In this interview, with Emma Ujah, our Abuja Bureau Chief, the President of the Nigeria Economic Society, Prof. Adeola Adenikinju says that the refinery and the NNPCL are yet to give Nigerians the comfort they expected with local production of fuel now going on.
Excerpts:
How would you look at the fact that Dangote Refinery has come on stream, but rather than the price of PMS coming down, it has escalated?
I share the views of free market economy, privatization and such reforms. And the whole idea is that when you have reforms or you privatize, you are replacing government inefficiency with private sector efficiency.
Unfortunately, what we are seeing and reading about what transpires between the NNPC and the Dangote Refinery has not really given us comfort.
If things work well, the estimate is that, if you produce locally, at least you are going to gain around between 10 to 15% of the formal price.
For instance, we are saving on cost of shipping, insurance, freight, all those taxes at the ports.
Unfortunately, what we are hearing is that we should not expect any change in prices. So, definitely there is total lack of transparency and you can’t manage reforms if you are not going to be transparent. You have to get the confidence of the people. There must be transparency. The process must be very clear. And NNPC should lead that. There is no need to hide anything.
This is the cost of procurement of this crude. Whatever we are taking from them is how much they are charging and these are the other cost layers that we want to have.
Market should be open
Many Nigerians have lost confidence in that process. I think there’s a need to go back. If government says that they have removed subsidy, then the market should be opened up.
There is a barrier right now because you are saying NNPC will be the sole off-taker of the PMS and then every other guy will go and buy from NNPC. You do that when you still want to maintain subsidy and you want to control the process. But if it is true that subsidy has been removed, then the market should be liberalized. Everybody should be free to either go to Dangote to buy, or to import so that, there will be competition.
Before now, we were told that petroleum products importation was responsible for about 30 percent of total foreign exchange demand. At some other time, it was said to be 25% and lately 15%. How do you expected the local products production to affect the FX market?
The market is the interplay of supply and demand. So, what to expect, what drives exchange rates, probably is demand and supply. Now, you expect that with the arrangement with the Dangote Refinery, that demand, I mean, about 30% that is one-third of demand will go.
If that happens and the supply remains unchanged, then you expect that the value of naira will go up.
But my fear is that the effect will be a net effect. It is a net effect, because again, part of the dollars that we have in this supply basket comes from the NNPC’s export of crude.
Part of that NNPCL’s crude will be supplied to Dangote in naira and not dollars. So, you’re still going to expect that dollar supply will fall. So, you expect some value gain for naira, but it will not be that very significant.
At least, in the immediate?
Yeah, in the immediate.
When Dangote fully becomes operational, we expect that it will be able to export products and bring in dollars.
It will be able to export and even bring in dollars. Yes, so once it has that net effect, like I said, again, that will be middle to long-term, because Dangote also has debt in dollars that he has to pay-off and things like that.
Duty-Free food import
The federal government announced a very important policy in July- the zero-duty food import. The government said that bulk import of grains would reduce food prices. This is October, yet we have not heard anything other than the guidelines released by the Ministry of Finance.
So, we have lost three months. We have just three months to go.
At our last conference, we raised the issue around public communication, issue of communication of policy reforms and actions taken to the public.
I think it’s not being managed well. The government comes, makes some announcements, disappears and in the interim we don’t know what is happening. So you now start hearing rumours here and there because there is no continuous communication with the people.
I think we need continuous communication to build confidence and to assure the people that you know what you are doing, you’re on the right steps and you are in charge of the process.
Because when you make announcements, announcements are made and then over a long period, there is complete silence. Then you have alternative stories all over the place. Nobody is sure what is going on. That is not a good way of managing this process.
Now, you see, in my view, I decided to talk about that. We should anchor our policies to a medium to long-term strategy. It should not just be short-term, something you just wake up, and announce an emergency policy. No. There should be some pro-activeness in what you are doing.
Now, what is the overall objective of what you want to do? Is it food security? You want to control food inflation? What are the short-term and what are the medium-term objectives?
The import bridge is supposed to be a short-term palliative or intervention to bring down food price, which is driving inflation now, and also reduce cost of living of average Nigerians.
Address food security
But eventually, as a country with our population, we must address issues of food sufficiency and food security. There is no country in the world, even India, with their huge population, as the country with the largest after China, food is what you must address.
Because here, you are able to get security, you get sufficiency, and then you are able to also create jobs for your people and also build, linkages with the industrial sector.
So, the benefits are just so many that we must find a way of ensuring that this country, and we have the landmass, we have the space, we have the people, we have the weather, across the country, there are various climatic conditions we have, to take advantage of the various food items we have.
We import so much from Ukraine. What is the size of Ukraine that we are so dependent on? Ukraine is at war, and yet, it is able to export. We are not at war, and we can’t even produce to meet our needs.
How Livestock Ministry can address farmers/herders conflicts
The federal government announced the creation of a Livestock Ministry. How do you expect it to address the perennial problem of herders-farmers clashes, which have affected, very negatively, food production in the country?
The issue of the farmers-herders conflict has been with us now for many years. And in the last administration I think it went almost to the rooftop.
Like somebody said, a lot of our farmers now, who should be on the farm, are in IDP camps, producing nothing, not contributing to meet food demand. That is a shame to the system, it is a major loss to this system.
So, I believe that the creation of the ministry was an outcome of a committee that was set up. It is good it came out of a process. But it should not be for the purpose of just expanding bureaucracy.
We need the whole components of agriculture, be it crop farming, livestock, forestry, fisheries. There should not be any reason we are not self- sufficient or even export from all the components of the sector.
We were doing that in the 1950s, in the 1960s, when there was no oil, there were not all of this, rent-seeking and the non-decisive art of our economy, Nigeria’s agriculture was doing well, the manufacturing sector was doing well.
And that was why in 1960s, our per capita GDP was twice that of China. We had all of these prospects. There is no reason why we should not be net exporting livestock and all those leathers that were being used, there were factories that were producing leather in Nigeria. Leather was a very important component of the manufacturing value chain.
Government should appoint people based on their competence to ensure that they deliver.
How can Nigeria effectively tackle the high inflation rate?
You know, the inflation rate in Nigeria is one of the highest in the world. I think we are 8th in the world, either 10th in the world, 3rd or 4th in Africa. It’s a major problem because inflation dispossesses you of the value of your resources and a lot of people are suffering from that.
So, to tackle inflation, we must understand what are the driving forces of inflation in Nigeria? That is very important because we must know what drives it in order to then know what medicines to apply. So, CBN has a one view of managing inflation. Consistently pushing rate up, and it’s not helping us.
The monetary authorities see inflation as a liquidity problem and once there is a liquidity problem then you hike interest rate.
CBN must do an evaluation of the impact. CBN must be able to tell us this policy that they are pursuing, what are the economic costs of these policies because we are not asking that question.
It’s not just sufficient to say, okay, look, you are ramping up the rates such now that the interest rate in Nigeria is the 10th highest in the world. How does investment take place? How can manufacturing sector cope and create jobs? How will this affect employment?
It has been clear that the greatest cause of inflation is food, caused by insecurity because farmers have been driven out of farms to IDP Camps.
So, there is no amount of liquidity squeeze that can solve that problem. There should be a handshake between the monetary and fiscal authorities.
Peoplesmind
