespective of their income level, then there will never be security. The biggest and most important transformation Nigeria can achieve is by creating a system that can provide equal access to the basic life requirements without consideration of income levels of the people. There should be a system where what you get and what is accessible to you is dependent on how much you want it and how much you work for it only.</div>
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There must be a visionary transformation in health, education, transportation, security, food, and housing sectors, which will set a minimal provision for every Nigerian irrespective of their income levels. People do not have to resort to crowdsourcing of funds to pay for the hospital bill, people should not have to remove their children from the best schools just because they cannot pay for the fees, students should not drop out because they cannot pay the tuition, your life should not be threatened just because you cannot pay for your personal security, etc.</div>
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Amid scarce resources and a rapidly growing population, how can we achieve that? It is impossible to serve everyone when our resources and provisions are not enough. The population of Nigeria is so big that we need to spend extremely much to provide all the above-mentioned basic life requirements to everyone irrespective of their income levels.</div>
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Therefore, to achieve that, we must embark on population management. What is population management? It is the process of providing before adding population. Before we add 1 million population, we must first provide the resources that will give them those basic accesses. If our resources are enough to cater for an additional 10 million population, then we can grow by that exact amount, if it is not, we should not. So, population growth should be determined by the available resources.</div>
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For example, if currently, we have 10 million spaces in our primary schools and 15 million children are born today, this means that in the next six years we must add 5 million more spaces in primary schools. And that’s how we keep tracking and providing to accommodate this expansion in every sector. If we do not have the resources and we are not planning to get the resources to provide for the additional population, then we should not welcome them.</div>
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So, the government must look into the future and see what it can provide and the resources available to it, that is what determines the targeted population expansion. Our resources should determine our expansion. The government should then set a targeted population expansion for each period, and that target should be apportioned according to income classes and locations. We cannot afford to add population that we cannot take care of, because that is what adds to the desperation and put more pressure on the limited resources, thereby reducing its quality and adequacy, and causing insecurity.</div>
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For example, if your neighborhood hospital is designed for 1000 people and your community added 1000 more people, it means you need an extra hospital. If you could foresee that population growth and built the hospital ahead, then you are managing your population. Population management may not strictly means limiting the population, it suggests that you only grow based on your capacity. If your capacity is enough to cater for the population growth, you can then grow, but if your capacity is limited, you should limit the population growth.</div>
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Another element of population management is tracing the economic and well-being status of every member of the population to assess the development of their economies. With the right population management, those vulnerable young folks that are hawking on the street could be traced and supported and rescued from that danger. With the right population management, there will not be unnecessary competition and pressure on limited resources, and there will be stability and security.</div>
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All these transformations are possible only if we can change our belief about our ability as a people, if we keep thinking that these things are not possible in Nigeria, then we will never make it. In my subsequent articles, I will outline the details on how to go about these policies and how to achieve these equal accesses in every sector irrespective of income levels. </div>
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There is nothing we cannot achieve with the right vision, belief, tenacity, and right leaders. Real transformation is possible. But we must be willing to sacrifice today for tomorrow, we may not live to see the benefit of these transformations, but we owe a debt to the future generation.</div>
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We must come together and stop looking at our problems as regional or ethnic problems but as Nigerian problems. If a southerner is killed, it should matter to every Nigerian, and it should not be a southern problem, it should be a Nigerian problem. We must stop regionalizing or ethnicizing our problems, all problems are Nigerian problems. We have to set the fundamental values first and embark on fundamental transformations to hit the snake on the head.</div>
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Dr. Ahmed Adamu</div>
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Petroleum Economist, Nile University, Abuja.</div>
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<a href="mailto:ahmadadamu1@gmail.com" target="_blank">ahmadadamu1@gmail.com</a></div>
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Dr. Ahmed Adamuhttp://www.blogger.com/profile/15307977251466368270noreply@blogger.com2tag:blogger.com,1999:blog-552699740292132643.post-34278137430319446092020-05-03T14:49:00.003-07:002020-05-03T14:49:29.666-07:00Why Nigeria can still produce oil despite making a loss for each barrel produced <br />
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Ahmed Adamu, PhD</div>
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It costs Nigeria $15 and $30 to produce one barrel of oil in
onshore and offshore (deep water) production sites respectively. If the oil is
sold below any of these levels, does that mean the respective production site
will go out of business? The answer is no. Even if the oil price is below the
production cost, you will still produce, despite the loss. <o:p></o:p></div>
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For example, as I write this article Nigerian Bonny Light
oil is selling at $18.70 per barrel, which means the offshore production will
be making a loss of $11 per barrel, and the onshore sites will be making a $3.70
margin per barrel. Though 55% of the Nigerian oil production fields are
onshore, the expensive offshore fields produce more quantity per well. However,
for offshore production to be profitable, oil prices must be high above $30.
This means that for more than a month now, the Nigerian offshore production has
not been profitable, but we still have to keep producing anyway. <o:p></o:p></div>
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Except for a few days last month, the oil price has not been
below the onshore production cost. The lowest Nigerian oil was sold during this
coronavirus crisis was approximately $15 per barrel. The question is why
Nigeria would produce oil despite the loss. <o:p></o:p></div>
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In oil production, the exploration and development costs are
the fixed costs, while the cost of production or oil lifting is the variable
cost. The cost of a barrel is the average of the fixed and variable costs. So,
even if the price is less than the total cost of the barrel, production can go
ahead, because the oil industry is capital intensive and has a low variable
cost. So, the bygone rules suggest that production can continue as long as the
price is paying back the variable cost i.e. the lifting cost. The expensive
fixed costs are assumed to be recovered later when prices become higher.<o:p></o:p></div>
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The variable or lifting cost of the Nigerian barrel of oil
is $3.5 and $5 for onshore and offshore respectively as reported by NAPIMS. So,
the rule is that, as long as the oil price is above $5 per barrel, Nigeria can
produce irrespective of the loss relative to the total costs. Nigeria will go
out of business if the barrel of oil sells below $3. It is best to shut down
production at this low oil price ($3) if it can be reopened. The onshore oil
wells are more flexible, they can be shut down and reopened quickly depending
on the market, unlike the offshore wells that are not so flexible. <o:p></o:p></div>
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Nigeria having one of the best oils in the world and having
quick access to seaports may not face that appalling low oil price. The good
news is that, as the world is gradually reopening from this week, the oil price
is likely to go high, and I will predict, the oil price will surpass the $30
Nigerian benchmark. So, the oil will still be the savior of the Nigerian
economy because no other sector of the Nigerian economy is contributing even
just 5% of the export revenue. With the acute recession underway, the fiscal
receipts will be low too.<o:p></o:p></div>
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Even after the coronavirus, the oil will continue to
dominate the global energy mix for some years due to its suitability and
versatility. The biggest threat to oil is the evolution of the electric
transportation system. More than 60% of the oil demand is for transportation
purposes, and if you replace that with more environmentally friendly
transportation options, the oil prices will likely peak at $15 per barrel. This
will then make countries like Nigeria to suffer huge economic costs, like
weaker Naira, inflation, low GDP, a possible recession, etc. and leading to
shut down of many oi production sites. <o:p></o:p></div>
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It is very easy to sit back and produce oil as far low as $5
per barrel in the short run, but in the long run, it is a trap and disaster.
So, there should be a strategy for the next energy shift. We can either produce
electric transport systems or produce batteries or at least produce more
electricity for sufficient domestic demand and export purposes. Electricity
will then be the next oil, and we should plan to export it too. The question
is, with which fuel are we going to generate the electricity? The wind? Solar?
Hydro? Gas? Or Coal?<o:p></o:p></div>
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Among fossil fuels, only Natural gas seems to be favorable
due to its thermal efficiency and relative cleanness. The good news is that
Nigeria has the largest gas reserves in Africa. Very soon, gas prices will get
uncoupled from the oil price, and it will become the next major fuel, I
reckon. <o:p></o:p></div>
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Dr. Ahmed Adamu<o:p></o:p></div>
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Petroleum Economist, Nile University, Abuja.<o:p></o:p></div>
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<a href="mailto:ahmadadamu1@gmail.com" target="_blank">ahmadadamu1@gmail.com</a><o:p></o:p></div>
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<br />Dr. Ahmed Adamuhttp://www.blogger.com/profile/15307977251466368270noreply@blogger.com0tag:blogger.com,1999:blog-552699740292132643.post-85368861333710793872020-04-20T15:54:00.003-07:002020-04-20T15:56:20.853-07:00First-Ever Negative oil price: Why <div dir="auto" style="background-color: white; color: #222222;">
<span style="font-family: "arial" , "helvetica" , sans-serif;">By Ahmed Adamu, PhD</span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">(20th April 2020, 23:00)</span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">As I write this article, the famous American crude oil called West Texas Intermediate (WTI) is sold at -$13 per barrel, which means, suppliers of oil have to give $13 to whoever is willing to take one of their barrels of oil produced. This means, the oil is free today, and you will get an incentive for taking the oil. The suppliers are desperate to let go of the oil they produce to avoid storage costs.</span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">The reason behind this unprecedented decline in the price of that oil is just simply a storage crisis. The buyers of WTI oil are required to take physical delivery of their oil at a location called Cushing in Oklahoma, unfortunately, this location has saturated its storage capacity, and buyers don’t want to take delivery of oil without a place to store it before getting a final buyer. And tomorrow, Tuesday is the expiration of the May Futures contracts.</span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">A futures contract is an agreement where buyers and sellers agree to deliver oil at a futuristic price. Buyers and sellers establish a price that oil will trade at not today, but on some coming date at a particular speculated price. So, the futures market for the oil that’s supposed to be delivered in May is closing tomorrow. So buyers don’t want to take delivery of May supplies because there is no space to store them. That’s why they are ditching their contracts, and no one is willing to keep their contract, hence the negative price. </span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">However, this is only affecting American oil, not Nigerian oil, Nigerian oil as we speak now is sold at $22 per barrel, it is even high by 4% today. Other oils like that of global benchmark oil, the Brent, are not facing that pressure too. It is sold at $26 per barrel. </span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">Most people would have expected an increase in oil price, but the oil price is still not above the Nigerian adjusted benchmark of $30 per barrel. This is because the world is already having a lot of oil supplied, more than it needs and the demand is nowhere to be found due to the coronavirus lockdown. </span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">Despite the recent OPEC’s commitment to reduce world oil production by 10%, the oil price is dwindling, this is because we already have excess inventory, and we have to allow time for the market to clear before this reduction takes effects. In the normal demand period, this takes one to two months, but in this abnormal period, the market response may take up to four months, things being the same. So, the only immediate hope is for demand to surge when countries agree to open their economies in the presence of the deadly virus.</span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">Dr. Ahmed Adamu</span></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif;">Petroleum Economist, Nile University, Abuja.</span></div>
<a href="mailto:ahmadadamu1@gmail.com" style="color: #1155cc; font-family: arial, helvetica, sans-serif;" target="_blank">ahmadadamu1@gmail.com</a><span style="background-color: white; color: #888888; font-family: "arial" , "helvetica" , sans-serif;"></span><br />
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Dr. Ahmed Adamuhttp://www.blogger.com/profile/15307977251466368270noreply@blogger.com0tag:blogger.com,1999:blog-552699740292132643.post-64123262115745452342020-04-19T14:22:00.000-07:002020-04-20T05:26:13.249-07:00How to Open Nigerian Economy in the Presence of Coronavirus<div style="background-color: white; color: #1d2129; font-family: Helvetica, Arial, sans-serif; font-size: 14px; margin-bottom: 6px;">
Ahmed Adamu, PhD</div>
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We do not have to wait until the end of coronavirus before we open our economy, if there is one thing coronavirus is leading us to is a new way of life, not the end of life. Now, it is time to design a new lifestyle and open the economy despite the presence of the virus, here is why and how.</div>
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Closing a weak economy can lead to its ultimate death. The lockdown due to the coronavirus is tantamount to the absolute death of African economies that are largely comprised of small and informal enterprises. The economic repercussion of the lockdowns could be costlier than the virus itself. Locking down the economy will mean loss of income, jobs, and productivity, leading to extreme poverty, unemployment, and inflation. These economic issues can cause anarchy that might cost more lives and resources. The challenge is, how do we save these lives and resources in the presence of the deadly coronavirus.</div>
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We have started experiencing increasing desperation, hunger, insecurity, and poverty in just a few weeks of the lockdown, now ask yourself, what will happen if you lock down a hungry and idle person for a longer time? First, as they say, a hungry man is an angry and desperate man, and an Idle mind is a devil workshop. So, when these negativities come together, we should expect the worst. The good news is that the social and economic costs of the lockdowns are avoidable.</div>
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If we are to wait until the virus is gone before we open our economy, then we will not even have the economy to open. In fact, even if we have the remains of the economy, we will need to spend so much money to revive it, do we have the money for that? I guess no. The daily losses of these lockdowns, both human and financial are far more than that of the virus. That is why I recommend that these lockdowns should not last a month.</div>
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It is okay at the beginning of a pandemic like this one to lock down countries and states to buy time to study, prepare, plan, and adapt to the virus. So, one month should be enough for that. Any lockdown beyond one month will harm the economy beyond our ability to repair. That is why I recommend opening the Nigerian economy as soon as possible based on the following conditions and recommendations.</div>
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Similarly, it is not advisable to lock down cities with some weekly opening days, the threat is that even a one-hour window can cause widespread of the virus if the following measures are not taken. If the right measures are taken, then we can open the economy not only on those window days but completely. So, the following codes of living can guarantee the opening of the economy despite the presence of the virus.</div>
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1. Testing: we should provide adequate testing booths across the country, just the same way we have election polling units, we should have testing units, and people should be scheduled for testing so that everyone in a ward can rapidly get tested within 30 days. People must observe the required distance and wear face masks while in the queue. Everyone that gets tested, must collect the certificate of clearance, with which they can report back to work or open their businesses. Organizations or companies that are eager to bring back their workers to work can set up their testing booths for their staff. The idea is not to risk allowing carriers of the virus to report back to work and infect others. Housing Estates can also organize their testing booths. Anyone that tested positive should not be allowed to go back to work or business. The clearance certificate must contain an authentication barcode so that law enforcement officers can ascertain the validity of the certificate at any time.</div>
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2. Contacts Tracing: As we open the economy, everyone must minimize the number of people they meet every day, whoever you are meeting must be very urgent and important, otherwise, do most of your conversations and transactions online or over the phone. Minimize contacts to the lowest possible level. Everyone must have a book or diary in which they document names of all the people they meet daily, including their contacts, meeting location, date, and time. This will make the contact tracing easier. In case, a person tested positive, it is easier to trace his previous contacts, so that they can also be informed and forced to immediately isolate.</div>
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3. Social Distancing: As I mentioned above, after opening the economy, we must minimize contacts, and create the required physical distance when meeting someone, this does not matter if it is our friend or a family member. The social distance must be observed while undergoing normal activities. What about in a taxi or bus? In this scenario, everyone going into public transport must sanitize their hands, minimize talking and contact if possible, wear face masks, and do not touch their faces until they wash their hands. Recreational centers must enforce similar measures and social distancing, and crosscheck clearance certificates as well. Mosques and churches can also be opened, but members must have clearance certificates, observe the distancing, wear masks, wash their hands and bring their prayer mats in the case of the mosque. The prayers can be observed in many batches. Those that may not have space in the first batch can wait for the second batch or pray at home. Weddings can take place using similar measures.</div>
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4. Enforcement: There should be a law that will incriminate any negligence or failure to observe the safety measures by business owners, employers, religious leaders, and even individuals. If anyone is found not observing the codes should be taken to court for fines or imprisonment. The new job for Police and Civil Defence will now be to ensure compliance with these measures. Security agents must patrol every location to enforce compliance. There must be checking points everywhere to ascertain everyone’s clearance certificates and observance of the guidelines.</div>
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5. Distance Business and Learning: Businesses should be incentivized to take their operations online. The majority of transactions and education must be online unless it is economically and technologically impossible. The government through NITDA and SMEDAN must budget some money to help small and medium enterprises go digital. Restaurants must serve only takeaway or home delivery. There must be additional guidelines for the physical decongestion of businesses and education. Schools that can operate online must continue online, and their examinations should be online too. Teachers must learn to ask analytical or practical questions for fair assessments of true understanding, which is a rewarding skill for this century. Radio stations are good mediums for learning for those that cannot afford the internet. Primary and Nursery schools may be opened but with strict measures and observing all other codes as well.</div>
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6. Protections and Cure: there must be sensitizations on the need for everyone to protect themselves and all the protection facilities should be provided for free by the government, this should include hand sanitizers, temperature tester, and face masks. Local manufacturers should be asked to supply these things in order to create jobs for them. Generally, people should avoid contacts, crowd and touching their faces before washing their hands. For the cure, we must not give up, we should not wait for others to give us the cure, we should set up a special task force responsible for exploring all possible cure and procedure for the treatment of the virus. This should include unconventional medicine like traditional and herbal medicine. There should be a national conference where all conventional and unconventional medical practitioners would be welcomed to present their procedures or medicines for the cure of this virus. So, we should do our very best to find the cure ourselves.</div>
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7. Organizational Response: Each organization or institution or business must establish their own special unit responsible for responding to the COVID19 and setting their own preventive and protective measures for their staff and customers.</div>
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8. Investment: The money that is being shared to keep people at home should then be used to support businesses implement these measures and to revive the dead businesses. This can serve as an opportunity for a big positive shift in our economy.</div>
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So, every state should constitute a committee responsible for designing the roadmap for reopening their economies and set up guidelines suitable for their own realities and set a target date for the reopening. The above guidelines provide the starting points and ideas on how to go about it. This is urgent, because, every day we spend under these lockdowns, we incur irreplaceable costs. Let us stop these avoidable costs.</div>
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Dr. Ahmed Adamu<br />
Petroleum Economist, Nile University, Abuja.<br />
ahmadadamu1@gmail.com</div>
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Dr. Ahmed Adamuhttp://www.blogger.com/profile/15307977251466368270noreply@blogger.com0tag:blogger.com,1999:blog-552699740292132643.post-88959146533561450612020-04-15T09:36:00.002-07:002020-04-15T09:36:41.503-07:00The Coronavirus Lockdowns: We must think twice<div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">
I remember the Labourers, Shoe Shiners, Bus and Taxi Drivers, Okada people, Keke drivers, car-washers, Mechanics, Laundry people, Wheelbarrow Pushers, Printers, Shop owners, Tailors, Airliners and many more micro, small, medium and big enterprises whose businesses and sources of income are shut down because of the Coronavirus lockdown. Some of them can never go back to their businesses, because some of the businesses are dead by now, they must have consumed all their profit and capital. The questions are, how can they survive this lockdown any longer, and in the aftermath of the pandemic, how can they start over?</div>
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We have seen an acute rise in desperation, poverty, insecurity, and unrest in just a few weeks of this lockdown. Hunger can make people do desperate things. Hunger is threatening people's lives more than the coronavirus does. We have reached a stage where people are willing to face the virus just to feed themselves, or engage in stealing or robbery to get food. There is this wise saying that, "whatever removes rat from its hole into a fire is more dangerous than the fire." Hunger is more dangerous than the coronavirus. With the imminent lockdowns in some states, one must be cautioned about the social and economic consequences of that. </div>
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The differences in our economic classes have never been this wide and evident as it is during this lockdown, and the vicious cycle is coming down on the common man. Poverty is affecting the common man, and at the same time, he is the victim of the resultant insecurity, because the bourgeoisies are well protected. There is no way we can afford to lock down our economy much longer, we recently withdrew N5 billion from our sovereign wealth fund and another N3 trillion loan is on the horizon, and nothing has significantly changed so far, this is not viable and promising for our future. We have to think outside the box. </div>
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The question is, can Nigeria fit in and survive a lockdown like this one? The larger portion of our population is made up of people whose income is dependent on daily outing and hustle. If the advanced countries can do it, can we? People that have saved enough money can afford the lockdown comfortably, but what about those that didn't save money?</div>
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Help me mention more businesses that are affected by this lockdown, let us recognize their plight and the extent of this crisis. </div>
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I would suggest opening up the economy, but with serious measures of prevention, sanitization, distancing, and testing. </div>
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<b> Dr. Ahmed Adamu, </b></div>
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<a href="mailto:ahmadadamu1@gmail.com" style="color: #1155cc;" target="_blank">ahmadadamu1@gmail.com</a></div>
</span>Dr. Ahmed Adamuhttp://www.blogger.com/profile/15307977251466368270noreply@blogger.com0tag:blogger.com,1999:blog-552699740292132643.post-5350455322890812552020-04-01T15:18:00.000-07:002020-04-01T15:18:03.807-07:00The Economic Trap of Coronavirus<div dir="auto" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">
Ahmed Adamu, PhD</div>
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It is a difficult call for any government to shut down its economy, but that’s what’s happening today due to the coronavirus. Here is the trap, the public quarantine due to the virus has led to the loss of jobs and incomes, inflation, and recession, yet governments have to finance the quarantine in form of social palliatives, yet again, governments have to fund the containment, stoppage, and cure of the virus, and again governments have to finance the revival of the hibernated economy. All of these in the presence of the worst oil revenue slumps in two decades, and a period when every country is struggling to survive, and external aids are not imminent. </div>
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The longer the pandemic stays, the more expensive the recovery will be. So, the government would need to spend more now to cut the waiting period, because every minute comes with a steeper recovery cost. This crisis is unique and by far different from the 2008 economic crisis. Now let’s analyze these questions, can the Nigerian government bear these costs and what’s the Nigerian best bet? How to manage the coronavirus economic crisis and how different the current economic crisis is from the 2008 global recession?</div>
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More than half of the total jobs in Nigeria is being lost, people lose their jobs without social protection and are being asked to stay at home. Income losses are estimated to amount to at least N3 Trillion in Nigeria alone in just a matter of a few months. Investment is rapidly going down. Factories have shut down, even factories that insist on production in this period could not operate as their workers decided to stay at home for their safety despite the bonus offered to them, and this led to scarcity and hence Inflation. </div>
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The economic paralyses are spreading even faster than the pandemic. The effects of these and many other economic paralyses caused by the novel coronavirus will leave a scar and reverberate around economies even in the aftermath of the pandemic. </div>
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The gap is getting wider, it requires refill by the day. The financial contributions made so far in Nigeria by public and private individuals and organizations to fight the coronavirus, which amounted to over N30 billion, is an opportunity to start somewhere, at least, to contain the disease, fund development of the testing kits and maybe fund researches for the development of its cure. This is a period where external intervention may be limited because every country is concerned about their health and economic uncertainties.</div>
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How to manage the economic crisis caused by the coronavirus is by far different by how we managed the world economic recession back in 2008. The 2008 global recession was a normal economic cycle that happens at least once in a generation and it was seen coming. It was more of the effect of human errors and decisions, and it was caused by variables within the economy. During the 2008 recession, the economy was not shut down, it was active. So, the aftermath bailout and other injections were smooth, and the time lag was not that long.</div>
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In contrast, the recession caused by the coronavirus is external to the economy, unexpected, very fast and more severe. It also put the economies on hold, and at the same time spending a lot to keep it on hold. The money that could be used to revive the economy has to be spent to fund the management of the pandemic and for social protections during the economic hold on. The loss of jobs in the current crisis is 10 times more than the 2008 economic crisis. Similarly, in the 2008 crisis, the oil price did not plummet to as far low as below $20 per barrel as it is now, the lowest it reached then was $32 per barrel, so, there were some reasonable revenues to fund that recovery. The current crisis came with two punches, a sharp increase in demand for government spending and a deep decline in government revenue. So, when we eventually come out of this pandemic, are we going to have the energy to go for another war, the economic war?</div>
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The effects of these shutdowns and lockdowns will echo after the pandemic and might cause some social and economic unrest, which require redress too. So, the government needs to spend more money this time around to recover the economy as an economic stimulus. Other countries would be focused on reviving their economy too, every country will be on their own. According to the United Nations, developing countries would need a $2.5 trillion COVID-19 rescue package to revive their economies. For Nigeria, at least a $100 billion rescue is required. </div>
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Our best bet in Nigeria is to do our best to stop the spread because the more it spreads, the longer it lasts, and the more we expose ourselves to graver dangers ahead. So, it is cheaper for us to do everything possible to end the pandemic in just a month, let us target the end of April. However, with the increasing rate of new cases, it is not encouraging. </div>
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Everyone has to take this pandemic as a personal economic threat because it is a trap, we all fall in. Think about Taxi and bus drivers, restaurants, hotels, barbers, airlines, social and sporting centers, and other informal and semi-formal businesses in this period, it is a catastrophe. Our individual and collective economies are severely affected by the day, and if it continues there will be chaos, a bigger catastrophe. Closing down the economy longer might lead to even bigger problems. The Swedish relaxed approach can be considered in Nigeria as soon as possible.</div>
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I would like to commend the efforts of health authorities for their efforts so far, and I want to implore them to make judicious use of the resources contributed. In this case, it must not be the Nigerian way, because it is a matter of life and death. The President needs to be more proactive and work closely with the task force to supervise the operation and receive minute by minute updates. The visibility is not necessary, but in the period of crisis and uncertainty, people need to be seeing and hearing from their leaders for more partnerships, hopes, and psychological stability. We are in a war, a health and economic war, our commanders-in-chief need to be more proactive in the period of war. </div>
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Dr. Ahmed Adamu</div>
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Petroleum Economist, Nile University, Abuja.</div>
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<a href="mailto:ahmadadamu1@gmail.com" style="color: #1155cc;" target="_blank">ahmadadamu1@gmail.com</a></div>
Dr. Ahmed Adamuhttp://www.blogger.com/profile/15307977251466368270noreply@blogger.com1tag:blogger.com,1999:blog-552699740292132643.post-42541747853959910502020-03-30T14:25:00.001-07:002020-03-30T14:25:49.892-07:00Convert National Assembly Building into a World-class National Hospital<div style="background-color: white; color: #1d2129; font-family: Helvetica, Arial, sans-serif; font-size: 14px; margin-bottom: 6px;">
Convert National Assembly building into a Worldclass National Hospital. It will be more timely and economical, and can be used in the aftermath of the Covid19 pandemic. With the broken economy, Nigeria cannot afford to fund building a world-class Hospital from scratch. The N37bn can be used to facilitate the conversion and procurement of equipment.</div>
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This can be the swiftest strategy to respond to the health crisis in the country and to reduce the importation of healthcare services. Now that healthcare exports are restricted by foreign countries. In case, National Assembly members want a new space, they can then take over the current National Hospital building or at least share the Villa with the President.</div>
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Nigeria would have to spend more in the aftermath of the <a data-saferedirecturl="https://www.google.com/url?q=https://web.facebook.com/hashtag/covid19?source%3Dfeed_text%26epa%3DHASHTAG&source=gmail&ust=1585689849267000&usg=AFQjCNEY4clNY_A8lO0vHz3LEYq4N2lVXg" href="https://web.facebook.com/hashtag/covid19?source=feed_text&epa=HASHTAG" style="color: #385898; font-family: inherit; text-decoration-line: none;" target="_blank"><span style="direction: ltr; font-family: inherit; unicode-bidi: isolate;"><span style="color: #365899; font-family: inherit; unicode-bidi: isolate;">#</span><span style="font-family: inherit;">Covid19</span></span></a> to bail out businesses and protect jobs, there will not be enough money to adequately upgrade the health sector. Radical changes like this can be smooth in tough situations like this one.</div>
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Ahmed Adamu, PhD<br />Petroleum Economist, Nile University, Abuja<br /><a href="mailto:ahmadadamu1@gmail.com" style="color: #1155cc;" target="_blank">ahmadadamu1@gmail.com</a></div>
<span style="background-color: white; color: #888888; font-family: Arial, Helvetica, sans-serif; font-size: x-small;"> </span>Dr. Ahmed Adamuhttp://www.blogger.com/profile/15307977251466368270noreply@blogger.com0tag:blogger.com,1999:blog-552699740292132643.post-36999531950474246402020-03-22T13:50:00.002-07:002020-03-22T13:50:28.694-07:00How the Oil Price War amidst Corona-Virus Pandemic hits the Nigerian Economy<div style="background-color: white; color: #1d2129; font-family: Helvetica, Arial, sans-serif; font-size: 14px; margin-bottom: 6px;">
Ahmed Adamu, PhD</div>
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Nigeria’s major source of export revenue is oil, and now over 50 Nigerian oil cargos were reported to have been stranded in oceans without buyers, the question then is where is the revenue going to come from? On Estimate, Nigeria loses at least N25 billion on a daily basis, if continuous up to a year, it will lose almost N1 trillion in a year, courtesy of the current oil price shocks. I explained the dual causes of the current oil price shock in my previous article. Therefore, the Nigerian government cannot fund its expenditure as planned in its ambitious budget. It means that some contracts will not be awarded, people will lose jobs, income and spending will reduce, and the economy may slide back into a recession.</div>
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Due to low economic activities, the government is losing some internally generated revenues and must have started suspending some major capital projects. Some private companies have already started sacking their staff, which increases the rate of unemployment. Though the government said, it will not sack any of its workers, but will not employ anyone, it has placed an embargo on all government recruitments, which means more people will remain unemployed. Now with people being lockdown and schools, businesses, transport services, and factories close down, the GDP will plunge drastically. The aggregate demand and supply will converge at a farther distance away from the potential GDP, which increases the recessionary gap.</div>
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All the compositions of GDP are going down, including consumer spending, investment, government expenditure, and net exports. This indicates a looming recession. History has shown that there is a positive relationship between Nigeria’s GDP and Oil Price. I studied this relationship way back from 1974 and I observed that any reduction in oil price is associated with a very low or even negative GDP growth. So, the current situation will not be exceptional.</div>
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With limited or restricted importations, some goods and services will be scarce, because the countries that export them have shut down too. This can lead to a price surge or inflation. At a time when the oil price is low, import bills are supposed to be cheaper and lead to low inflation, but in Nigeria is not the case. Despite the cheapness of the goods and services in our import basket, the price of the foreign currency is becoming high, leading to inflation.</div>
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For example, the dollar is appreciating due to its limited supply or scarcity, courtesy of the low oil revenue, which is the major source of dollar for Nigeria. We have already started seeing a situation where banks cannot meet foreign currency requests by their own customers. Amidst this, there were some panic demand for the foreign currency for speculative and precautionary purposes, and that has contributed to the increase in the value of the dollar in Nigeria. So, we now have dollar-push inflation in Nigeria. As of February 2020, Nigeria’s inflation stood at 12.20%, the highest in more than a year.</div>
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Now, it is obvious that the Nigerian economy is severely hit by the current oil price war between Saudi Arabia and Russia. This is quite avoidable. Corona Virus would have hit the Nigerian economy, but not this much. Saudi Arabia’s decision to go into the price war is what makes the case even worst. Corona Virus would have kept the oil price around $40-$45 per barrel. It would not have been this worst, $26 per barrel. One of my students asked me, can we beg Saudi Arabia to stop this war? we are being hit by their fight. As the saying goes, when two elephants fight, it is the grass that suffers. Nigeria is the grass here.</div>
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Russia refused to back off and still willing to fight the war as far low as $11 per barrel, and Saudi Arabia is still not willing to show mercy too. Russia will make sure that America’s high-cost shale petroleum production is no longer profitable at low oil prices, and Saudi Arabia will fight against that so that even if America is to be displaced, it must come with a cost for all. It has already cost Russia over $40 Billion so far. Saudi Arabia is directly hitting Russia, by supplying more oil at a discounted value, and not minding the OPEC+ production quota, and by so doing hitting other people’s economies.</div>
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This price war came at a very wrong time, and it has added salt to the injury. However, I am optimistic that the price will bounce back. Soon, one of the parties will give up or agree to come back to a table for new negotiations. Another possibility is that some high-cost oil producers will be squeezed out of the market, Nigeria could be one of them, but imagine what cost will that come with.</div>
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The Nigerian Oil Company is also considering flooding the market to raise its revenue, but that will be unwise because it is like shooting yourself on the leg. The second option the Nigerian oil company is considering is to reduce the cost of oil production in Nigeria, but this takes time and it is difficult because NNPC may not be in a position to significantly dictate the cost of production, since up to 90% of the oil produced in the country is produced by international oil companies.</div>
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So, this is a tough time, and this is exactly what we have been afraid of. I cannot think of a short-term initiative for now, but of course, everyone knows that we have learned that we must have sufficient refineries and other industrial production capacities to reduce our import dependency, and hence our vulnerability. This can be achieved through strategic product import elimination, where we target the elimination of certain products out of the import basket through the provision of sufficient local production capacities for such products or services.</div>
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Our exports earnings must come at least from Agriculture, Service, and Industrial Sectors, at least each contributing 20% to our export earnings. It is surprising how oil is contributing 90% of Nigeria’s export revenue and at the same time contributing only 10% to its GDP, this shows the gap in Nigeria’s refining and industrial capacities.</div>
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Dr. Ahmed Adamu<br />Petroleum Economist, Nile University, Abuja.<br />ahmadadamu1@gmail.com</div>
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Dr. Ahmed Adamuhttp://www.blogger.com/profile/15307977251466368270noreply@blogger.com1tag:blogger.com,1999:blog-552699740292132643.post-19542344434397599822020-03-14T09:26:00.000-07:002020-03-14T09:26:01.934-07:00Corona-Oil Crisis: The Nigerian Fate<br />
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Ahmed Adamu, PhD</div>
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<span style="mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;">The outbreak of the Coronavirus caused a
reduction in the global demand for oil, resulting from a slowdown in the
production and shutdown of factories and airports for safety and preventive
purposes. The resultant reduction in demand for fuel and energy inputs led the
oil price to plunge to as at today’s Brent Value of $35 per barrel of crude
oil. This is a $22 deficit per barrel compared to Nigerian anticipated oil price
in the 2020 fiscal plan. This means a reduction in the fiscal performance of
the country amidst the social and economic crisis. <o:p></o:p></span></div>
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<span style="mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;">The situation exposes Nigeria’s economic
vulnerability to oil shocks, and now that Nigeria’s savior, OPEC, is losing its
market influence. In the past, even individual OPEC countries could easily influence
the market. OPEC played an influential role in dictating the global economy
through its production quota system in the past. Now, the era of OPEC's influence
is shrinking, and Nigeria may not be protected by OPEC.<o:p></o:p></span></div>
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<span style="mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;">The continuous domination of Non-OPEC countries
in the global oil supply and the emergence of new unconventional reserves has
left OPEC stranded and powerless. As of last week, OPEC could not cut supply enough
to influence the price without contribution from Russia and the USA. For OPEC
to raise oil prices up, it needs cuts from other non-OPEC countries. Otherwise,
they (OPEC) will lose market share and lose revenue if they are to go for the
solo cut. To achieve the OPEC’s market target, other non-OPEC countries must
cut production by minimal 500,000 barrels per day for a period of 3 months.<o:p></o:p></span></div>
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<span style="mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;">The unanticipated coronavirus outbreak led to the
flooding of the oil market with excess supply, no one planned for any fall in
demand and oil was already produced enough to meet the normal demand, but now
due to this emergency, the fall in demand has caused excess supply. As a result
of these excesses, even if there are production cuts, it will take up to two
months for the market to respond. This adds to the odds for countries like
Nigeria. <o:p></o:p></span></div>
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<span style="mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;">Russia refused to agree to any cut, and this
undermines the OPEC effort to raise the price. And if Saudi Arabia is to punish
the Non-OPEC countries through a price cut and increased production, the
situation will get worst for some OPEC countries like Nigeria. Saudi Arabia can
produce more and sell its oil at a cheaper value in order to displace Russia
and the USA in the supply schedule, making them (the Non-OPEC countries) lose market
share, and without buyers, they have to cut production. This is exactly what
Saudi Arabia is doing at the moment, because lowering the oil price below the
USA and Russian marginal cost of oil will make their production unprofitable,
and therefore have to shut down production. <o:p></o:p></span></div>
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<span style="mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;">Though this is a reactive measure and it is
already plunging the oil price further down in the short term, evident by the sharp
price drops since from last week, and anytime Saudi Arabia decides to sell at a
higher price, the Non-OPECs will take over again, and this cycle continues and
thereby sticking the price at a low level. This means Nigeria would have to
device other means to sustain its foreign earnings, as oil revenue is no longer
reliable. <o:p></o:p></span></div>
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<span style="mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;">The idea of borrowing to fund Nigeria's
increasing fiscal deficit should not be welcomed, Nigeria should not be sinking
into the debt trap, otherwise, any possible future oil gains will go down the
drain and the Nigerian prospect will go dim. With the future of oil becoming
more uncertain, there is a possibility that Nigeria will not be able to service
its debt and may fall into sovereign default. Now is the time to look into the
future and save it. <o:p></o:p></span></div>
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<span style="mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;">There should be an alignment in Nigeria's
fiscal measures, borrowing to fund ambitious and unnecessary government
liabilities is not wise. Increasing the minimum wage and increasing VAT reduces
the value of the additional income while adding more weight to the government.
Limiting land border importation will not stimulate the economy without the
prerequisite conditions for such natural stimulation. Costing the economy
without its attendant benefits is a huge leakage. The economy can grow without
being constrained. The Nigerian economy needs allowance and incentives to boost
activities so as to prepare for the next global economic and energy shift. </span></div>
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<br /></div>
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<span style="mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;">The increasing volatility of oil price and its
sharp sensitivity to socio-economic issues is already speeding up the evolution
and development of oil alternatives. This makes the world preparing for a new
energy era, moving away from oil. The question is who is the next king after
oil? Who is going to be the leading country in terms of this transition? Is
Nigeria going to be a leader of this new transition or a follower? Without oil,
would Nigeria have any comparative advantage on future fuels? To lead, these
questions must be answered, otherwise, the fate of Nigeria is uncertain. <o:p></o:p></span></div>
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<span style="mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;">Potentially, if China, India, Japan, Russia, and
the USA would together shift in one direction, the rest of the world will
follow. But the unity and reliability of the transition are still in question.
There is still room for Nigeria to make it right. Despite the current decline
of oil prices, there is hope for demand and supply convergence at higher oil
prices. With prices going down further, some countries cannot profitably
produce, and cutting out the higher marginal cost producers in the schedule
will raise the price up. However, no high oil price will prolong nowadays, so, this
decline will be temporary. So, the time to take drastic shift is now, this is
the last call for Nigeria. The best thing is to lead in the new energy
transition. <o:p></o:p></span></div>
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<span style="mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;">Because of the global appeal and convenience of
oil, the new transition could be delayed, but it will definitely come, and it
is possible one of the fossil fuels will take the lead, especially the Gas. So,
Nigeria should build enough gas infrastructure to save itself from a catastrophic shock that awaits it if oil prices continue slumping.<o:p></o:p></span></div>
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<b><span style="mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;">Dr.
Ahmed Adamu</span></b><span style="mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><o:p></o:p></span></div>
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<b><span style="mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;">Petroleum
Economist, Nile University, Abuja. </span></b><span style="mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><o:p></o:p></span></div>
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<b><span style="mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;">ahmadadamu1@gmail.com </span></b><span style="mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><o:p></o:p></span></div>
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<br />Dr. Ahmed Adamuhttp://www.blogger.com/profile/15307977251466368270noreply@blogger.com0