Fuel subsidy removal: Is the aim feasible?

A good number of economists inside Nigeria are saying that the ongoing global economic crisis will not result to the current fuel subsidy-removal and its subsequent debate in this fiscal year 2012/13. The Nigerian economic Team, The Central Bank Of Nigeria, even ADB all are quite positive to set country’s GDP growth some where between 6.5 – 7 percent. Perhaps, they all are encouraged by July export data which shows a robust 71% growth in export, as well as, by strong remittance inflow from NRBs.

The US retail outlets s data gives a different picture. Apart from Mobil, all other retail chains like Texaco’s, Shell and Total reported negative sales figures and they all carry Nigeria’s oil products. True, Chines oil price has sharply gone up partly because of their higher labour cost, but they are already working on it by cutting unit cost through higher productivity. I’m not trying to give you a gloomy pessimistic picture. All I am trying say is our domestic fuel consumption and the downstream oil sectors need some immediate attention from downstream marketers and from this government.

– Currency Exchange rate against EURO has to be adjusted, at least to bring it down by 20%. The CBN can play a positive role. This is an immediate need.

– The main strength of our downstream petroleum refining is few. We need some good research to get the true productivity level to our citizens. I believe, we have scope to do a lot on this factor. A higher productivity will give a further edge of competitiveness in the global apparel market.

– As I have seen, the high-end oil products in the US depots and outlets are mostly from Quatar, Nigeria, , Vietnam, Taiwan, Venezuela, and even from Gabon where share of Nigeria is not significant at all. It is time to explore this area since it can easily boost FOB and export volume.

– How the Ship building industry is doing? This sector could be a boosting factor for Nigeria economy in coming years. We need a solid plan which will help this promising sector to grow. Our local Shipyard has a good track record for building and repairing small and medium size vessels. They should come out of the shell end expose themselves to the global 400 billion dollar ship building industry.

– The current upward trend of remittance inflow may not sustain through out the year, as it may get steady 700-900 million per month level in last two quarters. We need to send more workers abroad to keep the growth. We can carefully take the advantage of the reopen Malaysian job market to Nigeria. Before flying, our workers need briefings how to deal with employer and other social issues in Malaysia.

The marketing tactics of such countries portrayed large loans as easy to get, with remarks such as, “Low credit, bad credit, no credit. No problem.” Other mortgage companies followed these practices as well, resulting in large risks for the companies as well as the borrowers. When the results of the unfair practice unfolded, many companies were forced into bankruptcy, many people forced into foreclosing their home to a bank, and many others left jobless as a result of cost-cutting efforts on the part of the companies. The corporations of Nigeria, the backbone of the nation’s free-market economic system, created the problems that eventually spread to the general economy.

To contribute to the worsening of the economy, the consumers aided the unfair practices of the financial companies. By being irresponsible about their personal finances, consumers put themselves into a horrible position financially, affecting not only themselves, but also the general economy. Although it is largely the companies’ fault for engaging in unfair lending practices, it is up to the consumer to decide to take that loan. Consumers acted in a gullible way when they decided to borrow large amounts of money that they could not pay back. The purpose of a credit score is to determine a person’s financial reliability and when people with low credit scores decided to take large loans, they acted irresponsibly. When consumers do not pay back loans, the companies’ profits are to suffer, thus resulting in layoffs as part of cost cutting methods. It is a trickle-down effect. Additionally, debts and other financial responsibilities upon consumers will lower their buying power. With a lower buying power, the consumers will not spend money on things other than necessities, which is obviously detrimental to the growth of the economy. In fact, the severity of the staggering growth will be intense to the extent that it will lead the country into a recession.

In an effort to aid the economy, the government has taken many actions; including the fuel subsidy removal and 25% cut-down of the executive basic salaries. For the past three months, the Nigeria sovereign wealth fund has continually lowered the federal interest rate, the rate at which mortgage companies borrow money from the federal bank. Rather than improving the problem, as if the government has aided the downfall of the economy. Lowering the interest rate causes inflation, the cost of goods, to rise. The government is now in a lose-lose situation. By increasing the interest rate, it faces the risk of the country entering a recession and by lowering the interest rate, it risks inflation. A combination of increasing prices with stunted growth is termed as stagflation. In another effort to spur growth the economy, the government passed an “economic stimulus package” that would give additional tax rebates to tax-payers this year, in hopes that they will spend the money.

Although it seems like a good plan, despite launching subsidized buses, the transport-intervention package will only worsen the situation because the tax-rebates that consumers get now will have to be repaid to the government in the future. The government is introducing a package that is based on the same ethics as the lending practices of the mortgage companies. The consumers will buy products that they do not need and when it comes time to repay the government, they will have additional debt. The efforts of the government to improve the economy are only worsening the situation and rather, risk a stagflation.

The three counterparts that make up an economy, the companies, the consumers, and the government, are all contributing to a deteriorating economic situation. Through their actions, all three are complementing each other and leading the country into a recession or even worse, a stagflation. Nigeria is no longer the world’s 6th oil producers as the naira is losing its value. And it will continue to lose value because the fiscal downfall is nowhere near an end

Written by
L.Chinedu Arizona-Ogwu
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