Federal Government’s directive last week Monday to slash fuel prices is a sober and welcome development which Nigerians should all applaud. The projected direct effect of this development is immediate reduction in the cost of public transport fares, transportation of goods and reduced production costs of goods and services. This ultimately should lead to reduction in prices of basic commodities, and increased buying power for the citizenry.
The Federal Government gave as its reason for the action the falling oil price which has seen crude oil price drop from $110 to around $47 last week. The government in taking the action did not explain how it reached the N87 price mark. The drop in price is a form of relief. The drop will be a loss to fuel importers who on regular basis claim subsidy. There is, therefore, no more subsidy on petrol price in Nigeria today. If at the current price there is no subsidy, this is a good opportunity for the Federal Government to deregulate the downstream sector of the oil industry in Nigeria.
Unfortunately, for the next few months, Nigeria’s political elite will be too tied up with presidential, state and local elections scheduled for February 2015 to focus on governance. The campaigns ahead of the elections are not addressing broad issues such as the state of the economy but it is on who will eventually take control of the country’s political economy. At the end of the 2015 election, if nothing is done to deregulate the oil sector, Nigerians will return to the annual bickering of fuel subsidy removal. Fuel price adjustment in Nigeria has a long history that every government had at one time or the other increased the domestic price of fuel.
Nigerians will recall that President Ibrahim Babangida moved the price of petrol from 15 kobo to 70 kobo in his eight years of governance. But by far, the greatest leap of oil price in Nigeria was introduced by Chief Ernest Shonekan, an interim Head of State who took the price from 70kobo to N5.00 within the 87 days of his rule. Late General Sani Abacha moved price of petrol from N5 to N11 within his five years in office while General Abdulsalami Abubakar increased the price of petrol from N11 to N20 within the 10 months he ruled Nigeria. President Olusegun Obasanjo under democratic regime raised the price of fuel from N20 to N70 within eight years he spent in office. However, late Umaru Yar’Adua reduced the price from N70 to N65 as a result of falling oil prices and was in the process of deregulating the downstream sector before he died, but President Jonathan increased the price from N65 to N141 per litre. Negotiations between the Presidency and the Organised Labour led to the bringing down of the price from N141 to N97 per litre after eight days of strike and street protests.
Under every democratic administration, the ugly incidence of petroleum scarcity surfaces and price adjustment has to be made. The question is: must Nigeria continue down this road? Why can’t Nigerian leaders do the right thing for once? To those who believe that the government should intervene in the everyday running of the economy, it is bad to deregulate. And to those who believe that the government should just govern and let the economic resources ‘go to where they are needed most’, it is very good.
In economic theory and practice, the economy of any nation thrives when there is efficient allocation of scarce resources. In Nigeria, deregulation of the petroleum sector is a problem because a lot of multinational businessmen with vested interests in the oil and gas industry are doing everything they can to stop the deregulation. They want the government to continue with its inefficient allocation of resources to the subsidy of petroleum products.
It is in the best interest of every Nigerian, including generations yet unborn, to welcome deregulation, otherwise Nigerians will never understand why prices fall in other places and it dose not fall in the Nigeria market. Before the deregulation of the communication sector, there was only NITEL. Other players were allowed into the industry and the sector became more organized after the deregulation. One wonders what would have happened if Nigeria had only Nigeria Airways. Based on the usual nature of deregulation, the price of the affected commodity may be very high originally; PMS may rise higher per litre in the short run but there is nothing stopping it from dropping to a much lower price per litre in the long run when the sector strengthens and refineries are restructured as players try to improve market share through competitive strategies.
Generally, under a free enterprise national economic system of management, the forces of supply and demand are allowed to determine the general and specific prices of goods and services. In countries where the allocation of national economic resources is centrally planned and directed, governments play a more active role in the allocation of resources and the general determination of the prices of certain goods and services. Few, if any, are 100 per cent planned economies.
There is no doubt that free market forces generally allocate resources more efficiently than in a centrally planned and directed system. Ironically in theory, there is preference for the free enterprise system of management of the national economy in Nigeria. But in practice, there is a lot of meddling in the allocation of economic resources. There are lots of bureaucracies and regulations, including those relating to the subsidisation of the prices of petroleum products in the country. Policy implementation is a big problem. Corruption is the bane in general governance and administration of social services. Nigeria should deregulate petrol price now that there is no subsidy or never.
