Distraught Sanusi and subsidies

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By Sonny Atumah

The Emir of Kano and immediate past governor of the Central Bank of Nigeria, CBN, Muhammadu Sanusi II, last week took a swipe at the government that he believed was subsidizing foreign exchange and creating billionaires in the country. He said businessmen obtain dollars at official rates of N197 and resell at a higher rate of N300 at the parallel market.

Emir of Kano, HRH Muhammadu Sanusi IIEmir of Kano, HRH Muhammadu Sanusi II
Emir of Kano, HRH Muhammadu Sanusi II

At the 15th joint National Council on Development Planning, he berated manufacturers that have abandoned production and embarked on foreign exchange trade at the expense of local production and unemployment.

He pointed that Nigeria is spending 6-7 billion dollars per annum on fake subsidies and such proceeds expended in private jets, expensive cars, jewelries’ and properties abroad thereby contributing nothing positive to the Nigerian economy.

The zeal in expressing his thoughts and opinions was a smacking breeze of patriotism that President Muhammadu Buhari should listen to. Sanusi commended the Federal Government for the removal of wasteful subsidies and also noted that the country should subsidise production rather than consumption. He got it right but we do not know that our idle refineries contributed to those wasteful import subsidies in Nigeria. As CBN governor he witnessed the dishonest petroleum subsidy scheme and raised several issues until the present administration discontinued it in May 2016.

Global appeal is that subsidy is good for any system and that is why the developed economies have subsidies for the vulnerable in their societies. Ordinarily, the CBN’s priorities for allocating foreign exchange are for the settlement of matured letters of credit that have been opened for importation, importation of petroleum products and for raw materials imports. We missed the point by not allocating funds for our idle refineries considering the fact that petroleum products and many of the raw materials we import are petroleum based.

The issue of petroleum subsidy would reverberate in our system. Government action should be that which lowers the cost of production, raises the price received by producers or lowers the price paid by energy consumers. Production including petroleum should attract subsidies.

We know that the cure for low prices is low prices which spur demand. The developed and emerging nations never looked for the easy way out for lasting solutions to complex problems. The call for take away without recourse to appropriate sanctions for offenders in the petroleum products subsidies has put us in this disastrous predicament.

High contact persons claim to be manufacturers, indulge in unwholesome sleaze in connivance with monetary authorities who claim blind stupor. Again the flaws in government policies encourage such sharp practices. Manufacturers are lured to produce goods while government causes a flood out for them with all sorts of import licences and duty waivers. Manufacturers including foreign direct investors who sunk in several million dollars to produce locally have had fingers burnt by government policy reversals. We cannot have our cake and eat it.

That some manufacturers have abandoned production for foreign exchange racketeering is a matter of grave concern. The Federal Government, CBN and the Manufacturers Association of Nigeria, MAN should investigate this claim from a personality that saw it all at the helm of the apex bank. Experts say when national currencies run by central banks is transformed into a global electronic marketplace driven by currency traders, power changes hands. The Nigerian monetary authorities are losing grip of the value of the Naira that has gone into free fall.

Emir Sanusi’s opinion is that Nigeria is not all about oil since it contributes only 15 percent to the GDP adding that if the entire Nigeria’s oil reserve were sold today the proceeds would only add 1164 dollars per head compared to the GDP per capital of 3000 in 2016. According to him those that make noise about oil should stop and those that are afraid about oil should stop. To him Oil is just a working capital which we sell to get the dollars that we use to import. If we can have another source of working capital we can do without it.

The insinuation that Oil that contributes at least 15 percent to the GDP is negligible was a bit emotionalized. If Oil is just our working capital for the management of our activities including inventory, debt, revenue collection, and payments to suppliers means it is worth relying upon. Rationalising, mismanagement has caused us to grow out of cash that we always need more capital to fulfill expansion which we should plan for.

For now we do not have another working capital source excepting oil. We should continue to talk about oil because we still have comparative and competitive advantages for it to act as a good working capital to measure our liquidity, efficiency and overall health.

The United Arab Emirates, UAE that has become a haven for some that stole our commonwealth, used oil as a working capital to invest wisely. Our human disaster is profligacy that had kept us where we are for decades. That he addressed and was quite commendable.

We should encourage this government to invest in our refineries rehabilitation, upgrading and in petrochemical plants construction. Investments in the downstream have vertical linkages for economic diversification. With over 6000 products and derivatives in the petroleum value chain Nigeria can jumpstart the near depressing economy. Storage levels spiked in the Amsterdam-Rotterdam-Antwerp trading hub that oversupply of crude oil and shale production in summer 2014 forced down the price.

Again the currency that oil is traded is the dollar and Oil price tends to move inversely to the United States currency. Among other indices, an appreciated dollar forces the price of oil down in the West Texas Intermediate (WTI). Reduced profitability in the upstream sector ordinarily could make room for positive business investment opportunities in the downstream. Saudi Arabia the largest crude exporter is increasing refinery capacity away from crude sales. It is absurdly ridiculous that Nigeria imports petroleum products from non-producing consumer nations.

Again we are buying refined products overseas and with the devalued Naira citizens are paying exorbitant rates even with glutted markets for crude and refined products. Petroleum products importers are drawing from our scarce foreign exchange. It is still the vulnerable that bear the brunt of high exchange rate of importation. Nigeria’s devaluation would have made sense if it was based on her capacity to produce petroleum products for exports.

Emir Sanusi’s lamentation that while other countries are developing Nigeria has no ambitions was stating the obvious. We are still creating sterile billionaires and sermonizing about diversification without considering the wise counsel of people like him. We are not in the club of great nations because collectively we have not been able to utilize our innate releasing mechanisms to stimulate triggering instinctive behaviours.

Let us be more ingenious not to degenerate to depression especially now that the National Bureau of Statistics officially declared that Nigeria is in recession.

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