MR. PRESIDENT, PLEASE, PLEASE, RECONSIDER! 25092006

I am aware that to see reason in the observations expressed in today’s piece will be tantamount to an open admission of failure of government reforms over the past seven odd years.  I am aware also that sincere friends of Baba, who have the courage to tell him the whole truth must certainly be an endangered specie in a nation dominated by a self-serving elite of sycophants, whose prime motivation is self-enrichment!  

We were assured that deregulation will bring in its train a series of attributes, which would free the economy, reduce wastage, promote efficiency, sustain access to product availability, increase competition and bring about eventual reduction in pump pries with salutary trickle down effect on the rest of the economy!

Inspite of public protests, the government had its way, and the downstream sector was deregulated; toll gates were abolished to compensate for the expected initial surge in pump prices; never mind the inequity for most Nigerians, who hardly travelled from home and had never before borne the cost of a toll gate fee.  But certainly, the most important question is whether or not Nigerians have now realized the touted benefits of deregulation!

Well, apart from Lagos, the problem of supply distortion is still very much with us, as the supply of petrol to most stations outside Abuja and Lagos is still intermittent and it is commonplace to find the ‘no fuel’ sign in one out of every two stations throughout the country.  Have prices come down?  No way!  If anything, prices have spiraled upwards by more than 33% since deregulation.  Are prices uniform across the country?  No way!  Price divergence may range from 10-25% depending on your location.  Have petroleum product prices reflected a realistic profile?  Well, here, matters appear turned on its head, as the poor now pay well over 100% for kerosene than for petrol, which personal luxury cars consume; not only that, the poor now waste considerable time searching for the scarce commodity!

Diesel fuel, which is a less refined version of PMS should expectedly, be less expensive, but the price of diesel, which is used by employment generating Small and Medium Enterprises (SMEs)and other industrial concerns is about 50% more expensive than PMS!  Most SMEs survival has become threatened by the inordinate price of diesel in their cost profiles and the labour market has been the worse for it!  The expectation that oil marketers would make significant direct imports of fuel products in contrast to total dependence on NNPC has been largely unfulfilled.  So, what can we now honestly claim to be the benefit of deregulation, as the matrix on ground appears designed to further impoverish the poor?  Will somebody say I am wrong, please?

The banking consolidation is another area which this administration identifies as a successful reform.  The main objectives of consolidation was to create bigger banks, which would have more resources to lend to industries, especially SMEs, which are the engines of growth in progressive economies worldwide.  It was also expected that consolidation would lead to efficiency and competition should bring down lending costs so that industry and commerce will grow!  Yes, consolidation means that the 25 or so ‘mega’ banks have more cash, but has this trickled down to jumpstart the SMEs?  The answer, of course, is no!  Even the special SMIEIS fund of 10% of profit of banks before tax, remains largely undisbursed in the vaults of the banks.  Yes, consolidation has made inter bank transactions more easily manageable in terms of the reduced number of players, but has this made customer service more efficient or reduced lending costs for entrepreneurship?  Again, the answer is a capital NO!

The CBN recognizes that banks still engage in rampant unwholesome activities such as foreign exchange round tripping and insider trading;  indeed, the old field of almost 90 banks has been whittled down to a cartel of 24 big  banks.  The truth that is gradually becoming obvious is that ‘big’ is not necessarily more efficient or less fraud inclined.  As if in recognition of this fact, and the role of smaller banks in providing a full complement of banking services, the authorities have turned full circle and begun to promote the establishment of smaller community banks and micro finance outlets to serve the needs of other less endowed but equally significant stakeholders in the economy.  Perhaps in retrospect, our monetary authorities should have provided an enabling environment for the erstwhile 90 or so banks to find their own niche as a result of normal market dynamics rather than a summarily forced measure, which has exacerbated the problem of unemployment in the country and continues to drain available cash in the system towards business in high yielding treasury bills and bonds offered by the government as against investment in the real sector!

The Daily Independent (pg A4, September 12) reported the quarterly visit of the National Economic and Intelligence Committee to Mr. President.  At the meeting, the President “commended the convergence of the official and parallel market exchange rates and the appreciation of the naira for the first time in 20 years”.  The President also boasted that Nigeria now has enough foreign reserves to pay for all our imports for the next 36 months, and cautioned that we should not fritter away our reserves as in the past.

Well, let us take a closer look at this self adulation; even the ubiquitous market women would wonder at this chest beating, which contradicts normal trading expectations.  How come, she would ask, that the naira which exchanged for about N85=$1 in 1993, when we had, according to Mr. President, only $3.7bn which could take care of less than four months import, today exchanges for N128.5=$1 at a time that we have over $40bn reserves and imports cover for over three years?

Other more enlightened Nigerians will also wonder at the high cost we are paying to bring about rate convergence.  Generally, the patrons of the black market are mainly smugglers of contraband and agents of capital flight from Nigeria.  Under the current dispensation, the CBN will supply $200,000 twice a week to any Bureaus De Change (BDCs) that requires it for onward sale to mostly smugglers and agents of capital flight, who cannot access official dollars, which require documentation and use verification. Now, if 1000 BDCs take up their weekly allocations, then the CBN would have funded nefarious activities which are injurious to the economy with almost $1.6bn every month; i.e. probably more than the dollar supply to the real sector!  It also seems odd that a country like S.Africa with only $20bn reserves (with four months imports cover) has a rate of exchange of 7 rands =$1, compared to our N128=$1.

Needless to say, the underlying cause of the failures of above government reforms is the unilateral conversion of the nation’s dollar earnings to naira every month before sharing the distributable pool to the three tiers of government.  When this regressive and retrograde practice ceases, all the above reforms would take on a progressive outlook and Nigerians will smile again.