Incessant fuel price hikes
By Boniface Chizea
Like a bolt from the blue, a recent hike in the pump price of petrol was announced, increasing the price from N897 to over N1000 per litre. This represents the second such increase under one month, and the sixth time pump price of petrol will be increased under this administration. You are left with your mouth agape as you cannot simply get to wrap your brain around such bizarre, strange, inexplicable development, which is injurious to all Nigerians. The fact remains that Nigerians have never had it this bad.
In the first place, can anyone appreciate what injury such rapid changes in the price of a consequential product do to the concept of macroeconomic stability? What impact such increases have for the high and injurious prevalent rate of inflation, which the National Bureau of Statistics projects by its latest outing as decreasing. For the records, the recent related data puts the rate of inflation at 32.15% in July, coming down in one month from 34.19% in June. We await to see what rates are going to be published for the month of August 2034 which will help profile the bona fides of the Bureau of Statistics as it is brought under close scrutiny. This development makes the mandate statutorily assigned to the Central Bank; that of maintenance of price stability, a veritable nightmare.
Not a few well-informed compatriots have questioned the rationale behind the constant increase in base lending rate by the Central Bank. Particularly the most recent increase of 50 bases points made during the last Monetary Policy Committee meeting which raised not a few eye brows. The consensus and expectation was that a hold decision should have been better advised. What to bear in mind is that a hike in base rates stokes inflationary spiral for shouting out loud; interest rates are factor costs which have knock on effect on the overall cost of doing business.
But the reality is that the Central Bank today understandably is overly focused on the rate of exchange with the pressing view to attain some modicum of price stability. And since the consequential effect of elusive stability in exchange rates could be readily traced to poor and inadequate inflow of foreign exchange, the frequent hike in base rates are targeted at attracting portfolio investors. Such investors really are not first choice as they bring in hot money which is not patient and really not to be preferred by managers of the economy.
But the fact we must take on board is that the Central Bank is handicapped in terms of the availability of policy options and therefore the ready course of action is resort to the tinkering of the base interest rate. When you look at the situation dispassionately, you will appreciate the fact that Nigeria is in a precarious situation. The rate of exchange as everyone knows is the equilibrium price of supply and demand. And the only sure route available to us to firm up the rates is either to boost the supply of foreign exchange or reduce its demand. What resonates is that it is easier to reduce the demand for foreign exchange than to boost its supply.
And the preferred course of action would have been to rapidly move to reduce the demand for foreign exchange. And in this regard we had a low hanging fruit which we should have conscientiously plucked; the Dangote Refinery. The expenditure on fuel importation consumes about one-third of the nation’s aggregate foreign exchange disbursements. But what did we witness with commencement of operations of the Refinery? There was confusion everywhere, giving credence to the view that powerful interests were going to be undermined as the refinery started production. As Aliko Dangote himself told us, the mafia in refined products importation is stronger than that for hard drugs. It is not the first investment Dangote will be making in our environment. He is dominant in cement production which he sells to the general public. The question to ask is why refined fuel should be different.
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At some point in time, we were informed that NNPCL will be the sole off taker of the products. And prices were going to be fixed by a company we were told is now deregulated. And this national company has continued to wallow in the opaqueness, which has been its hallmark since it commenced operations. And up till now confusion reigns supreme in this space! And as if by share conspiracy, the pump price of fuel started gyrating upwards as soon as the announcement was made that the refinery will commence operations. Would this be the case of giving the dog a bad name in order to hang it? And as we define acceptable and preferred path to follow, what is known is that there is the need to boost the overall productivity in the economy. What about returning farmers displaced by insurgents to their farms? Why not declare a state of emergency on banishing the bandits and growing food production? If we are handicapped, why not eat the humble pie and ask for foreign intervention?
You see, it is ill-informed to deliberately inflict pains on the population and then annoyingly celebrate that as being macho! All that could take place because our institutions have been deprived of living up to their responsibilities as a consequence of state capture. If the President is fearful of the fact that his performance in office would determine his fate at the next elections, he will not be talking of such not well thought through bad decisions as macho. Therefore, the need to redeem such already captured national institutions, which include the Independent National Electoral Commission, the National Assembly, and, of course, the courts. And what to do is no rocket science. I listened to my friend, Dr. Sam Amadi, propound what to do to rescue INEC, and his recommendations resonate. But who will bell the cat? How rationale is it to expect that those who deliberately planted the structures to be the ones to dismantle it? This is the dominant challenge confronting Nigerians today.
We must not play the ostrich and try to lie to ourselves. We are still waiting for a commendable move by this Administration. We have, for instance, been promised several times that our refineries will roar to life, and for once, we will have them productive. But it has rather been one missed promise after another. One suspects that the refineries have been held down from producing as that would undermine the fuel importation mafia. But now that a definitive blow has been dealt, one expected that we would achieve some traction as we get them back to production.
One is alarmed by the extent of corruption in the polity with no definitive and consequential steps taken at arresting the ugly cankerworm. Witness the case of the immediate past Governor of Kogi State, Yahaya Bello, who has proven a negative poster boy for youths in government. He was caught with his hands in the cookie jar, as he is alleged to have embezzled a humongous amount of state funds to pay the school fees of his wards in dollars at some American school in Abuja. There has been endless drama with his arrest despite court summons. The last time we heard of this case, Yahaya Bello was reported to have taken himself along with his lawyers to the premises of the Economic and Financial Crimes Commission (EFCC). There were bare faced lies following reported incidence of gun shots heard at the premises of the Kogi State Governor’s lodge in Abuja.
Since then, we have been back to the situation whereby we still lied to ourselves. And Yahaya Bello is still at large and it will not be surprising if before too long this matter is forgotten, swept under the carpet. What about the foreign coach we hired who could not stay because he claimed he was told that he would mandatorily contribute 10% of his salary to some legislators. Did anyone bother to follow the trail of such a developing story? Why have we not had closure to the case of the humanitarian affairs minister until this point in time? The last we heard of this matter was that she was being suspended to clear the coast! What about the recent scam of off-season election held in Edo State? I was at a public function some weeks before then where I asked the rhetorical questions: “If it is possible that APC will lose that election?” And the moderator retorted; “How can?” This is the state of the nation today, and we are still thinking of progress! If a government wants to rejig its cabinet, must one serve any notice about that if we are serious?
What is happening to fuel price in the country is condemnable. The pump price of fuel with the rate of exchange contribute lion share to the inflationary pressures we are under. The economy would suffer permanent and irreparable damage if we compound the instability arising from the foreign exchange market to that of the pump price of fuel. We must aim to resolve this matter better at the level of reduced price to begin to come to grips with the challenge of reducing the rate of inflation to make life less turbulent and bearable to our citizenry.
- Boniface Chizea PhD, the MD/CEO of BIC Consultancy Services, wrote in from Lagos