Macro to micro… who will tell the president?, By Wole Olaoye

When pounded yam has lumps, you re-pound the yam to achieve the required consistency. Away from all the contrived obfuscations of contemporary economic analysis, we ought to be able to honestly re-evaluate where we are as a country, where we ought to be, and how we might navigate our way towards the desired destination.

The village square of public opinion is so bedevilled by baleful intolerance in this campaign season that it is becoming increasingly difficult to spar with competing ideas, as is the wont of thinking people. However, despite the risk of being misunderstood, we must keep at it because the alternative — standing akimbo while our country wastes away—is simply unacceptable.

Gains and Pains

As with everything in life, we have some gains, and we have some pains. How can we reinforce the gains side-by-side with ameliorating the pains?

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The Bretton Woods institutions—the International Monetary Fund (IMF) and the World Bank—have acknowledged significant progress in Nigeria’s macroeconomic indicators following major structural reforms, including foreign exchange unification, the elimination of fuel subsidies, and monetary tightening. I am on record as having declared that if I had to buy a used car, those two institutions would not be on my shortlist. However, I am not averse to taking an objective look at their analysis and repounding it to suit our economic palate.

Both institutions emphasise that while macroeconomic fundamentals have visibly strengthened, there remains a critical gap between top-line statistical gains and daily living conditions for average households. That is what all the fiery debates in the media over the economic performance of the Tinubu administration have been all about.

We have made some verifiable macroeconomic gains. But our people are hungry, despondent and economically flagellated. What can we do to give immediate succour to the teeming masses of our people across the country?

I am going to repeat an idea I’ve championed in the last two decades, but which no government has bothered to accord even a nodding acknowledgement. Let me honestly declare upfront that my thesis is based on the assumption that if we can bring down the pump price of petroleum products by 40 to 50 per cent, the economy of most households will take an upward swing. Because everything relating to the local economy is directly impacted by the price of petrol, leaving such a crucial matter in the hands of mythical market forces is tantamount to an abdication of responsibility.

I propose that President Tinubu should tweak the current arrangement which imposes a punishing price regime on the people. I am not unaware of the argument that the benefits currently being seen at the macro level will eventually percolate down to the people at the micro level, but, sorry, I would rather go with the argument of John Maynard Keynes, who, in his 1923 book, A Tract on Monetary Reform, famously declared that “in the long run we are all dead.”

Keynes’ contention was that waiting for the economy to fix itself naturally over a long period is useless when people are suffering right now. He argued that governments must step in with active policies during economic crises instead of waiting for a distant “long-term” balance. There is no enjoyment beyond the grave.

Presidential Intervention

I suggest that the president should personally take charge of the urgent measures that need to be taken to achieve quick results in easing the pains of the people. To start with, we must consider the physical reservation of between 400,000 and 450,000 bpd of crude oil for local production as inviolate. Supplying the Dangote Refinery and the modular refineries with 450,000 barrels of crude oil per day (bpd) settled in naira would directly stabilise and exert downward pressure on domestic petrol pump prices. Crude oil feedstock accounts for 80 per cent–85 per cent of total refining production costs. Paying in naira removes the need to source scarce foreign currency (USD) from the FX market, insulating local fuel prices from sudden depreciations of the naira.

Refining locally eliminates international sea freight, port handling charges, import tariffs, and offshore logistics fees that apply to imported refined fuel or foreign crude purchases. Nigeria’s daily petrol consumption averages around 33 million to 45 million litres. A steady allocation of 450,000 bpd yields over 50 million litres of petrol daily (alongside diesel and aviation fuel). This volume fully satisfies national demand and eliminates scarcity premiums charged by marketers.

One of the biggest scandals of our current system is the sight of Dangote Refinery importing crude oil from the US only to sell petrol to Nigerians in naira. It is stultifying that all the celebration of having one of the biggest state-of-the-art refineries in Nigeria was all in vain. How do we want other potential investors to react to our persistent clamour for higher foreign direct investments when our own home investors are being frustrated at every turn?

Direct allocation of crude to local refineries will allow them to pass cost savings downstream, lowering pump prices closer to the actual cost of domestic refining rather than international landing costs.

Counter Arguments

A counter-argument to this proposal is the fact that supplying 450,000 barrels per day (bpd) to the Dangote and other local refineries in Naira would put pressure on NNPCL’s USD-denominated debt commitments. Selling 450,000 bpd in Naira means NNPCL forfeits foreign exchange receipts on roughly a third of Nigeria’s daily crude production of about 1.35–1.5 million bpd.

It could also be argued that at about $75/barrel, 450,000 bpd represents approximately $33.75 million daily (or ~$12.3 billion annually) that will accrue in naira rather than USD. But the pertinent question is who owns the oil? For whom is the economy designed? Every country subsidises something for its citizens.

I am not unaware of our liabilities, such as the outstanding crude-backed loans in which certain Forward Sale Agreements are tied directly to physical crude oil deliveries or USD revenue streams. Over the years, we have piled up foreign exchange obligations such as Project Gazelle ($3.3 billion facility requiring ~90,000 bpd), Project Eagle, Project Leopard, and Project Yield, which collectively commit over 200,000 to 270,000 bpd to debt servicing. There is an urgent need for NNPCL to actively restructure its crude-backed loans to free up physical barrels.

Historically, NNPC held an administrative entitlement of 450,000 bpd for domestic consumption. Under the PIA framework, the Federal Executive Council approved the supply of up to 450,000 bpd directly to local refiners (such as the Dangote Petroleum Refinery and modular refiners) in naira. Let’s make that provision real in the lives of Nigerians. The president should order that the batch for local consumption be supplied at a designated discount to further crash the pump price.

Expand the Coast

The rather reckless crude-for-cash policy of the past is a one-way street to misery. Side-by-side with the above, the government should immediately embark on developing new wells. Data from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) show that 65 per cent of discovered fields remain undeveloped or idle, with only 10 per cent fully developed and 25 per cent currently in the process of development. These undeveloped fields currently hold 3.5+ billion barrels of crude oil and condensate reserves. In addition, 52 per cent (about 37.28 billion barrels) of Nigeria’s total proven crude oil reserves are still undeveloped.

My verdict? Nigeria is too rich to be poor. The pounded yam currently being served to the Nigerian people is lump-infested. Mr President, sir, let’s re-pound the yam. Urgently.

Wole Olaoye is a Public Relations consultant and veteran journalist. He can be reached on [email protected], Twitter: @wole_olaoye; Instagram: woleola2021

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