The spectre of unintended consequences regularly haunts public policy making — and not just in Nigeria. The easiest way to exorcise this demon is to price the provision of goods and services properly. And the best way to do this is have those prices reflect demand and supply conditions for the good/services in question, together with all their substitutes and close complements.
Fuel queues are back. And they have never looked more unseemly. No less predictably, the federal government has folded itself in interesting shapes trying to explain away this perennial symptom of how inefficiently this economy is run. The “panic buying” argument much favoured by government spokesmen obviously does not wash. It has always invited us to believe that the retail storage space for petrol (i.e. those jerrycans and associated containers in which most households hold their fuel inventory — largely for generating sets) is either equal to, or more than the combined storage spaces of filling stations nationwide. That this is counter-intuitive is enough argument against panic buying as an explanation for fuel shortages. But, arguably the more persuasive case is that the queues have developed simultaneously across the country.
Whispered in knowledgeable circles is the fact that the government owes key parts of the petrol supply chain back amounts of money for fuel that the economy has already consumed. If true, this could explain why the current scarcity is the result of supply snafus. As indeed could the fact that on global commodity markets, crude oil prices have trended up of late. OPEC reports the price of Bonny Light up to US$52.72 per barrel (pb) in the 10 months to end-October 2017, from US$42.94pb over the same period last year. In other words, the cost of the main input into petrol production has gone up by more than 20 percent in the last one year.
With domestic prices unchanged, any of two things is afoot: profits at the pump station would be down considerably (since the industry is unable to pass costs on to the market); or operators are running at a loss. This happens in any market, and continued supply would be an instant worry. But not in the domestic oil industry. Under the Jonathan administration, we saw how a system of subsidies designed to keep the pump-station price for petrol unchanged morphed into a racketeer-influenced and corrupt practices operation. Thus far, the Teflon-coating on the Buhari administration has allowed it to continue supporting pump-gate prices without any imputation of corruption. And if the resurgent fuel queues offer much by way of explanation, with only marginal differences in outcomes.
Arguably, corruption at any scale imposes costs on a society as tolerant as we are of all manner of hairbrained schemes. The sad thing is that we tend to drive the pharaonic projects that result from our poor policy design practices on the argument that we are protecting the poor and vulnerable segments of our society.
We may still find a silver lining in all of this. Reflect but a bit on all of it, and, the return of the fuel queues also reminds us that we need to find more efficient ways of running the industry — and the country along with it. This, thankfully, is not just about corruption. Arguably, corruption at any scale imposes costs on a society as tolerant as we are of all manner of hairbrained schemes. The sad thing is that we tend to drive the pharaonic projects that result from our poor policy design practices on the argument that we are protecting the poor and vulnerable segments of our society.
At the heart of this logic is the conviction that high (as opposed to rising) prices hurt the poor and vulnerable. On the back of which successive governments have proceeded to strain themselves in the bid to keep a lid on domestic prices (interest rate, exchange rate, pump-gate price for petrol, recommended retail price for rice, beans, garri, etc.). These prices, we forget (maybe never learnt) are basically signals to suppliers indicating what the markets are asking for, and how much new investment they should put in in order to meet demand. Even when these prices are the result of market failures, or kinks in the supply chains, they then become signals for policy makers on both the direction and extent of structural shifts to be implemented. By enforcing an arbitrary ceiling on prices, our current policy orientation distorts the allocative efficiency of the economy. And crimps the economy’s ability to respond to changes in its external and domestic conditions.
For on the matter of relative petrol prices, we have clear evidence that lower oil prices do not necessarily help the poor and vulnerable either. When in January 2015 the Jonathan administration lopped N10 off the price of petrol, bringing the price per litre down to N87, costs at the lower end of the market barely budged — transport fares…remained the same…
All of which is difficult to understand. For on the matter of relative petrol prices, we have clear evidence that lower oil prices do not necessarily help the poor and vulnerable either. When in January 2015 the Jonathan administration lopped N10 off the price of petrol, bringing the price per litre down to N87, costs at the lower end of the market barely budged — transport fares, which are a major component of these costs, remained the same (at least along major routes in Lagos State). However, car owners felt the pressure on their pockets ease — especially those who owned more than one vehicle. What happened in essence was that government had, through a crypto-tax, contrived to move part of the national wealth into the pockets of the middle class (and classes above it) in the name of reducing costs to the poor.
The spectre of unintended consequences regularly haunts public policy making — and not just in Nigeria. The easiest way to exorcise this demon is to price the provision of goods and services properly. And the best way to do this is have those prices reflect demand and supply conditions for the good/services in question, together with all their substitutes and close complements. Easily the one argument against this is that the poor will lose out. Except that they are not winning under the current arrangement. Indeed, to the extent that the current poor pricing arrangement means that those who can afford it have no incentive to use petrol more efficiently, we run the risk of depleting a non-renewable resource faster than we ought to. Of imposing higher costs on future generations as a result. And ensuring that the poor and vulnerable segments of the generations of Nigerians that come after us, will be that much impoverished as a result.
Uddin Ifeanyi, journalist manqué and retired civil servant, can be reached @IfeanyiUddin.
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