After spending three hours on a fuel queue on Sunday, at the end of which I bought fuel at N150 a litre, I could not but reflect on two phases of our current conditions.
Under the Buhari administration, the hardships have worsened. It took me three hours on Saturday to complete a journey that would ordinarily have set me back by 45 minutes. A succession of vehicle tailbacks out of filling stations had narrowed most roads, turning commuting in Lagos into a trial by ordeal. In conversations in the new “fast casual” communities that arise (and rapidly disperse) around the queues, the major pliant is of a new poverty.
Each commentator has nuggets of information supporting the fact of either rising prices and/or how poorly a recently laid-off colleague is presently faring. Anecdotal evidence thus supports the fact that Arthur Okun’s misery index is rising in Nigeria. Add to the toll on the economy from the time spent on fuel queues and in traffic as a result of fuel queues, and it is obvious how wretched we have become in the past one year.
Yet, this immiseration was a condition foretold. The Jonathan administration had run the country so cavalierly, for it to have been otherwise. Falling global commodity prices only compound the problem. A problem exacerbated now by the preference of the incumbent administration to bury its head in the sands.
Nowhere is this proclivity more pronounced than in the central bank’s management of the nation’s foreign exchange reserves in defence of a “strong naira”. The CBN has continued to fuel the fiction that the exchange rate in the country is US$1/N197 – N199. Priority sectors of the economy, i.e. oil exporters, and any other economic actors the apex bank thus describes, putatively obtain their foreign exchange needs at this price.
The rest of us end up in back alleys where we complete foreign exchange transactions in the so-called “parallel markets”. The folly of this policy is not just that all prices in the economy have been marked to the “parallel market” rates. Even the CBN grudgingly admits a pass-through from foreign exchange prices to domestic prices. Nor is it especially leaden-headed that monetary policy encourages a situation where the arbitrage space between the CBN’s window, and rates at the parallel market might encourage economic entities with access to the CBN’s foreign currency window to trade their allocations on the parallel market.
All of these and more. We cannot forget that the CBN’s main argument for keeping the external price of the naira low (even as demand for the domestic currency falls ever short of its supply) is the need to keep a lid on domestic prices. So we offer a subsidy to those who are lucky enough to get their foreign exchange supplied by the apex bank, when we could have sold dollars from our scarce foreign reserves at the parallel market rates. It is doubtful how disruptive this would have been to domestic prices given that transactions in the economy are already marked to market. It is uncertain too, although there is considerable room for speculating on, how much succour such a policy would have had provided the exchange rate of the naira, especially if monetary conditions were simultaneously tightened to reduce naira liquidity.
But one fact is beyond reproach: if the apex bank had been bold enough to drive its policy options through the market, government’s naira budget would have been healthier. For every oil export dollar earned, government would have had more naira to hand, indeed the CBN would then have used its intervention in the foreign exchange markets to address naira liquidity worries.
We failed to do this, either because the Buhari administration fears the markets, does not understand the price mechanism, or has too high a conceit of its own competences. It is at this point that the dismal conditions inherited from the Jonathan administration turn tragic. As it has in the downstream sector of the oil and gas industry.
Our biggest challenge today is to free markets across the economy. Four sets of reforms are central to this process. The first is to build new infrastructure: roads, ports, inland waterways, intra-city metro lines, broadband cabling of Lagos, Abuja, Ibadan, Port-Harcourt, Kaduna, and Kano. Second is to ease the cost of doing business in the country. This is as much about removing barriers to exit and entry in specific industries, as it is about culling the profusion of government ministries, departments, and agencies whose authorisation one must have in order to start and remain in business in the country. The third is to improve our criminal justice system in order that contracts may be more freely entered into, and the trust deficit across the economy, a major let on business, may be reduced. And then there is the burning need for investment in school, healthcare services and domestic research and development facilities that collectively contribute to boosting total factor productivity in the economy.
Truth is that these have been our biggest challenges since we first exported crude oil from the Oloibiri field in February 1958. Each external shock has had us pay lip-service to the need to position the private sector as the domestic economy’s growth engine, improve the public sector’s competence as a regulator of increasingly market-driven sectors of the economy. Only for us to backslide as oil prices recover.
To the Buhari administration’s credit it clearly is not persuaded by this narrative. A neo-Soviet weltanschauung underpins its preferences: for the resuscitation of a national airline; and the national oil monopoly company becoming the main player in the downstream oil and gas sector.