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Monday, October 31, 2011

JONATHAN'S SUBSIDY REMOVAL: GOVERNMENT CONCERN ABOUT EFFICIENCY VS CITIZENS WORRIES ABOUT HARDSHIP


      Economics, the so-called dismal science, is full of situations of trade off (the choice between contrasting alternatives) where you are told you can have one but you cannot have the other or rather the two at the same time. Examples of these trades off abound in economics: inflation and unemployment, the price of bond and interest rate, higher price and lower demands and so on and so forth. But the most prominent trade off is the one between efficiency and inequality. Conventional Economists believed that you cannot start with a situation of efficiency and equality and try to maintain the two at the same time. This is to say that you can decide to have efficiency and forget about equality for that duration of time or the vice versa. Efficiency here means increase in productivity, output, profits and economic growth, while equality means reduction in the gap between the rich and poor, increase in total welfare and reduction in poverty. The current controversy about subsidy withdrawal is an example of these trades offs, where government wants to remove oil subsidy for efficiency reasons while the citizens are kicking against it for equity and welfare reasons. Let begin by looking at the government efficiency concern first. There is wider believed that the billions of Naira government is spending annually to subsidize the pump price of oil is just a wastage of money that is not going to the target group of people. There are evidences that the major beneficiaries of oil subsidy are oil importers, distributors, and filling stations across the country. Those who share this view believed that the subsidy is only helping to keep the cartel of oil importers and smugglers in the market. Smugglers from Nigeria and their associate from across the border in Niger, Cameroon and Togo have for years frustrated any effort Nigerian authorities made to supply cheap and abundant oil to its people by moving the cheaper stock to the neighboring countries where the price is higher. 

 
       The other point put forward by the advocates of no subsidy for the removal of subsidy is that, for Nigeria to have its own private refineries the price of oil must be increased just like it has been argued for the power sector. This it is argued is the only way that a private refining business can break even and therefore become sustainable. The staunch advocates of this line of thought believed that increasing the price of fuel in Nigeria is a phenomenon that is inevitable whether thus opposing it like it or not; because in order to attain efficient level of production of the stuff locally domestic price must converge towards international price. One other argument look at the issue from the direction of government fiscal position. Looking at the present precarious position of the government revenue and expenditure, it is argued that it is not wise to continue to pump over two trillion Naira annually to subsidizing oil consumption which can at best be removed. It has been argued that these trillions of Naira should have been spent to develop the most needed infrastructures in power, transport, health, and education sectors. It is argued that our Northern neighbor Niger that discovered oil of recent, are planning to increase the price of oil in order to make their soon to be open refinery (built by Chinese) sustainable. And, it is argued that their price increase will push the rate of smuggling of the black stuff from Nigeria, thereby helping to aid the scarcity of oil in the country. 

 
        All the above points notwithstanding, the one time lump-sum increase in the price of oil as advocated by those in the government contrary to more rational incremental increase that should be carried out over a period of time is unwise and will help to make things difficult for this administration. To increase the price of oil by over 100% at once will make life more difficult for the average citizens and will not help this government efforts to create more jobs and control internal security. Instead of higher increase, something like 10 to 15% increment should have been looked at, to be implemented at intervals of one year, until the time the price will be reasonable enough to allow for independent local refining facilities to take up, and at the same time not high enough to hurt welfare of the citizenry. We should not forget the fact that in a country like Nigeria oil subsidy removal alone will not help bring efficiency in the oil sector. Of more importance than subsidy removal is the fighting of corruption that has bedeviled the sector for some time, as well as removal of bureaucracy and red tape. The oil sector in Nigeria needs overhauling for efficiency to be entrenched, and normalcy to return to the sector. A situation whereby appointments to the oil sector are not done on merit but instead done using the yardsticks of nepotism and Godfatherism will continue to help the existing cartels that remain the main stumbling bloc to reforms in the sector.

Sunday, October 16, 2011

JONATHAN JOB CREATION AGENDA: MATTERS ARISING

          A visit to the web portal created by the National committee on job creation of the National economic management team tells one that 12 million job opportunities are needed now. It then asked you to contribute ideas on how jobs can be created. It goes further to tell you that 'together we can draw up a roadmap for gainful employment'. But, at no place did it tells you about how much the committee is contributing and how many jobs it created since coming into being. The truth of the matter is that the committee did not create any job apart from the few that member companies’ (like Dangote) created. The history of Nigerian government noise making about creating jobs did not start with this administration and certainly will not finished with it. Since the returned to democracy in 1999, the government of Obasanjo (for example) has promised to create millions of jobs as well as pulled millions out of poverty. But at the end, it turned out that Obasanjo government has failed to deliver on it promise and instead created millions of poverty stricken families. The number of unemployed in Nigeria has been increasing since then, not showing sign of coming down despite the noise from the present administration and the one before it. Increases crime rate and incidences of kidnappings are proves of government failure to create jobs for the teaming youth roaming the streets, particularly the unemployed graduates with nothing to do other than revert to thievery. In an economy crippled by lack of electric power, bad roads, insecurity, high interest and exchange rates, and lack of foreign investment, it beat imagination to talk of creating jobs out of the blues. 


      Sometimes Nigeria is good at ‘copy-copy’. Because the current passion among the developed and emerging economies of the world (after the devastating global economic Tsunami of 2008) is job creation, Jonathan government too do not want to be left behind. Hence, the current job creation news stories, even though those behind it knew that no meaningful jobs will be created at the end. In a recent special report by the Economist magazine of London on unemployment around the world (The future of jobs, September 10, 2011), the author argued that due to the current nature of unemployment globally, the number of jobless people is going to remain high in rich countries and falls in poor countries. Indeed this is what is happening in places such as China, India and even Vietnam. The survey goes on to look at the job markets in the so-called BRIC economies as well as in Sub-Saharan Africa, Middle East and Latin America. On how government can help create jobs, the survey argues that it should set its policies right and help in creating entrepreneurs and start ups. In no place did it mention throwing money at such projects like National ID card (which at the end will not be produced in Nigeria) or creation of zombie ministries and parastatals that end up eating the government budget. Some of the high jobs creating sectors like manufacturing, agriculture and mineral resources that help countries like Brazil and China to create millions of jobs are dead in Nigeria. While the survey is of the view that unemployment is going to fall in poor countries, here in Nigeria we are stuck in a situation of rising jobless rate created by poor government policies. The information technology industry that is credited with creating millions of jobs in India and the US is nowhere nearing becoming a reality in Nigeria. Instead, we are left with an arm load of Yahoo-Yahoo boys who continue to batter the image of this country around the world. 

  
      While our next door neighbor (Ghana) has created million of jobs in the last few years as well as poaching Nigeria talents and companies, we were left with schedules of conferences and tea parties on how to create jobs. Of course, Ghana has put in place most of the things needed to create jobs, hence the successes in their job creation programs. For example, their democracy is working not like ours known for all kind of rigging, they have electric power in abundance, better roads, political stability as well as better macroeconomic fundamentals. Look at Kano, for instance, out of over one thousand industries established in the state only about hundred are working. But instead of coming to Kano’s Sharada, Bompai or Challawa industrial estates to see for himself our President was busy holding conferences in his Aso rock villa on how to create things that did not exist? Mr. Jonathan and his economic management team shall be informed that the jobs he promised since coming into power are nowhere to be filled.  To a jobless Nigerian on the street, all these talks about creating jobs are failed dreams. And if you were in doubt, ask jobless Nigerians in the labour market. But despite the grim statistics, there are hopes. If Jonathan will focus a bit more on generating power, building of good roads, provision of security, creation of genuine democratic space as well as put the enabling macroeconomic environment in place the sky is the limit for his job creation agenda.