BY ANTHONY WELI
Oil price is gaining an upward momentum, currently at $70 per barrel. Yet among Nigerians, given the removal of subsidy, anxiety is growing on its impact on the downstream sector, of which the evidence is all over the nation in the form of shortage of fuel, which has drastically led to increases in its prices.
If the price of crude oil increases, of course it will inevitably lead to increases in the prices of the refine products. And there is nothing the marketers can do about that. Prices of transportation in the country has shown a tremendous increment, Nigerians are getting worried and restless again.The recent gains in the economy is undoubtedly on thin line as costs have began to rise.
Subsidy is a thing of the past, and am not advocating for a return, but when Nigerians begin to worry about increases in oil price, a major export commodity, then something is seriously wrong somewhere.
Problems
I believe crude oil price rose to $65 per barrel in the middle of December 2017. This led to shortage of fuel as it became unprofitable for marketers to retain pump price at the usual #145 per little.
Of course, landing cost increased making #145 pump price untenable. This led to shortages, shortage led to scarcity, scarcity led to increases in prices of fuel, which in turn led to increases in cost of transportation, increases in cost of transportation is putting an upward pressure on the cost of almost all commodities, which is currently adding to the pains of all Nigerians.
Question; but can we Nigerians in good faith and conscience say that the increases in crude oil price is a welcome development?
Crude oil price is now $70 per barrel, what will happen to landing cost? Of course it will increase further, then what will happen to landing cost and pump prices when it increases to $75, to $80, to $90, to $100? Yes, lets pray it never gets to $100, for there is no benefits to Nigerians through government revenue, but a tremendous and terrifying costs awaits us all at the pump.
We can clearly see that an increase in crude oil price which is meant to be a welcome development, is now to be dreaded by all Nigerians. If I should put myself in the position of the least of us, I would rather wish crude oil price to be on the decrease, because from hindsight, it is only in decrease can Nigerians benefit through corresponding decreases in downstream sector price. This is a fact and the truth.
At least in this scarcity, the jobless, greatly deprived and misspent youths are cashing in by selling at black market and reaping reasonable benefits. Not everyone will appreciate their presence, but when you are red on fuel while driving and the filling stations are emptied, you would be glad they are around to save you.
I did not write this article to cause panic, but to provide solutions. I think it is important that Nigerians should understand that this current fuel crises is unlike the usual Christmas period artificial scarcity deliberately created to extort Nigerians through exorbitant pump prices. This is different. And it will persist as long as the crude oil price rises. This is a big problem. This could possibly turn out to be the worst fuel crisis ever.
Should we be worried?
Yes, Nigerians should be worried about increases in crude oil price because of the faulty Exchange rate policy of Central Bank of Nigeria (CBN).
We have lived on subsidy for a long time. This is new to all Nigerians that an increase in the price of crude oil will become a problem.
The current administration has committed itself and to stand by its subsidy removal, but yet seems to agreed to a special window for forex acquisition by oil marketers.
Make no mistake this also is a subsidy, but unlike the other kind of subsidy, should have been very efficient if not for the faulty exchange rate policy of CBN which I will explain below.
For an oil exporting country, that is also dependant on imported refined products like Nigeria, subsidy removal can only be effective and efficient in a harmonious exchange rate policy. That is an exchange rate system that is responsive to supply and demand.
This current exchange rate policy is porous with multiple and confusing rates. Price of dollars is still very high regardless of the high supply of dollars. From international trade balance (after paying for all of our imports), we had a surplus of over $2.3 billion in Q1, $1.6 billion in Q2 and $4 billion in Q3 of 2017 alone, and another $22 billion from remittances, yet the price of dollars remained the same and very high. Price of crude oil increased from $33 to $70 per barrel, more than doubled government revenue, yet price of dollar remains very high.
But If we should assume that we have a fairly good exchange rate policy, then exchange rate should be responsive to market forces. As there are rises in crude oil price, which means rises in dollar supply, then the impact of the increases in crude oil price will be internalized by the increase in dollars supply through the appreciation of naira. Thereby neutralizing the impact of the cost on Nigerians. A win win for all Nigerians, very simple.
But with the the current exchange rate system of importation of cash dollars into Nigeria by the CBN governor, which is the holy grail of corruption and money laundering. Our hard earned dollars are continuously taken out of the portion of Nigeria’s international market, and is being imported into Nigeria by the CBN governor.
This has made dollars the new political currency for bribery and corruption for the ruling elite because it is untraceable.
Unfortunately, this also has distorted all other government policy rendering them inert. Among other problems, subsidy removal, or special window to access forex can “never” work on an exchange rate policy of cash dollars. Where dollars are imported from abroad, into the country to pay for goods and services purchased abroad? Makes no sense, and this has become a breeding ground for corruption and massive fraud.
The foreign exchange policy of CBN, of large scale importation of cash dollars and sale to thousands of bureau de change, and commercial banks, is the biggest problem Nigeria has and will ever face.
Questions that demands answers
Let’s start by asking simple questions, and you should try and think about the answers in your mind and see if it makes sense.
CBN governor (no law mandates this) imports dollars into the country, why do we need cash dollars inside Nigeria?
Do we need dollars in Nigeria as a means of store of value in our domiciliary accounts, or to purchase goods and services in Nigeria? Nigeria has a legal tender naira, so is dollars not meant for payments of goods and services purchased abroad?
If dollars is meant for the payment of goods and services purchased abroad, So why then should the CBN import dollars and forexes into Nigeria for payments that needs to be made outside the borders of the country. Is there not already a worldwide network through which international payments are made without physically carrying dollars around and all over the local economy?
We all know that CBN imports dollars in billions monthly on the guise of forex market intervention right? If the CBN had to import dollars into the country to sell to banks and to over 3000 bureau de change to enable Nigerians that are engaged in International trades and services pay for International transactions, how then do we make the payment with this cash dollars and forexes within our borders?
After buying it at a higher price from these banks and Bureau de Change, do we then carry it back abroad individually to make payment for our transactions? If so, why import it into the country in the first place?
Of course you would say we’d take it to commercial banks to be deposited in our domiciliary accounts for onwards payment for international transactions right? So if this dollars is deposited in banks here in Nigeria, how do this banks meet up with their obligations to credit same abroad?
Remittances from western union, moneygram and Rai money (lounged abroad) are the only dollars used by our commercial banks to meet some of this international payment made abroad by Nigerians. This is not enough, that’s why we have logs of uncleared payment as pointed out by importers of raw materials for Nigeria’s manufacturing sector. That’s why dollar withdrawal with naira cards by Nigerians abroad can be stop at a moment notice.This because remittances alone can’t cover all of our international payments.
Therefore CBN continual dollar importation into the country is never actually meant for international trade because these dollars are stocked here in Nigeria. These are the dollars you find in the Ikoyi building, hoarded in soakaways, in private houses of corrupt public officials and in all dollar cases we know about. And the ones we don’t know about.
This creates artificial dollar shortage in the midst of plenty, constricting the economy in its entirety. Deliberately creating more demand for dollars way more than the economy, constantly keeping dollar price high, despite huge supply excesses. Bringing in tremendous amount (billions monthly) of cash dollars into Nigeria, dollarizing the Nigerian economy.
Solutions
But there is a solution. A solution that is a win-win for all. This is my humble advice to the government of Nigeria. Let this be a free will consultation free of charge.
My advice is that the Nigerian government should allow Nigerians to make payment for international transactions for goods and service straight from their local bank accounts (naira) as is obtainable in all other countries.
This will be the best gift to all Nigerians if this administration will allow this.
This sound ridiculous, isn’t it? that something as simple as this could be what’s causing so much pain to all Nigerians in all sectors of the economy.
There is a circle of fraud and money laundering that has been made apparent in our foreign exchange laws (Monitoring and Miscellaneous Provisions act 1995), that only by preventing Nigerians from making international payment through naira accounts, will it be in plain sight and without notice.
Not until we sort this out, Nigeria will never truly come out of this fuel crises.
I wished that I would have expounded on this more, but this piece is already long enough. God bless Nigeria.