By the time President Muhammadu Buhari took over power on May 29 last year, it was glaring to the discerning that the economy was tottering and that urgent decisions needed to be taken on two critical fundamentals: subsidy payments for PMS and the exchange rate of the Naira. What particularly made decisions on the two issues compelling was that they both have such economic and political implications that if nothing was done, the matter could be forced out of the hands of the federal government.

Since the Nigeria National Petroleum Corporation (NNPC) makes subsidy payment a first-line charge from the federation account (even when the idea is not supported by law), it means that the 36 states and 774 local governments were contributors to the subsidy fund. And since the remaining sum being shared between the three tiers of government is in Naira, it also means that what is due them would also be dominated in the prevailing official exchange rate. Against the background that many of the states are in dire straits, it is difficult to imagine that such policy choices that practically reduce their earnings from the federation account by more than 50 percent would endure.

Besides, in an environment of acute foreign exchange shortage occasioned by the fall in oil prices, fixing the exchange rate and then allocating forex to a select few with discretionary powers left in the hands of some Central Bank of Nigeria (CBN) officials is an open invitation for corruption. No matter the good intention of the operators, the CBN forex policy endorsed by this administration (which leaves room for a scandalously huge arbitrage) is nothing but another version of subsidies and product allocations in the oil sector, with all the inherent abuses.

Unfortunately, on both issues, we were told that once we dealt with corruption, our problem would be solved. Well-meaning interventions, including by two former CBN Governors, were cynically dismissed. On subsidy, specifically, media aides parroted President Muhammadu Buhari’s position that the arguments of those calling for its removal “lacked depth”. Invariably, those who were trying to help the administration to solve two critical problems were made to look as if they don’t care about the ordinary Nigerians or/and that they are simply agents of some foreign institutions with the usual culprit being the International Monetary Fund (IMF).

The point that was missed is that there is a clear distinction between subsidy for the poor and rent for the middle man. What we have had in Nigeria over the years is nothing but a carefully orchestrated scam that was never really well thought-out and has been so poorly implemented that the real beneficiaries remain the fuel merchants and their collaborators within government, not the ordinary Nigerians. That explains why, in one year alone (2011), a huge sum of N1.7 trillion in the name of fuel subsidy (more than US$12 billion at the then prevailing exchange rate) was practically shared among some fat cats in both the private and public sectors. That corruption scandal, documented in my most recent work, “The Inside Story of the Fuel Subsidy Scam” (original copy now available on olusegunadeniyi.com) remains the biggest in our recent history.

In the face of a cartel that has perfected the art of making mockery of every government by extracting humongous rent for a commodity only a few Nigerians get at the advertised price, it was difficult to see how this government would reform the subsidy regime. Well, after initial resistance, based on a self-deceiving posturing, the federal government last week announced a hike in the price of PMS, up from N86 to N145 per litre.

According to a statement by Minister of State for Petroleum Resources, Mr Emmanuel Ibe Kachikwu, “the main reason for the current problem is the inability of importers of petroleum products to source foreign exchange at the official rate due to the massive decline of foreign exchange earnings of the federal government.” He, however, added: “We expect that this new policy will lead to improved supply and competition and eventually drive down pump prices.”

Despite spending billions of Naira trying to turn around some obsolete refineries that have all seen better days, importation still accounts for about 95 percent of our current fuel supplies. And because of the forex palaver, aside the uncertainties about subsidy, NNPC has been bringing in majority of the fuel cargoes – using its swap mechanism and also relying on its dollar receipts. I have it on good authority that the NNPC has also tried to make dollars available to players in the industry based on their performance under another desperate but opaque formula: If you helped the situation in the first quarter by importing, you were likely to get more support by way of forex and allocations in the second quarter. But since this is also based on discretion, there are questions around its implementation.

To be fair, Kachikwu inherited a thoroughly mismanaged NNPC and—if you discount the ‘I-am-no-magician’ gaffe—he has not done badly under the most difficult situation he now finds himself. At some point, Kachikwu even made spirited efforts to get the International Oil Companies (IOCs) to support fuel importation by selling dollars to the majors and some of the independent importers who have performed well in terms of imports. But even that effort, from what I gathered, has had limited success. And with all roads seemingly closed, the federal government was last week forced to jerk up the pump price of PMS by as much as 70 percent!

In his explanatory note titled “The Fuel Pricing Debate: Our Story”, Vice President Yemi Osinbajo argued that it was “not a removal of subsidy” but rather “a decision meant to allow independent marketers and any Nigerian entity to source their own foreign exchange and import fuel” because of “a foreign exchange problem, in the face of dwindling earnings” that may not even be enough to pay for one single consumption item: PMS! “We expect that foreign exchange will be sourced at an average of about N285 to the dollar, (current interbank rate). They would then be restricted to selling at a price between N135 and N145 per litre,” he added.

There are two issues here. The first is that of law while the second speaks to commonsense. As the federal government has done in the power sector at a time the Nigerian Electricity Regulatory Commission (NERC) has no governing board, the statutory role which belongs to the Petroleum Products Pricing Regulatory Agency (PPPRA) is now being performed at the Villa because the agency has no board. Yet, as my colleague, Kayode Komolafe, asked yesterday, what exactly does it take to constitute statutory boards?

Now, to commonsense: What I find rather curious in Osinbajo’s follow-up statement is the claim that the federal government is not devaluing the naira after publishing a template that tacitly acknowledges an exchange rate of N285/$1 for those who would import fuel. At a time we need a consistent foreign exchange policy that will encourage inflows and support the real sector, there is so much uncertainties in the market. Yet this idea that we can hold the line in the face of dwindling forex earnings and a vanishing foreign reserve is a fallacy as we can see with the crashing value of the Naira in the black market.

As things stand, some connected marketers will get their forex at N200/ US$1 to part finance petrol imports, some at the new N285/ US$1 announced by Osinbajo while majority will make do with the black market rate that is now steadily nudging towards 400. Since we are talking of allocation of something that is very scarce, in a country President Buhari himself told the world last week is “fantastically corrupt”, it is the politically connected and the crooks who know how to play the system that will get the cheaper dollars.

To the extent that the volume of foreign exchange at the black market may not be large enough to cater for the importation of PMS and diesel, then we are going to see a mix of CBN dual exchange rates (N200/ US$1 and N285/US$1) as distinct from that of the black market rate of N340/ US$1 (as at yesterday). Technically, we are now talking of three exchange rates in one economy. But the sad part is that regardless of the rate the marketers get the dollar, if experience were any guide, they are still coming to sell the fuel to us at the black market rate. So, it is the people on the street who will still bear the brunt of this unclear policy.

Before going further, I must make it very clear that I support the full deregulation of the downstream sector and I also believe that the subsidy regime has not served the ordinary Nigerians. While that has been my position for more than a decade now, we are still a long way from full deregulation of the downstream sector though we may be in some sort of transition to it. If the administration is committed to going the full hog, as it should, a lot has to be done to ensure a level playing field, improve the product quality, work towards accurate measurements as well as the enactment of anti-trust legislation so as to prevent collusion and price fixing.

Let us be very clear about it, removal of subsidy or increasing the pump price of petrol (whatever the federal government has just done) comes with its own challenges. But what we are now paying for are the wrong choices we have made over the years. The situation is compounded for the ordinary Nigerians by the fact that this sacrifice is not being shared since members of the political elite still retain all their privileges at a time most of our citizens find life very difficult.

Therefore, President Buhari cannot treat the fuel and forex palaver in an isolated manner. They are part of the larger problem in the economy now compounded by the attacks on pipelines and other oil and gas facilities in the Niger Delta. “Because of the incessant attacks and disruption of production in the Niger Delta, as I talk to you now, we are now producing about 1.4 million barrels per day,” Kachikwu told the House of Representatives on Monday. “We were at 2.2 million bpd but we have lost 800,000 barrels,” he added. This is a serious issue that goes to the heart of our current problem as a nation.

In a risk warning titled “The shrinking of the forex cake in numbers”, sent to its core investors on Monday, the First Bank of Nigeria Capital Limited (“FBN Capital”) operating under the brand name FBNQuest, wrote: “We can see from today’s chart how the slide in the oil price has brutally exposed Nigeria’s Achilles heel. Forex inflows at the CBN in January amounted to just US$1.30bn, which represented a y/y decline of 46.7%. We could point out that the oil price has since recovered by about US$15/b but also note that sabotage and disruption in the Niger Delta have picked up to a level not seen since the period preceding the Yar’Adua amnesty.”

According to the report which I got from a top industry player, while forex supply has crashed with the oil price since mid-2014, demand has eased, with the FBN analysts concluding thus: “The CBN is not the principal source of forex. Autonomous sources provided US$4.08bn in January, compared with the CBN’s US$1.30bn, and would have included remittances of about US$1.80bn as well as oil exports generated by the private sector. Comments last week by the vice-president, Yemi Osinbajo, and the announcement by the NNPC of a new authorised price band for sales of petrol/gasoline have fuelled speculation that a devaluation of the naira exchange rate may be coming. We are not holding our breath but reiterate our warning about the sizeable gap between forex supply and demand…”

What the foregoing says very clearly is that we are dealing with a serious problem that goes beyond the pump price of PMS. The latest National Bureau of Statistics (NBS) report that annual inflation in Nigeria rose to a near six-year high of 13.7 percent in April, there are fundamental issues in the economy that will have to be addressed together. According to the NBS, the higher inflation rate in April indeed reflected increases across all sectors, with petrol prices and electricity tariffs major factors. March inflation was 12.8 percent. Food prices, which account for the bulk of the inflation basket, rose 13.2 percent in April, up 0.4 percentage points from March, the bureau said on its website.

I don’t know how economists calculate their baskets but I know what my wife tells me about the skyrocketing prices of virtually all necessities in the market, including that of ‘ponmo’! Since we are a people who consume things made by (and in) other nations, the fall in oil prices has exposed our vulnerabilities on all fronts. Now that the bubble has burst, it is time for us to face reality but that is no sweet music to the ordinary man on the street.

Going by his promise, President Buhari will next week Sunday (May 29) name those who have refunded to the treasury stolen public funds and how much. That is not only commendable but very helpful for the administration as it will be the best way to tell Nigerians where we are coming from so that they can appreciate the challenges that the administration is grappling with. But that cannot be the end of the story. After regaling us with the sordid tales of our past, the president must also be able to give us an idea about our future by telling us where he is taking Nigeria.

In a recent interview, the president said he came to power at a wrong time, apparently because of the dwindling oil prices. Addressing members of the Nigerian community in the United Kingdom in the course of his London visit in February, President Buhari said: “Why is it that it is when they have spent all the money, when they made the country insecure that I returned? Why didn’t I come when the treasury was full? Oil price was over $140 per barrel (at a period) and when I came, it slipped down to $30. Why me?”

I beg to disagree with President Buhari. Contrary to what he thinks, there can be no better time to lead Nigeria than a period like this. For sure, the challenges are enormous but so are the opportunities to make a difference. History is replete with leaders who met their countries in shambles yet made considerable progress within a short period. The challenge, however, is that while the president can plead for our understanding and patience, he must also come up with a clear direction on the way forward. And with him leading by example, political office holders within the executive and at the National Assembly (especially the latter), must also begin to trim down on their privileges.

Incidentally, just on account of his much joked-about body language, President Buhari has achieved something significant: He has shown that the era of easy money is gone in Nigeria and now we can begin to separate genuine business people from the cowboys who have in recent years invaded the space, feeding on our collective misery, despite not having any visible means of livelihood. Fortunately, many of those characters can no longer sleep easy.

Last week, the “Los Angeles Times” reported that Mr. Kola Aluko, one of the emergency billionaires created by the last administration, has sold his Bel-Air, Los Angeles mansion, for $21.5 million, after taking a $3 million loss. Aluko reportedly purchased the property in 2012 (note that year!) for $24.5 million. Yet until the Atlantic Energy abracadabra some six years ago, nobody knew anything about this 46 years old chap who now owns multimillion Dollar property all over the world aside other luxuries like private jets and yachts.

While President Buhari (helped by falling oil prices) has drawn a curtain on the old Nigeria in which wealth had no correlation to work, he needs to take us further. Nigerians are incredibly talented and majority of our people are hardworking. We are also a people that can laugh at our problems while challenging ourselves in difficult moments. That is why, however tough the times may seem today, I won’t bet against Nigeria rising to fulfill its destiny. But President Buhari must lead the charge.

On 27th March 1796, legendary French soldier, Napoleon Bonaparte, arrived at Nice to meet a dispirited army. As he reviewed the troops, he gave a stirring speech that changed the course of events: “You are ill-fed and government owes you much and can give you nothing. The patience and courage you have shown are admirable but they gain you no renown. No glory results to you from endurance. It is my intention to lead you into the most fertile plain in the world. Rich provinces and great cities will be in your power; there you will find honour, glory and wealth. Will you be wanting in courage and perseverance?”

In our country today, life has become very difficult for majority of the people and things are not likely to get better anytime soon. While President Buhari is not the cause of our woes, it is now his responsibility to take us out of the current predicament. On May 29 when he addresses the nation on how we have come to this sorry pass, he must also inspire us to believe. To do that, he needs to go beyond the current ad-hoc approach to economic management by putting together a strong team that will come up with bold initiatives to revive the productive sector and put Nigerians back to work.

•This piece by Adeniyi (shown in photo) originally appeared in his column “The Verdict” in today’s edition of ThisDay. Adeniyi can be reached via olusegun.adeniyi@thisdaylive.com

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