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Economics Of Deregulation by
I read with keen interest the interview granted The Guardian On Sunday by Dr. Pat. Utomi and published in the paper's edition of February 25, 2001. Any objective reader of the piece will agree that the interviewee who is also the director of the Lagos Business School had a good academic argument. His argument was sound, so were the examples he gave to buttress his argument for the business of petroleum refining and sale to be wholly privatised. The major plank of his argument was that when privatised, competition will drive down prices, inject efficiency into the sector and, therefore, make the product widely available. But we have to be careful how this question of petroleum products pricing is handled if previous experiences in this country are anything to go by. A comparatively weak currency makes a country's export cheaper and, therefore, more competitive in the world market. This directly translates to more foreign exchange inflow and a stronger economy. Nigeria and Nigerians have not been made richer by the devaluation as the textbook economists thought. Instead, poverty came calling without appointment. So, what went wrong? Today, we are in a serious debt crisis which is hampering national development to a large degree. We were apparently lured into this position by experts of the World Bank and IMF to strengthen the economy of their countries and to enslave Africa. The current deregulation or full privatisation proposal, like the examples given above, will not be in Nigeria's interest. If implemented, it may be the last straw to break the country's back. The IMF and the World Bank will of course want as much of what we are said to owe them paid back as quickly as possible. One of the very sticky points in the proposal which many people have mentioned is the constant devaluation of the naira. When Dr. Pat Utomi was asked about this, he chose to answer another question. There are other reasons why full privatisation or deregulation will not be advisable: (i) I want us to learn from what happened across Europe during this last winter. I am talking about protests in several countries for several days if not weeks ñ against high cost of petrol. The protesters were putting pressure on their governments to subsidise the cost of the product which had become too expensive even for these comparatively very rich people. Remember that when we talk of deregulation, it means that those refining petrol in Nigeria (NNPC) will be buying crude at the international market price. What that translates to is that petrol will be far costlier in Nigeria than in the U.K., France, Belgium, etc., where they are already crying that the product is too expensive. This is considering the fact that the refineries will import spare parts and additives thereby shooting up the cost of refining more than in Europe. Can Nigeria afford the chaos and grinding poverty that this type of scenario will generate? (ii) government has argued that it is losing several billion naira in revenue on the amount of crude it allocates to NNPC for refining at a subsidised rate for the Nigerian market. Government should not see those billions as a loss. What it simply means is that instead of improving the condition of some roads or building some classroom blocks and carrying out other developmental projects, Nigerians seem to be saying that they prefer to spend the money on transportation in the form of low petrol price. In that way, there is still social stability, food prices are relatively stable and other goods and services as well. More Nigerians, if not all Nigerians, directly benefit from this latter scenario. (iii) I don't see competition being able to drive down the price of petrol to an amount Nigerians can afford if deregulated or fully privatised because no marketer will sell below his cost price. The price of crude is never stable. The situation is different from a telephone company or an Internet Service Company ñ the examples Dr. Pat Utomi gave ñ who have their fixed equipment that may not change in several years. I agree that government-controlled businesses tend to be inefficient as we are currently experiencing with the long queues at filling stations across the country. A middle ground, therefore, must be worked out to inject efficiency into the industry, block all avenues of waste in the system and still enable Nigerians to enjoy their God-given resources. The above can be achieved by having all refineries in the country privatised, and allowing individuals and corporate bodies to establish new ones. The government should continue to sell crude to the local refineries at a subsidised rate. In this way, government will save millions of naira annually from overheads and other waste pipes in the system and the price will remain at a reasonable level. The writer sent this in from Ekpoma, Edo State.
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