On Friday, 13th April 2012, the Nigerian mainstream and new media were awash with reports of Nigeria’s dwindling savings. In particular, the Minister of Finance and Coordinating Minister of the Economy, Dr. Ngozi Okonjo Iweala raised alarm over the depletion of the Excess Crude Account (ECA) from $20 billion in 2006 to current levels of $3.6 billion. Ngozi thus confirmed what many analysts had asserted and what many Nigerians feared that the government might be “broke”. Many critics linked the government’s (partial) removal of fuel subsidies in January this year to the need to raise revenues to feed the government’s jumbo expenditure. I wrote this piece below in late February this year, but somehow, it never saw the light of day. With this recent revelation, I think it’s timely to reproduce it. Enjoy!
“…Nigeria has all the fundamentals to be one of the BRICs… when we take care of several of the constraints… holding our economy back…we are going to be in the low double digits and that will parachute Nigeria into the BRICS…” says Dr. Ngozi Okonjo Iweala, the Harvard-educated Nigerian Finance Minister and co-ordinating Minister for the Economyin a BBC interview, confirming Nigeria’s aspiration to join the league of the BRICS, the association of powerful emerging developing countries. She identifies access to power and electricity as one of the constraints holding back the economy and which President Goodluck Jonathan’s transformation agenda would focus on addressing. It is in a bid to increase economic growth and development commensurate with an emerging power status, that the Nigerian government has embarked on reforms and deregulation in the downstream sector of the oil industry and in the power sector. While at surface level, these policy reforms appear to be aimed at increasing efficiency and transforming the economy, the inconsistencies and contradictions inherent in the execution of the policies have created not only confusion but bear some semblance of fiscal conservatism with the potential to create more political challenges for President Jonathan.
As part of a transformation agenda unveiled shortly after victory in the 2011 general elections, President Goodluck Jonathan began reforms aimed at rejuvenating the power sector and the petroleum industry, both of which constitute the very backbone of the Nigerian economy and both of which have been bedevilled by immense challenges. Both sectors are plagued by corruption, fraud and lack of transparency – ills which dog most of Nigeria’s public sector – and are dominated by a cartel of importers. In the case of the power sector, inefficiency and corruption have culminated in poor service delivery – peak output is just over 4,000MW, with per capita power consumption just 3% that of South Africa – manifesting in Nigeria’s infamous power outages and other perennial power problems believed to be perpetuated by a cartel of importers of electricity generating sets on which the bulk of Nigerian households and businesses. In the petroleum industry, acabal of exclusive fuel importers are believed and identified to be benefiting fraudulently from fuel subsidies at the expense of the masses.
Responding to the urgency for reform to tackle corruption, institute transparency and a departure from a culture of “subsidizing consumption” rather than subsidizing production – in the words of the Central Bank of Nigeria (CBN) governor, Sanusi Lamido Sanusi — the downstream sector of the oil industry was “deregulated” on New Year’s Day 2012 with the removal of fuel subsidies. The decision was greeted with opprobrium and a public backlash culminating in massive street protests and strikes which paralysed the economywhile it lasted, though the government later backtracked and partially restored the subsidies. The recent announcement that deregulation of the power sector would lead to anupward review of electricity tariffs by up to 88% effective April 2012 has also been met with considerable opposition and some protests though hardly on the scale of the fuel subsidy removal proportions.
The most obvious contradiction within the implementation of these reforms is the strain placed on ordinary Nigerians many of whom live on less than $2 a day while the extravagant remuneration packages of political office holders such as the N1billion feeding allowance for the Presidency and a recent purchase of ultra modern SUVs for federal lawmakers remain intact. It is worth remembering that Nigeria, a resource “rich” country despite its tremendous oil revenues and an economic growth rate averaging 7 to 8% per annum remains on the lowest rung of global development indices. Infant and maternal mortality rates remain abysmally low while unemployment rates hover at around 24% (unofficial unemployment figures are much higher). Recently, the NigerianNational Bureau of Statistics (NBS) reported that the percentage of Nigerians living in absolute poverty rose to 60.9% in 2010, compared with 54.7% in 2004, while the Central Bank of Nigeria governor predicts an increase in poverty levels. The increased scrutiny of the national budget by ordinary citizens has further highlighted these glaring contradictions in the wake of a realization that the State provides barely any social benefits to citizens vis-a-vis the extravagant remuneration packages of political office holders.
To compound matters at such a critical time, the little social safety nets to cushion the effects of deregulation — which in the best of times places immense pressure on ordinary citizens — have been withdrawn. The Subsidy Reinvestment and Empowerment Programme (SURE) unveiled in January to monitor the petroleum subsidy savings funds and to ensure effective implementation of projects from the funds was scrapped by Jonathan just a month later, on the basis of it being “unrealistic”. Analysts are of the opinion that in the face of dwindling revenues, especially after the costly 2011 general elections, the most expensive in the nation’s history, and the various leakages which characterize government and public sector operations, the government is “broke” in the words of former federal minister and now chieftain of a key opposition party, Mallam Nasir El-Rufai. Rolling back the little state benefits at the expense of ordinary citizens seem like austerity measures to the general public, by a government eager to cut costs and raise revenues.
What lends credence to this argument is the government’s haste in deregulating without outlining concrete frameworks for the purported reforms and the administration’s perceived reluctance in apprehending and prosecuting the powerful interests behind most of the leakages, cronyism and corruption in both the oil and power sectors. The government’s lavish recurrent expenditure and its perceived lack of transparency while citizens are burdened with increased costs of living have further eroded the already fragile public trust in government. The fact that various government agencies cannot agree on the official amount spent on fuel subsidies in 2011 – The Minister of Finance, quoted N1.3trillion, the Minister for Petroleum quoted N1.5trillion and the CBN governor quoted N1.74trillion – for instance further highlights the transparency deficit.
It is not all doom and gloom though, as there might be genuine reasons to be optimistic. The recent House of Representatives investigative panel on the petroleum industryindicate some seriousness on the part of the government to address the rot and fraud in the sector. The appointment of former anti-corruption tsar, Mallam Nuhu Ribadu, the pioneer chairman of the Economic and Financial Crimes Commission (EFCC) to head aPetroleum Revenue Special Task Force established to “enthrone transparency and accountability in the petroleum industry” provides concrete basis for optimism. In addition, the relative successes scored by the Police Force and the State Security Services on the security front in capturing the mastermind of the Christmas day bombings and inapprehending the spokesperson of the dreaded Boko Haram sect, Abul Qaqa could boost critically needed investor confidence especially in the power sector.
Finally, the successes of these reforms depend to a great extent on the government’s ability to boost not just investor confidence but more importantly, inspire and rebuild trust amongst ordinary Nigerians. This can be achieved by foremost exerting the needed political will in tackling the powerful, entrenched corrupt interests constraining the transition from genuine intentions for reform to concrete, tangible actions. This could entail allowing the various committees, task forces and existing anti-corruption agencies the free rein to act accordingly without undue political interference and most importantly for the government to be more open, transparent and consistent in the implementation of its reform policies. These would be steps forward in assuring ordinary Nigerians and the wary middle class that President Jonathan’s reforms are not austerity measures disguised as deregulation.