- Naira Hovers Near Record N1000 -$1
- Tinubu Seeks Quick Forward Sale of Crude, Solid Minerals to Raise Dollars
- Experts Proffer Solutions to Economic Crisis
- Fresh Strike Looms as NLC’s Ultimatum Expires
By AMOS ESELE and SAM DIALA
September 23, (THEWILL) – Four months after he suddenly announced the removal of fuel subsidy because he was ‘possessed by the spirit of courage,’ President Bola Tinubu went back on his word never to pay subsidy because it benefited “smugglers and fraudsters.” The Federal Government relapsed into subsidy regime by paying N169.4 billion in August to support its new subsidy control last week.
The policy U-turn reflects the knee-jerk approach that the government adopted in unravelling such a crucial policy as subsidy removal in an import-dependent economy that runs on revenue derived from oil production.
THE PROBLEM
For eight gruesome years, former President Muhammadu Buhari of the All Progressives Congress (APC), ruled Nigeria in the most unworthy manner. He did not only fail to deliver on the three planks of his administration – economy, security and corruption, he set the country several decades backward, with the economy as the worst victim.
Today, Nigeria is reeling on the throes of a failed economy where over 133 million people live in multidimensional poverty as the country acquires the notorious status of poverty capital of the world. Amid this sore point, President Bola Tinubu was inaugurated on May 29, 2023 to succeed Buhari and he promised to continue from where his predecessor stopped.
Since then, Tinubu has shown little concern for the fundamentals of the troubled economy and how to address its numerous challenges. Instead, he has engaged in celebrated globetrotting in search of foreign investors.
From one continent to the other, Tinubu and his team are intensifying their marketing of Nigeria as an Eldorado lying fallow and waiting to be exploited. By doing so, he deliberately overlooked the fact that the domestic economy is in doldrums and that the environment is inconducive and unattractive to foreign investors. On the contrary, many companies are delisting from the Nigerian Exchange and leaving the country.
Now, with things going out of hand as the foreign exchange rate soared to N950 to the dollar, even as the palliative measures adopted by the government floundered, the government had to revert to paying subsidy.
The relapse to the subsidy regime was expected. The Naira has been depreciating, petrol prices threatening to rise above the official N570 rate to N620 much faster than the international price for crude at slightly above $95 per barrel per liter.
BACK TO SUBSIDY
These are fallouts from the floating of the Naira which now inches towards N980/$ in the parallel market, thus widening the gap with the Importers and Exporters’ Window, I&E, where the Naira trades on the average at N775/$.
Reports that the Nigerian National Petroleum Company Limited (NNPCL) may have secretly resumed fuel subsidy was revealed through transactions at the Federal Account Allocation Committee (FAAC).
It was revealed that in August 2023, the Nigerian Liquefied Natural Gas (NLNG) paid $275m as dividends to the Federal Government through the NNPCL used $220m (N169.4 billion at N770/$) out of the $275m to pay for the PMS subsidy while it (NNPCL) held back $55m, illegally. The revelation by FAAC effectively indicates that the subsidy is back and the NNPC is now using NLNG dividends to pay the subsidy.
UNRESOLVED CHALLENGES
The continuous free fall of the exchange rate of Naira to the dollar from N450 as of May 29, 2023 to N950 at the weekend, coupled with the high price of PMS from N187/250 per litre as of May 29, to N625 at the weekend and the inflation rate at 24.2 per cent has installed an unprecedented economic hardship in the country. The inflation and currency devaluation have not only crippled businesses but also added a shocking 7.1 million poor persons into the already high number of 133 million multi-dimensionally poor Nigerians.
The Federal Government’s promise to plough back into the economy, the estimated N1 trillion it saved in two months by scrapping subsidy has only reflected in the increase in statutory allocations to the state and the recent N5 billion loaned to 36 states for palliatives distribution to Nigerians. Even so, reports from many states show that the distribution of palliatives was yet to make a meaningful impact on the lives of most Nigerians.
For one, the government staggered the release of the N5 billion loan to states. The government has its own explanation for doing so. According to the Minister of Finance, Wale Edun, the full release and spending of the N5 billion will worsen inflation.
In addition, the clamour for reduction of the high cost of governance cuts no ice with the government. Prevailing record shows that the Bola Tinubu Administration has appointed the highest number of ministers with a total of 47 ministers, who are mostly politicians and 20 Special Advisers, with the appointments still counting. In a depressed and unproductive economy plagued by high recurrent expenditure and little, if any, capital for investment amid debt payments, this jumbo appointment makes mockery of a government that has been calling on Nigerians to make sacrifices for the country.
Moreover, the government is yet to start paying serious attention to the worsened insecurity situation in the country, particularly in the North-West states of Zamfara, Kebbi and Sokoto and where bandits reportedly control 23 local government areas.
Worse, industrial disharmony looms in the country as the Nigeria Labour Congress, NLC, plans to embark on an indefinite strike to press home its demand for improved conditions of workers, the turnaround of the parlous state of the economy, poor handling of palliative distribution across the country in the face of hardship occasioned by the sudden removal of subsidy on petrol.
MISPLACED ENTHUSIASM
Unfortunately, the policy thrust of the new government concerning fuel subsidy removal and foreign exchange rates unification, triggered the current economic challenges. Experts stressed that the government did not put concrete plans in place before introducing the fuel subsidy removal and going for the unification of the foreign exchange segments.
An economist and sustainability expert, Marcel Okeke, told THEWILL on Friday night that much damage was done in the early life of the government when “President Tinubu pronounced the petrol subsidy removal in a haste without thoroughly thinking it through and putting measures in place to cushion the effects. Similarly, the floating of the Naira was inappropriate at the time it was done.”
He said, “There should have been a managed floating system of the currency to avoid the current crisis because we are faced with an acute dollar shortage. What the government did was to throw the Naira into the ring to wrestle with stronger currencies, such as the dollar, the pound sterling and the euro, without a tangible productive base in the domestic economy.”
Okeke, who was the pioneer economist at Zenith Bank, told THEWILL that the wrong steps taken by the Tinubu-led government have plunged the country into a severe economic problem that will take a long time to resolve. According to him, the Federal Government is not keen about fixing the refineries or the power sector to boost domestic production. He also observed that insecurity has continued to retard development, especially in agriculture and agribusiness.
With a weak productive base and the refineries consuming resources without producing, the country is forced to rely on imported petroleum products which are subject to the vagaries of the international market.
This has made subsidy removal a difficult thing to achieve. Notwithstanding the increase in the pump price of petrol up to N560 per litre, there are reports that the government is secretly paying heavily to subsidise petrol.
AN INEVITABILITY
Before now, there was a strong indication that the pump price of petrol might be on the verge of another increase—the third increase in 10 weeks, which will trigger a return to subsidy payment by the government to check the rising cost of living.
This prediction is backed up by new information about the surge in the landing cost of petrol which had gone up by 37.4 percent month-on-month to N632.17 per litre in July 2023, up from N460 per litre in June 2023. This cost excludes other additional expenses, such as transportation and taxes, which could push the final price to nearly N700 per litre.
Some oil marketers have predicted that the landing cost for August and September will rise further due to worsening factors, including foreign exchange scarcity and deteriorating exchange rates. “Government is secretly paying subsidies given the disparity between the landing cost of imported refined PMS and the approved pump price,” Okeke noted.
DOMESTIC PARADOX
In the meantime, while the campaign and roadshow are ongoing abroad to impress and attract investors to Nigeria, developments in the country suggest that the exercise amounts to a wild goose chase with some firms closing shop due to an increasingly hostile operating environment.
THEWILL checks show that about N205 billion will be wiped from the Nigerian Exchange Limited (NGX) equities capitalisation, following the planned delisting of GlaxoSmithKline (GSK) Plc, PZ Cusson Plc, Oando Plc, Coronation Insurance Plc, and Capital Hotel Plc, from the stock market.
The proposed delisting of the companies comes barely two months after the delisting of Ardova Plc’s 1.31 billion shares on July 26, 2023. Ardova Plc had N21.49 billion market capitalisation as at the time of its delisting.
GSK, had in August, 2023 announced plans to cease operations in Nigeria without stating reasons for its decision. Economy experts have, however, linked the company’s decision to scarcity of forex and the forex losses incurred by most companies following the devaluation of the Naira.
FOREIGN BASHING
Recently, FTSE Russell announced the downgrading of FTSE Equity Country Classification status of Nigeria from Frontier to Unclassified market status.
FTSE said it received a feedback from market participants that although Nigeria adopted a floating foreign exchange (FX) rate for the Naira in the ‘Investors & Exporters’ (I&E) FX Window, which is now operating on a “Willing Buyer, Willing Seller” basis, the lack of liquidity in the I&E FX Window continues to adversely impact the ability of international institutions to replicate benchmark changes.
Notwithstanding President Tinubu’s “bold” market-oriented policies, foreign investors have not flooded the economy. Economy experts predict that FTSE Russell’s downgrade of the Nigerian market will make it even more difficult for foreign funds to gain exposure to the Nigerian economy.
THE CBN CONNECTION
Despite Tinubu’s efforts to woo investors into the country, Bloomberg reports that the plunge in the exchange rate is in contrast with his efforts. Okeke remarked that the high cost of doing business in Nigeria, the ‘generator’ economy, poor infrastructure, insecurity, low consumer demand and inflation are factors that render Tinubu’s assurance to investors unappealing.
Economic experts also cited policy inconsistencies that create disharmony in fiscal and monetary policy implementation. For instance, the manner the Federal Government had treated the former Central Bank Governor, Godwin Emefiele, and his team.
The catch is that the fiscal and monetary policies of the government had gone to shreds. Hence, the hurried manner with which the Governor of Central Bank of Nigeria, CBN, Dr Olayemi Cardoso and the four Deputy Governors, namely, Mrs Emem Nnana Usoro, Mr Muhammad Sani Abdullahi Dattijo, Mr Philip Ikeazor and Dr Bala Bello, assumed office on Friday, pending their confirmation by the Senate. The President had nominated them in conformity with Section 8 (1) of the Central Bank Act, 2007, which vests in the President of the Federal Republic of Nigeria, the authority to appoint the Governor and Four Deputy Governors.
According to THEWILL investigation, there is an urgent need to rein in fiscal and monetary policies because as the Naira depreciates, the country will slip deeper into subsidy regime. The CBN management will have to keep a keen eye on the forex markets because the value of the Naira is also dependent on the rising global price of oil.
Okeke said the new management team has a huge task awaiting them because Nigeria will continue to face foreign exchange challenges until the economy becomes productive.
GOVERNMENT PERMUTATIONS
Meanwhile, a government source with knowledge of the discussions told THEWILL at the weekend, on condition of anonymity, that “The president is earnestly seeking a forward sale of crude and solid minerals deal that will raise foreign exchange and bolster our reserves to enable us clear the backlog of forex obligations which is presently around $8bn,” adding, ”This is what Wale Edun, the Finance Minister and new CBN Governor, Yemi Cardoso are working on. The NNPC has also been mandated to raise crude oil production.”
THE WAY FORWARD
On the way forward, Okeke suggested that the refineries must be fixed quickly and efforts made to increase crude oil production to meet the OPEC’s quota of 1.8 mbpd for Nigeria. He wants the forex reform revisited by introducing a managed floating exchange rate system with adequate transparency. He further opined that the RT200 programme introduced by Emefiele be revisited, rejigged to make it more adaptable because the philosophy is production and export-focused.
Government needs to ensure that crude oil production in the country comes on stream to boost forex earnings while at the same time engaging in aggressive fight against ongoing crude oil theft in the Niger Delta. Unfortunately, the government, say dependable sources, is not forceful enough in tackling the menace of theft being carried on by the unnamed business elite the president in his first televised nationwide broadcast identified as smugglers and fraudsters who squandered over a trillion naira of the unproductive fuel subsidy.
These are the sure way to go if President Tinubu’s three-year economic recovery plan anchored on an eight-point agenda in the area of food security; poverty eradication; economic growth; job creation; access to capital; inclusion; rule of law; and fighting corruption, can drastically turn around the country on the path to genuine development and growth.
Amos Esele is the Acting Editor of THEWILL Newspaper. He has over two decades of experience on the job.
