Sanusi: Petrol subsidy, parallel forex strangulating Nigeria’s economy
Oct 15. 2022
The 14th Emir of Kano, Khalifa Muhammad Sanusi II, has raised the alarm that the petrol subsidy and parallel foreign exchange rates are twin curses that have put Nigeria in dire strait and could strangulate the country.
Khalifa Sanusi, who is also the Vice Chairman of Kaduna State Investment Promotion Agency (KADIPA), said the two economic policies are creating moneybags overnight at the expense of the country, noting that there is no justification for the 66 million litres of petrol being subsidised on daily basis.
He also stated that while the dollar sells at N450 in the official market and N750 in the parallel market, someone can sit down in his sitting room buy 100,000 worth of dollars at N450 and sell at N750 making N30 million profit on that single transaction.
Delivering a paper titled “Improving Sub-nationals Resilience Against Global Economic Stock” at the 7th edition of Kaduna Economic and Investment Summit (KADInvest 7.0), Khalifa Muhammad Sanusi said the Nigeria National Petroleum Company Limited (NNPCL) should be unbundled into different companies for effective and efficient management and subsequently disbanded to get the country out of the economic quagmire.
While urging for market forces to be allowed to dictate the value of naira to make the currency strong and end policies that only breed billionaires at the expense of Nigeria’s economy.
“NNPC is a money pit instead of a cash cow; it should be unbundled and disbanded. More can be had from simply levying royalties and CIT on private players following models like that of Petronas and Petrobras. Beyond the challenging global context, Nigeria has problems entirely of its own making where oil revenues which were once the lifeblood of the Federal Government, have been in secular decline for over a decade. This has been happening regardless of the oil price environment,” he said.
“The Federal Government is set to collect just $2.9 billion in oil proceeds this year, compared to nearly $60 billion in 2011. This is one of the biggest oversights in public financial management anywhere in emerging markets. Nigeria’s problems are not a failure of the system because it is working as one would expect, but a failure of design and a failure of implementation.
“The first and most obvious problem is the existence of the fuel subsidy and opportunities this creates for fraud, the average daily fuel consumption in Nigeria (by the NNPC’s admission) is 66 million litres per day, and on some days as high as 100 million litres per day. This is roughly equivalent to what Indonesia, a country with nearly three times Nigeria’s GDP per capita, two times the number of vehicles and 2.5 times the size of the road network, consumes.
“A different way to benchmark Nigeria’s consumption is to look at PMS consumed by each vehicle on a daily basis, on this metric, Nigeria even outranks Iran, a country with three to four times its level of wealth and a road network that is three times the size on a per capita basis and this is not just the impact of subsidies because in Iran official fuel price are 5 US cents per litre, less than 15% of the pump price in Nigeria.”
He attributed the ‘relentless rise’ in the US dollar as being the bigger problem in most of Africa causing widespread and painful currency adjustment, which is a more important driver of inflation than the underlying moves in commodity prices.
“Since the start of the Ukraine war, crude oil prices are 5% lower, rice prices are 12% higher, and wheat prices are flat, the trade-weighted US dollar however is 17% stronger in this period, the sharpest upward move since the early 1980s, this is what is causing the pain in emerging markets,” he said.
He stated that only 50% of states generated enough recurrent revenue to cover wages, overheads and debt service and recommended that states advocate for changes that do not rely on fixing failures of system design and policy implementation at the Federal level.
He urged states to find ways to free themselves from the effects of leakages and unorthodox policies at the federal level and instead push for new and independent powers of taxation.