BY Joshua. D. Ephraim
The speaker is Mr. Zacchs Adedeji, Chairman of Nigeria’s Revenue Agency.
Well, this represents some significant step, with regards to the petroleum industry( particularly the importation of refined petroleum products ) .
You will recall that, as at today, Nigeria depends one hundred percent, on imported refined petroleum products.
You will also recall that Nigeria depends ,for its foreign exchange earnings, almost ninety percent, from crude oil exports.
You will recall that Nigeria is an import- dependent country, relying almost eighty percent, on imported goods.
Therefore , of critical concerns, are the forex earnings for this regular and important imports trade.
I am not an Economist, but I will rely on common sense, and knowledge of some elementary economics, in this discussion. Here, I will depend on my elementary knowledge of the economic forces of demand and supply, and the effects these have on the economy.
The current action by government, would perhaps, reduce the amount of corruption, in the oil sector, particularly the NNPC, which has the monopoly to import refined petroleum products. The issue of the so-called ” oil subsidy “, would no longer arise, except perhaps,, in other guises. We will wait to see how the source of supply will affect the domestic prices of these petroleum products.
I would like to think that the domestic prices of the petroleum products, would depend on several factors, which would include :
1.the price at which the crude is sold to the local refineries ;
2.the capacity of the local refineries to meet the demands of the market. Here, it would seem that our boundaries with other countries are very porous, as they span hundreds of kilometers, North, West, East, and even the ports, at Nigeria’s Coasts .
A lot of petroleum products are smuggled, through these routes, with the government appearing unable to control this illegal trade. This has adverse effects on the domestic market, unless government is able to control what is consumed inside, and what is smuggled outside.
I would prefer that this trade is legalized, and in case of petroleum products, only oil companies should sell, at regulated prices, and the borders,should be effectively organized.
But I will like to think that the the domestic refining capacity would determine the quantities to be supplied to these two markets vis– the domestic ,and foreign markets, that are there within the African sub-region. Government has to be proactive about this
Therefore, the domestic price will depend on the supply meeting the market demands. Where supply is short, this will affect the price . I would like to think that marketers may prefer to sell their products outside the country, than in the domestic market.
We have, earlier been told, that government has instructed the NNPC to sell its 450,000 barrels per day to the Dangote Refinery. But we have been told that the refinery’s capacity is said to be about 650,000 barrels per day. From where then, would Dangote source the shortfall ?
3. The price at which the crude is supplied to the local refineries, would form a significant cost to the production.
4 If Afriximbank, would be the intermediary, in determining the price at which to sell, to the refineries, in the local currency, this would affect the final price to the consumer. We will have to wait and see.
But even with all these, I still have my fears; one of them is the usual “Nigerian factor “, ( corruption ) ,in almost every thing we do, in this country.
Secondly, is the ability of NNPC to meet, the quantity of crude that would be sufficient. This is more so, because, it had earlier, been speculated, that President Buhari
( as Petroleum Minister), did “futuristic sales”, with our domestic crude, allegedly spanning ten to twenty years, in advance.
It is also alleged that the peak of our domestic crude production, was about 2.3 million barrels , per day. However, during Buhari’s time, production reached a low of about 800,000 barrels per day.
A significant quantity of this was attributed to oil theft . By this it means what would be available to government will be a paltry 200,000 barrels per day.
We would assume that Tinubu took off from there, in 2023.
We have now been told that production level is about 1.35 million barrels per day.
Government has also informed us that it intends to ramp up this, to about 2million barrels per day, in the next twelve months.
Until then, we would ask, how much crude is available for sale ?
Does this quantity include quantities representing Buhari’s futuristic sales ? Again, how does the Tinubu government intend to meet its promise to Dangote to supply the 450,000 barrels per day ?
These are grey areas, we need to know.
Having said all that, back to the domestic economy :
We had said earlier, that Nigeria operates an imports-dependent economy, and that it depends ,almost ninety percent, in forex earned from sale of crude, to oil this trade.
Now, combining the following : Buhari’s futuristic sales, a production level of 1.35million barrels per day, a promise of 450,000 barrels per day to Dangote,and perhaps more crude supply to other domestic refineries, putting all these together, how much then, would NNPC have left ,for sale to the external market, knowing fully well, that ninety percent of the earnings go to our external trade ?
Apparently, it would seem therefore, that given all these circumstances, Nigeria may not have enough forex to finance its external trade. Now , the next question : what happens ?
O.K, we may have external reserves of forex to last six months,
( assuming this has not been tampered with), after six months , then, what next ?
This is a gloomy picture of our external trade. It means that imported commodities will still be high, in prices, and scarce as well.
On the home front , the cost of energy , and transportation, may stabilize, if not even lower, but Nigerians do not depend on these alone, for their existence . Essential and other commodities will still have to come from outside. Nigeria does not trade much with its neighbours, in the sub-region, as these countries too, are dependent on Nigeria, much of which trade is illicit, or is not officially sanctioned. So, we suspect that even with regards to the little that enters Nigeria, some of it will find its way, through our borders, albeit illegally.
Therefore, we are of the openion, that much still have to be done,as the therapeutic effects of the current “scattered measures”, may be of little effect.
But perhaps, the very act of announcing them may provide “temporary” ,and perhaps “false”, relief from the current social pressure, on the government.
Even the recent announcement of removing custom duties and charges, on certain imported goods, may not go far enough, as the prices will remain high and unreachable.
Clearly , it would seem that, although improving the energy sector, may instigate domestic production, but other favorable investments incentives need to be put in place, which would include, improving security, and the disposable incomes of the poor Nigerians.
It would seem that the middle class has disappeared, and all we have are the few billionaires, and the over 200 million people who are poor.
Nigeria has a parasitic elite, who feed fat on the economy, and contributes negligibly to it, whereas , the poor majority, who should contribute to the growth of any economy , are left in dire needs.
Therefore, if we have a system thatdoes nothing other than sustain a parasitic elite, then the political leadership, has to wake-up, and commit what I term,” class suicide”, and embark of the restructuring of the Nigerian State.
This, Tinubu, or any other upcoming leader must do.
* Barrister J.D.Ephraim is and investment and financial analyst and lives in Abuja