If you do a Google search, you will find that a conundrum is a “confusing, difficult or intricate problem or question”. There is an alternate meaning relating to puzzles, riddles and jokes or “a question asked for amusement”. Nigeria is faced with multiple policy conundrums, some self-imposed, others false conundrums and yet others pseudo-conundrums. There are of course a few of our policy difficulties that are real, substantive conundrums.
Let’s take the issue of fuel subsidies. Nigeria spends an average of N1 trillion every year to subsidize the importation of petrol. The amount we spend importing petrol is multiples of N 1trillion every year – the N1 trillion figure is just the amount government spends to supplement the cost of petrol, so that imported petrol will be cheaper for Nigerians! Nigeria is of course very rich in crude oil but we do not refine the crude, opting instead to sell crude oil and import refined petroleum products. The reason no one builds refineries in Nigeria is because due to the oil subsidy, prices of refined petroleum products are lower than the market prices, and few sane businesses will build a refinery costing millions of dollars if they are not sure they can charge a market price for the products! So Nigeria spends more every year than its actual capital spending on roads, schools, hospitals and power stations, on importing the refined form of a product it has in abundance. The situation I have described above has gone on for over two decades! What did they say the definition of insanity is? Doing the same thing over and over again and expecting a different outcome?
At the current time, global oil prices have fallen by 50 percent over the past few months, so God Almighty himself has decided to make petroleum products cheaper for Nigerians, in effect providing a 50 percent “palliative” on oil prices to Nigerian consumers! Yet the government persists with “subsidies” on petrol, paying every now and then hundreds of billions of dollars to oil importers. Meanwhile, subsidized Nigerian oil is sold in Benin, Chad, Cameroun and Niger, our neighboring countries and even the terrorist group, Boko Haram, which needs funding to bomb and kill Nigerians is smart enough to spot the business opportunity – so Nigeria in effect subsidizes Boko Haram! The country has large rates of poverty and unemployment, but spends N1 trillion subsidizing car and generator owners in its middle and upper classes and subsidizes foreign jobs in the refineries abroad that produce petrol for Nigerian importers. The Nigerian economy could support hundreds of refineries, which would employ thousands of Nigerians, but well we opt to continue importation! Government-owned refineries are over 30 years old and operating at 2 percent capacity, but we insist that they must not be sold, but repaired at hundreds of millions of dollars! This one is not a policy conundrum; it is corporate insanity!
Then take official policy on manufacturing or the lack of it! In June 2015, the Nigerian Central Bank decided to put many of its manufacturers out of business. It was a carefully thought-out decision reached by officials of the apex bank due to shortage of foreign exchange in the nation’s coffers after oil prices fell and national income fell due to dependence on oil for most official revenue and exports. The CBN decided to rationalize dollars administratively by first excluding 41 items which it deemed not required by the Nigerian economy. While the 41 items included items like toothpicks, airplanes, Indian incense and tomato paste which no Nigerian would argue in favour of, it also included other items which are inputs into the production process of many manufacturing firms. The CBN excluded those manufacturers from accessing dollars on its official inter-bank market, bureau de change and export proceeds markets, effectively legislating closure of (at least) some aspects of these manufacturers’ operations, higher unemployment, lower output (GDP) and higher inflation rates. When all these things duly occurred, the CBN governor quickly addressed a press conference warning that a recession was imminent. This is a classic self-imposed policy conundrum!
Meanwhile, there is a substantive policy conundrum, a real one at the heart of the irrational foreign exchange management policies adopted at the Central Bank. The country’s foreign exchange earnings have crashed from an average of $45 billion annually to probably around $20 billion as a result of the global oil price crash. The naira has already been devalued from N168/$ to around N200/$ and reserves have fallen below $30 billion and falling! The country’s leaders have taken a political decision that the currency would not be allowed to decline further and the CBN has read the memo and will scrupulously execute the instruction. But foreign investors are not accustomed to decision-making on the basis of presidential memos or body language; neither will global financial institutions like J. P. Morgan Chase, Barclays Bank or Morgan Stanley! Markets of course are even more unruly so Nigeria now faces a true policy conundrum – no investment, low growth, declining reserves, plunging capital markets, as the economy grinds to a halt, while we keep our notional exchange rate where we want it. The markets on the other hand have created four different exchange rates – inter-bank, BDC, cash and transfer at N200/$, N220/$, N225/$ and N235/$. At its preferred rate of N200/$, the CBN is unable to meet demand from importers of items that are unbanned and firms wait several weeks or months to get foreign exchange for transactions. No one, except the CBN governor, knows the criteria upon which available scarce dollars are allocated, and the bank has not published details of its allocations in the last six months. Meanwhile, the CBN has decided to launch a campaign to promote local production, but it will continue to provide a N25-35/$ exchange rate subsidy for imports!
Opeyemi Agbaje
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