LETTER FROM LAGOS
When in deficit, up fuel prices!
Published: 22-OCT-04
An exactitude of modern life is that even governments must balance their books, declaring their deficits or surpluses. Many move in and out of deficit and occasionally have surpluses for the lean years. Others have chronic deficits and must constantly worry about bridging
sources, as is the case in Nigeria.
This is the crux of the paralysing government-civil society
confrontations over fuel prices which have characterised the
five-year-old Olusegun Obasanjo presidency. They have intensi-
fied over the past year and could shave off about 2% of the 2004
GDP growth. The latest such confrontation erupted mid-October,
with the police allegedly killing about 25 protesters and
burying some in mass graves in northern Kaduna state.
Every government since 1981 has posted deficits, causing
economic dislocations as the central bank on the one hand
finances the deficit and, on the other, seeks to mitigate inflationary
effects by mopping up liquidity from the
banking system.
Deficits ballooned under Gen Ibrahim Babangida�s 1986-91
structural adjustment programme (SAP), from under 5% of
GDP to sometimes 10-12%. They shrank under Gen Sani
Abacha (1993-98) to just under 6%, a level generally maintained
under Obasanjo.
However, this level is unsustainable for three reasons. One, it
disqualifies Nigeria from the monetary union of the Economic
Community of West African States (ECOWAS), expected to
herald a common currency in July 2005. Two, mostly western
creditors are represented by the International Monetary Fund
(IMF), to whom Nigeria owes $34bn pending debt rescheduling
talks.
Third, local banks, which traditionally funded the government
are pressured by new capital requirements to exercise more
circumspection. Underscoring this is that public investors have
so far snubbed the government�s bonds. These leave the government
with few choices. Nigeria being a monocultural economy,
the Obasanjo government
has sought relief in the dominant oil
sector.
Like Babangida, Obasanjo has chosen fuel price tweaking,
variously called �liberalisation�, �deregulation� and �subsidies
removal�. The government�s oil holding company, NNPC,
boasts that the latest price increases, effected late September,
would net US$350mn.
This, added to the federal government�s share of oil revenues
in excess of the budget price, allocated in October, offset the
N131bn deficit in the first half, preparing the government for
November talks with the IMF and end-of-year ECOWAS monetary
union evaluation. But at what price?
With some of the lowest information and communication
technology penetration and electricity supply rates in the world,
Nigeria is a fuel-dependent economy.
Business costs rise by at least the percentage of fuel price
increases - 25% in September. Even the government�s widelyfaulted
inflation rates reflect this - 19% in August. Food prices
are almost doubling every
six months. The impact on the poor,
whom the government estimates at 80% of the 135m population,
is excruciating.
The automatic resort to fuel prices shows a fundamental
weakness of the government: an unwillingness or incapacity
to make those critical choices the economy genuinely needs.
These are about its size, structure and bearing on the
economy.
This is about the largest government in Nigeria�s history: 30
ministries. South Africa, with about thrice the GDP, has 28 - 42
ministers and 34 presidential special assistants.
Each of these personnel is housed, fed, clothed, transported,
provided with office and domestic aides, and regularly sponsored
abroad by the government, with numerous duplications of
functions.
Similarly, despite long-promised privatisation, 82 major parastatals,
including terrestrial telecoms and electricty monopolies
Nitel and Nepa, remain in the public sector with little accountability
for their expenditures.
These
structural deficiencies are the real causes of deficits.
They clearly require a strong political will to tackle. Railroading
higher fuel prices, which penalise the poor and genuine businesses,
while leaving the government to maintain its patronage
system only demonstrates its weakness and suggests poor commitment
to genuine economic reforms.
For as long as the government fails to effect the requisite
restructuring of itself by rationalising and privatising seriously,
for thus long should the perennial fuel �subsidies removal� and
its attendant economic destabilisation be expected.
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