How Subsidy Removal on Diesel causes Scarcity and High Price of Petrol in Nigeria.

Ahmed Adamu, PhD

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.

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. 

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.

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.

Now, what is the link between diesel price hikes and fuel scarcity?

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. 

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.

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.

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.

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. 

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.

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. 

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.

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.

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.

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.

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.

Ahmed Adamu

Petroleum Economist

ahmadadamu1@gmail.com

.

Big Economic Crisis Looms in Nigeria

Ahmed Adamu, PhD

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. 

 

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. 

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. 

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. 

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. 

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. 

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. 

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.

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. 

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. 

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.

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. 

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.

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. 

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.

With the increasing capital flights, imports, borrowing, and budget deficit, one can only wait for the inevitable explosion. 

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.

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. 

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. 

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. 

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.

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. 

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.

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. 

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.

Ahmed Adamu, PhD

Petroleum Economist

ahmadadamu1@gmail.com

@AhmedAdamu

Fuel Scarcity: Issues and Solutions

Ahmed Adamu, PhD

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.

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.

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. 

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.

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.

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.

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.

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. 

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.

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.

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. 

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.

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.

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.

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.

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.

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. 

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.

Ahmed Adamu, PhD

Petroleum Economist

ahmadadamu1@gmail.com

.

The Petroleum Subsidy Trap and The Way Forward

Ahmed Adamu, PhD

Lack of refining capacities and Petroleum subsidies have caused Nigeria to lose significant foreign exchange and its ability to fund infrastructural development. 

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. 

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. 

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. 

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.  

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. 

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. 

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? 

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. 

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.

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. 

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. 

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.

 

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.

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.

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. 

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. 

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. 

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. 

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. 

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. 

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. 

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. 

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.  

Ahmed Adamu, PhD

Petroleum Economist

ahmadadamu1@gmail.com 

.

How to urgently fix insecurity in Northern Nigeria

- Ahmed Adamu, PhD

 

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.

 

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.

 

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. 

 

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”.

 

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.

 

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.

 

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.

 

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.

 

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.

 

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.

 

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.

 

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.

 

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.

 

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.

 

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.

 

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.

 

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.

 

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.

 

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.

 

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.

 

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.

 

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.

 

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.

 

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.

 

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.

 

I call on all Nigerians to take responsibility and act, we should stop relying absolutely on the government to fix insecurity.

 

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. 

 

Ahmed Adamu, PhD

ahmadadamu1@gmail.com

 

How to Fix Insecurity

I have listened to two interviews with some terrorists from Northwest Nigeria, and these are my deduction and suggestions for the insecurity in Nigeria. 

The issues:

The terrorists claimed that security forces are only attacking innocent people, not the armed terrorists.

They claimed that the Nigerian security forces have never attacked them and they cannot dare to attack them.

They said, they sometimes sympathize with their captives and their families, but some of the captives do not deserve sympathy.

They claimed that the vigilantes also engage in crimes and excesses.

They said, some of the armed gangs are willing to repent and reconcile, but some are not willing.

If the government will do justice, they are willing to drop their arms, they are conscious that what they are doing is bad.

They said, one of the conditions for peace is to provide education for their people so that they can equally have opportunities.

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.

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.

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.

 

They take drugs and substances before they undertake any operation.

They recruit new gang members daily. They promise them financial incentives.   

The solutions

There are two approaches to the issue: Curbing and Preventing

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.

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.

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.

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. 

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.

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.

Ahmed Adamu, PhD

Reducing Unemployment through Migration

Ahmed Adamu, PhD

There are more than 130 million Nigerians who are either unemployable, unemployed, or underemployed. This situation exacerbates extreme poverty and fuels increasing insecurity.

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.

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.

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.

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.

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.

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?

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

Exports of natural resources are not limited to mineral resources but also human resources. Exporting human resources will improve Nigeria’s balance of payment.

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.

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.

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.

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.

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.

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.

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.

 

Ahmed Adamu, PhD

Nile University, Abuja

ahmadadamu1@gmail.com

18^th November 2021

..

CGM

Watch some of my videos here

Technology is the Next Nigeria’s oil

 

Forum of Commissioners of Finance

   

Dollarization problem in Nigeria

   

Explanation on Petroleum

   

Leadership Training in Ghana

  

Causes and Solutions to Insecurity in Nigeria

   

The Implication of the new Petroleum Industry Act in Nigeria

   

The Right Values

  

Leadership Gap in Africa

  

Petrol Price Hike: The Subsidy Dilemma

 Ahmed Adamu, PhD

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. 

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.

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.  

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. 

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. 

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?

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. 

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.

Dr. Ahmed Adamu

Petroleum Economist, Nile University, Abuja.

ahmadadamu1@gmail.com

Obstacles and Tips for Entrepreneurs

 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. 

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.

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:

Should the rich be taxed more?

Ahmed Adamu, PhD

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?

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.

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.

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.

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.

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.

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.

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.

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.

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.

Dr. Ahmed Adamu

Nile University of Nigeria, Abuja

ahmadadamu1@gmail.com

.

Is it appropriate to benchmark Nigeria's Petrol Price to Saudi Arabia’s Petrol Price?

Ahmed Adamu, PhD

President Buhari, in his speech, compared Nigeria's petrol price to other countries’ petrol prices to justify his recent decision to abruptly inflate the petrol price amid economic and social crises in the country. He argues specifically that “it makes no sense for oil to be cheaper in Nigeria than in Saudi Arabia”.  Now, the question is, how appropriate is it to justify increasing the petrol price just so that Nigerians will buy petrol more expensive than Saudi Arabians?

First, Mr. President was supposed to look inward to see the effect of his decision on his people, especially the poor. Generally, petroleum inflation makes the economy of the poor man worst off. A 10% increase in petroleum prices will at least reduce the purchasing power of a poor man’s economy by 30%, accounting for the direct and multiplier effect of the surge.

The recent 11% increase in petroleum prices in Nigeria has made the economy of the Nigerian poor worst off by 30.30% and without any compensation or cushion. In fact, it came at a difficult time, when millions of Nigerians lost their jobs and businesses weakened due to the recent COVID-19 lockdown.

So, becoming oblivious of the consequences of his decision within the country, and focusing on what other countries are doing, Mr. President is being reckless and ill-advised.  Every country is unique, and Nigeria has unparalleled challenges and difficulties to the extent that we cannot begin to compare ourselves to other countries.

The recent increase in VAT and stamp duty, as well as border closure, climate conditions that threaten agricultural productivity, insecurity, and dollar hikes, have all inflicted pains on Nigerians and weakened their economies. Moreover, the increase in the price of petrol. These bad circumstances did not occur exactly in the countries that Mr. President tried to compare Nigeria with. So, Nigeria’s challenging circumstances are different from the mentioned countries. Since our illness is different, our medicine must be different.

It is not equally justifiable to say Nigerians do not deserve to buy petroleum cheaper than what is obtainable in Saudi Arabia. The only condition that Nigerians should buy petrol more expensive or equal to the price in Saudi Arabia is when the Nigerian government provides equal and affordable access to basic life requirements irrespective of income levels.

Despite the weaker infrastructures, Nigerians are the ones responsible for their access to quality education, healthcare, transport, security, water, nutrition, and energy. This is not the case in Saudi Arabia. So, if a Saudi person conveniently pays N168 per liter, it does not justify that a typical Nigerian can afford it conveniently. Saudi Arabia has a better standard of living, better infrastructure, and adequate access to basic life requirements.

The minimum wage in Saudi Arabia is 10 times more than the Nigerian so-called minimum wage. Even after the Nigerian minimum wage was increased, the government increased the cost of living by removing subsidies and increasing taxes. So, the wage increase added no value to the average worker’s income. In fact, it made it worse because of the wage push inflation.

Looking at the values of currencies, it is not economically justifiable to directly compare prices without adjustment and considering the wealth and welfare of nations. For example, what N162 can buy for you Nigeria is exactly what 1.630 SAR can buy for you in Saudi Arabia. This tells you that Saudi Arabia’s currency is 99 times more valuable than the Nigerian currency.

It means that if you hold a certain currency, you will get 99 times more value in Saudi Arabia than in Nigeria. So, this explains how bad our currency is and how much inflation we have in Nigeria. So, if the value of our currency is 99 times less valuable due to Naira devaluation and inflation, then we are not comparable to Saudi Arabia. Prices should not be raised without increasing the value of the Naira. Nigerians should not be punished for the government's failure to protect the Naira.

Saudi Arabia can sell cheaper due to the strength of their currency and comparative advantage when it comes to petroleum, and they have better wealth and welfare than Nigeria. So, it makes sense for oil to be cheaper in Nigeria than in Saudi Arabia, because we have a lower level of wealth and welfare.

The increase in petroleum price in Nigeria has a greater inflation multiplier than in Saudi Arabia, as such oil should be cheaper in Nigeria to save further costlier inflation.

The only justification Mr. President could give for his second-time petroleum subsidy removal was just to liberalize the market. However, the timing and process of going about that are critical. It is not recommended to liberalize the market yet, looking at the difficult time we found ourselves: increasing inflation, health crisis, insecurity, zero refining capacity, etc.

Certain conditions must be fulfilled before removing the petroleum subsidy in a country like Nigeria. If necessary, the removal must be in gradual phases. Alternative subsidies like targeted or quota subsidy regimes could be considered.

Mr. President should by now be advised to begin taking responsibility for his actions and shun blaming the past seeking an excuse. Criticism is good, without it there would not be focus and improvement. So, our leaders must be willing to listen and reflect on the criticisms labeled against them and be willing to change their decisions upon new realization and exposure to the truth. Finally, I hope Mr. President and at the same time, the Petroleum Minister will revert to N145 per liter to enable the economy to bounce back at least in the short run.

Ahmed Adamu, Ph.D., Senior Lecturer, and Petroleum Economics, Nile University of Nigeria, Abuja. ahmadadamu1@gmail.com