Sanusi - Why I support the removal of fuel subsidy
Thursday, 05 January 2012 13:08Z. Source: www.elombah.com
If you will patiently read this mail to the end you will understand my position.
I won't be able to repeat everything I have said over the past few years on
fuel subsidy, but in summary; Fraud like theft thrives not only because of the
existence of greed and benefit but of opportunity. Place yourself in the shoes
of the average Nigerian "businessman" or "entrepreneur"-polite
euphemisms for rent seeking parasites.
You establish an elcee for importing 20,000MT of PMS and the PPPRA says this is
at a landed cost of N145 for example per litre. So u know that for every litre
in that vessel you will get at least N85 as subsidy. Now you have a number of
1. You can off load 5,000 MT and bribe customs and other officials to sign
papers confirming u offloaded 20k MT. Then do the same across the chain with a
paper trail showing you delivered 20k MT to a tank farm, and maybe even that u
transported it to Maiduguri entitling you to a share of the price equalization
fund. Maybe for N20-N30 per litre you bribe all those who sign the papers. The
15k MT you take to Benin or Ghana or Cameroun and sell at market price thus
making an additional "profit" of N55/ltr on 15,000MT!
2. You can just forge documents and have
them stamped without bringing in anything and collect the subsidy-PPPRA pays
based on DOCUMENTS.
3. You can bring in the fuel, load on tankers, sell some at N65N some at 80
some at 100 some across the land borders.
You can do all this and no one can catch it or prove it because somebody was
paid to sign off on docs. And with a high enough margin there is too much
temptation to be resisted and firepower for bribing officials.
When I spoke to the house of reps I told them why I was suspecting fraud. It
starts from PPPRA "allocations" based on "capacity". You will
find a company like Mobil with capacity for say 60,000 MT and a relatively
unknown name with a capacity of say 90k MT. Red alert number
Although PPPRA is supposed to give license only to marketers with a national
distribution network you see names of companies where you have never seen a
filling station in their name. I was a chief risk officer in UBA and in FBN for
many years approving loans so I know the name of every big player in every
industry that Nigerian banks lend to as these are among the biggest banks in
the country. I see names on the list I don't recognize either from portfolios.
I looked at or industry studies over the years. Red alert number
I studied the papers presented to PPPRA in a short period in 2010 (I won't tell
you how I got them!). And I was surprised that on some days over 10 vessels are
said to have discharged cargo in Lagos on the same day-clearly the same
officers stamping and "verifying" that the vessels were SEEN. Is it
really realistic that on the same day 13-15 vessels can discharge in Lagos? Red alert number 3.
Why was I interested in fuel marketing. Because the two sectors that led to the
near collapse of the banking industry were capital markets and oil marketing. I
am not giving any confidential info out as AMCON MD has already disclosed publicly
that two companies alone-Zenon and AP-owned by the same businessman owed the
Nigerian banking industry N220b. And we all saw the amount of subsidy paid to
published by BusinessDay.
So money had been taken, subsidy had been collected but loans were not repaid,
and we couldn't see the money either as product in tank farms or in fuel
stations or credit sales. So I became obsessed with trying to understand how
that industry operated and the more I saw the more I hated it and I started the
war against subsidies.
It is actually better to do a direct cash payout or add a line item to salaries
called petroleum support or transport allowance capped at say N300b p/a than to
keep paying it. It goes to pay middle men, rent-seekers and corrupt officers
and there is no amount of preaching that will stop this fraud so long as the
policy is so badly defined.
Every time oil price goes up and every time the naira is devalued and every
time the quantity of imports increases the "subsidy" and thus
the "rent" increases and there is more gravy to go round. So
every year we "import" more and more and deplete our reserves,
and the government borrows more and more to pay for subsidy and the beneficiaries
are a small group of marketers, govt officials and neighbouring countries
which get fuel without losing forex! And while a person who applies intelligence
can see what is happening you can't prove it in a court of law. If the
man says he sighted the vessel and it was 20kMT you have to accept it.
It was a year ago!
So for two years I have been convinced that this thing is a scam and that
it cannot be stopped because the entire controls have been compromised.
NNPC sells domestic crude, Pays whatever subsidy PPPRA says and then gives
the balance after JVC to the federation account. And while Fani Kayode
is right to speak up, the truth is that it was Obasanjo who first subverted
the process by allowing NNPC to make the deductions before paying into
federation account. Because once money goes into that account it is to
be shared among 3 tiers of government so strictly speaking the deductions
have always been unconstitutional as the FG was paying subsidy on behalf
of itself and States and LGs without their approval.
So yes, I am willing to take all the criticism and labels and be unpopular but
this has to stop and govt can find other ways of alleviating pain. Iran removed
subsidies and started cash transfers directly to the poor. It is up to fiscal
authorities to figure out safety nets but from where I sit and what I know this
decision is not only correct but necessary and overdue. I also confirm that I
have revealed nothing here I haven't spoken about before in public and it is
just that Nigerians never listen!
I am not complaining about insults I am used to that. I just believe that an
insult is not an argument and when people resort to personal abuse they have
run out of logic.
But to then go beyond me and extend it to my dead grandfather and his "descendants"
i.e. my late father his siblings etc I think goes beyond the pale. As a
Nigerian-and as an economist- I can take a position on economic matters and
this position is one I have had for years even before coming in to the central
I have also explained the position on several occasions and criticized government
for not doing this before. In 2010 at a public hearing in the House of Reps on
the 25% saga I alerted the nation of what I considered a potential big scam around
subsidies and urged for its removal. No one paid attention. The economics is
very clear to me. That it is unpopular is also understandable.
The British public is unhappy with Tory budget cuts. The Greeks went on riot
over austerity. Italian parliamentarians came to blows before Berlusconi was
thrown out of office. The US congress is yet to approve Obama’s tax increases.
Economic decisions-by definition-ALWAYS must involve a cost or an opportunity
cost since for them to qualify as economic they must involve a choice in
resource allocation among competing uses. An enlightened debate is one that
weighs the pros and cons of removing subsidy and continuing with it.
Removing it has costs in terms of Nigerians paying more for PMS-which by the
way is not the fuel for generators, power plants, production facilities, heavy
duty goods transportation trucks and even luxury buses.
It is fuel used by the middle class and car owners to drove around
town and from city to city not to employ workers and produce goods and services.
Diesel which is critical to manufacturing and employment creation is not
subsidized as the subsidy was removed years ago by Obasanjo. Nigerians said
nothing then because it was blue collar workers that got retrenched by
Those speaking now on the internet and facebook and twitter and newspapers are
not workers but middle class elite who use PMS in their smart cars so let's
stop all the ideological pretence. This is not about elite and masses but an
I will summarise the issues and I write as a Nigerian economist and public
intellectual not as a public servant:
1. I am a strong advocate for subsidies if they are for production and
not consumption, and if they benefit the poor and not middle men and rent
seekers. The US government subsidizes cotton and wheat farmers and Nigeria
spends its reserves importing wheat from America and keeping American farmers
employed. The OECD countries pay subsidies to cattle farmers. Today Promasidor
imports powdered milk from New Zealand and packages in Nigeria using our
foreign exchange while we have cattle. WAMCO imports milk from the UK and
adds water and tins it and calls it "production" of Peak milk.
We use our forex to import petroleum products and keep refineries and jobs
open in Europe.
Meanwhile precisely because of market distortions there can be no private
sector investment in refineries since no one can make profit selling at the
regulated price unless we are going to provide private refineries with crude
for next to nothing. Certainly no one can purchase crude at market price,
refine it and sell at N65 without huge losses so this explains why there are no
2. What I mention above is at the heart of the problem with government
economic policy which needs to be changed. The economy since SAP is one
that supports imported consumption and not local production, perpetuating
dependency, non inclusive growth and insecurity. Why is it that the economy
is growing at 7pct annually but the people are getting poorer. Because
growth gains are not evenly distributed.
Personal income is skewed towards people in the oil industry, telecoms,
high finance, stock market, real estate and yes civil servants and politicians
who feed on corruption. We produce crude oil but import petroleum products
(today the UKs highest exports to Nigeria are petroleum products). We have
a large cotton belt but import textiles from china (thus keeping their
subsidized factories open and jobs in china). We are the world's number
1 producer of cassava but import cassava starch from Europe. We have a
huge tomato belt in Kadawa, Jigawa and Chad basin but are the world's largest
importer of tomato paste-from China and Italy. We can produce rice but
we import rice from Thailand and India-most of it from grain reserves that
have been in stock for over 5
3. If above is clear then it is evident that this trajectory can only lead to
disaster. We will continue to spend our resources promoting growth and
employment in our trading partners. Terms of trade shift against us, we can
only have foreign reserves because by the good grace of God we have Oil which
will be exhausted soon and with new discoveries may become so cheap it loses
value. We don't create any value added jobs as the only real production is
peasant farming. Oil, telecoms, finance and real estate are not employment
intensive. So everyone becomes a civil servant as the economy cannot create
Result? In 2012 budget out of a total N1.8tr recurrent expenditure for
the executive arm N1.6tr is on personnel costs not overheads. To reduce
this you have to cut salaries or pensions or retrench civil servants. This
is the classic trajectory of underdevelopment, de-development and de-industrialization.
4. For the above reasons I am a strong proponent of structural reform and
this begins from the fiscal framework. The limited resources of government
should be allocated to supporting production-especially if we are running
a budget deficit. We cannot keep borrowing to support conspicuous consumption.
To support a job creating economy we need to fund power, transportation
infrastructure, market infrastructure and access, technical and vocational
education etc. We need to build rice processing plants, produce starch
and cassava flour and ethanol, process our tomato and milk locally, regenerate
our textiles firms (which used to employ 600,000 workers but now employ
30,000!), refine our own crude etc. We cannot even begin to do this if
30pct of govt expenditure is on fuel subsidy, if out of the balance 70pct
is recurrent spending, 10pct is debt service, 10pct goes to the Niger Delta
and only 10pct is capital expenditure. So it is about a choice-what do
we spend money on and how do we allocate resources?
5. We often compare ourselves to other oil producing countries like Saudi
Arabia. What are the facts? With a population of over 160m we produce 2mbpd ie
1 barrel for every 80+ citizens daily. Govt share of revenues if like 50pct of
every barrel so it is effectively a barrel for 160 citizens. Saudi Arabia with
a 24m population produces over 8mbpd or one barrel for every 3 citizens. In
fact in 2010 the nearest OPEC country to Nigeria in production per capita was
Algeria with a barrel for 30 and Algeria is more gas than oil.
With one barrel for 3 citizens daily Saudi Arabia is able to provide infrastructure,
education, healthcare and social safety nets and have huge savings. It
can provide subsidized fuel at a total cost that is a fraction of its savings
and even export refined products. It is paying for subsidies from its fiscal
savings and not borrowing to pay. We are like a poor man with a rich neighbour.
The neighbour builds a good house, buys several cars, eat expensive food,
travel abroad every year and still have huge balances in several current
accounts. Then you choose to live that lifestyle and mortgage your house,
take an overdraft from the bank to finance it. Next year it is time to
repay the bank, u don't have the money so u go to another bank, borrow
enough to pay the first bank principal plus interest and also fund the
continuation of the lifestyle. It continues till u can't borrow anymore
and the bank throws u and your family out of your house and you everything.
A responsible father would have long since faced reality and told his family he
doesn't earn as much as his neighbour and expectations need to be moderated if
they to keep their roof. Of course the children won't be happy at not going to
Hawaii for summer and having to take public transport rather than own cars like
their neighbour's children. Maybe they will even abuse the father behind his
back and call him a miser. That is the cost of leadership.
Finally: removing subsidy is not a silver bullet that solves our economic
problems. And there is a huge trust deficit that government has to address.
Government needs to investigate subsidy payments and punish any violations of
extant guidelines. It needs to cut on unnecessary and wasteful expenditure. It
needs to fight corruption and show seriousness in that. It needs to deliver on
capital projects, power and infrastructure including irrigation, farm-level
storage and agric-processing. These are all valid issues that are to be taken
in addition to and not in place of subsidy removal.
Since someone has decided to make insinuations about my grandfather I owe it to
him to defend his record. it was my grandfather as emir that repealed an
obnoxious rule started from the days of Emir Usman that disenfranchised women
from inheriting property. It was Sansui that built the groundnut pyramids to
the point where Kano NA was contributing 40pct of the revenues of the northern
region. It was emir Sansui who built the Bompai Industrial Estate, and turned Kano
into the industrial nerve centre of the north.
He was acting governor of the northern region, minister for pilgrim affairs,
chief Imam of Friday mosque, judge and leader of the Tijjaniya order. As
for his "descendants" my father was one of the very first batch
of 12 Nigerians recruited by the British to set up the foreign service
in 1957 and he remained in public service and rose to be permanent secretary
before retirement. He set up in the 60s the research dept of the ministry-
the present NIA so he was the first external intelligence officer in Nigeria.
As permanent secretary he was the architect of Murtala Mohammed's policy
on decolonisation of Africa and oversaw the independence of Mozambique
and Angola and the final push to liberate Zimbabwe and South Africa.
So yes Sanusi was not perfect. He was a feudal aristocrat. And my father was
not perfect. He was also a prince and priviledged to go to Oxford and LSE. But
please if you want to abuse my grandfather and father kindly tell us what
contributions your own grandfather and father made to the people.
Sanusi Lamido Sanusi is the governor of
Nigeria's Central Bank