Employment Is Coming!

Having established that there is a clear and present danger that investors might not show up afterall once the subsidy is removed contrary to what the government would have us believe, let us scrutinise another benefit of ‘deregulation’; job creation.

Ah yes, ‘deregulation of the downstream sector’ (or is it upstream sef?) is supposed to usher in mass employment according to the government. Indeed, listening to them, you begin to see visions of an army of Nigerian workers carrying ‘ponpons’ on their heads as they head joyfully to the refinery for the day’s work, perhaps also singing ‘ise l’ogun ise’ …that Yoruba anthem extolling the virtues of hardwork as the surefire antidote to poverty. 

Now if this were the case, no sane person would argue against ‘deregulation’. Indeed whatever ‘short term pain’ it might bring ought to be worth it as a sacrifice to the god of unemployment that has set up his main office in Nigeria. At the recent NPAN organised Town Hall on fuel subsidy removal, the Comrade Governor, Adams Oshiomole, said ‘we are exporting employment to European countries and importing unemployment‘ as a result of our reliance on foreign petrol. As you can imagine, this statement received a deafening applause from the audience. 

No doubt about it, removal of petrol subsidies will kill some jobs in Nigeria within one week of the policy taking effect so what we need to ask ourselves is, will ‘deregulation’ create more jobs than it will destroy net net? As always, best thing to do is check around to see what’s up.

Yours truly lives in London and as such has a UK bias for many things. Please forgive me as we start our investigation here. You will recall I mentioned earlier that the UK currently has 8 refineries after several smaller refineries have been forced to shut down following declining margins. 

The largest refinery in the UK is the Fawley Refinery owned by ExxonMobil. It currently produces 20% of the country’s refining needs at 330,000bpd. According to the company’s latest report, it currently employs around 2,300 people although close to 500 of those are contractors. How about the 270,000bpd Stanlow Refinery now owned by Essar of India? It employs 960 people. Or the 220,000bpd Pembroke Refinery that ws opened in 1964? 1,400 people. There is also the Grangemouth Refinery in Scotland which began operations in 1924 and has a capacity of 210,000bpd – 2,000 jobs. So from the above, 4 refineries with capacity of more than 1m bpd employ about 6,660 people in total. Bear in mind that 1m bpd is far in excess of what Nigeria requires. 

Now we know the British can be very stingy and will gladly sell their own mother in exchange for efficiency – Indeed, every one of those refineries is currently in one dispute or the other with the local unions as they look for sneaky ways to cut back staff – so maybe its not fair to compare with them.

To Singapore we go then. The 3rd largest refinery in the world is based there and owned by ExxonMobil. It has a capacity for 605,000bpd which is far more than Nigeria needs. How many people does the company employ? 750 people. I trust you are clicking on these links to verify for yourself?

Again we know the Singaporeans are deadly efficient so let’s try Arab money. The Yanbu Refinery in Saudi Arabia can refine 235,000bpd and is owned by Saudi Aramco. It employs 700 people. Then there’s the 470,000bpd Mina Al Ahmadi Refinery in Kuwait. According to the Kuwaiti National Petroleum Corporation website, it employs 1,550 people.

Quick stop in America at the Baton Rouge refinery in Los Angeles with a capacity for 503,000bpd. According to this US Dept of Labour website, it employs 2,100 people. Or the BP owned Carson Refinery in California which processes 265,000bpd with 1,200 employees.

Perhaps India is a better country to compare us with given their large population and similar levels of poverty. They also happen to have the world’s largest refinery with a capacity of 1.3m bpd. According to the company, it employs 2,500 people. Bear in mind that Nigeria cannot possibly require a refinery of this size and will be a huge undertaking by any standard. There’s also the Essar Refinery in the state of Gujarat in India with a capacity of 300,000bpd. If wikipedia is to be believed (take with a pinch of salt), it employes 1,000 people. 

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Unfortunately getting employment information for refineries in places like China, Russia and Brazil which would have been useful is harder than imagined. Perhaps there are some refineries out there employing 100,000 people. Please have a look around the internet and see if you can find employment numbers for other refineries and do share them in the comments section. 

Since the ‘deregulation’ debate began, a day hardly goes by without someone mentioning the amount of jobs that were created when the telecoms sector was deregulated and how something similar will happen to the downstream sector once this goes ahead. We ought to pause and think about this. The telecoms deregulation created jobs that previously never existed in Nigeria. From the recharge card seller in traffic to the woman sitting by the roadside under an umbrella making calls to MTN distributors to phone sellers and repairers. All of these jobs never existed before that sector was opened up. 

But can something even remotely similar be expected from the downstream sector? We already have most of the jobs in that sector before deregulation. There are petrol stations all over the place already and there are plenty of people already selling engine oil and other refined products. There is a diesel cabal fully in place already due to the high usage of generators. There will be no big bang. At the very most we can hope for something incremental.

Let’s say we somehow manage to build 5 refineries with a capacity of even 1m bpd across the country, given the numbers from across the world above, how many jobs do we realistically expect to create? 20,000? 50,000? It is telling that the very ambitious YouWin programme backed by the govt is aiming for 100,000 jobs by backing 1,200 new businesses. Now most people have said even if that lofty goal were to be achieved, it wont make a dent in our unemployment numbers which frankly could be any number of millions of people.

 

This is where govt policy ought to be well thought through. Does the govt even known how many jobs will be destroyed when ‘deregulation’ happens? Even a rough estimate? The next stage will then be to assess whether it can create more jobs than will be destroyed by the policy. Perhaps someone will say that the SURE programme is also part of the mix and will create hundreds of thousands of jobs. Whatever. We can do better than this. The question should be, is this policy worth going ahead with based on a dispassionate weighing of the costs and benefits? From a job creation perspective, it will be tough to answer in the affirmative to that question. 

From the above, it is hard to see how Nigeria is ‘exporting employment and importing unemployment’ by importing refined crude according to Gov Oshiomole. Should we destroy with the hope that something new and better will come up or do we consolidate on what we have and see how we can add to it? The govt loves to mouth job creation but scratch the surface of what they are promising and you are met with hollowness. 

Nigeria had absolutely nothing to lose by deregulating the telecoms sector; most people had no telephone lines before GSM anyway.

Can we honestly say that’s the case this time around? I’ll let you tell it.

FF

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6 thoughts on “Employment Is Coming!

  1. Spoken like a true student of T. Sowell. Let the numbers speak the stories!

    We had a long Naija style debate over this issue this last weekend. All raucous and emotional, neighbours wondering if we were fighting.

    While I generally think the government has no business with running businesses (forgive my cliche!), I think it is generally one area of the petroleum economy the FGN should be looking at…they’ll probably make a loss in the short term and low margin of profit in the long run.

    Very very few self respecting Independent Oil Company would commit to building refineries. BP has been trying to divest it’s refineries, so are many others. They are more trouble than they are worth – in terms of potential safety hazards (cue Texas City Explosion), in fairness to BP, the refinery has started turning profits…but I am sure this is what they would rather do without…One of the main reason Exxon Mobil didn’t sell it’s Fawley Refinery is because of the large profit it makes (probably because Esso has a good distribution network for petrol, aviation oil and chemicals) – an exception rather than the rule…

    I do disagree with you on the issue of employment. Even though the refineries themselves employ people in the order of a few hundreds or few thousands. There is the trickle down effect. The process plant is a very a complex organ. There is the need for the day to day support which make the bulk of the employees, the occasional support which other companies take care of (turn around maintenance – happens too frequently believe me), the drivers who would be trucking the oil, the potential to export to neighbouring countries, the women who sell kpekere and kpuff kpuff…You could argue that these are small fries (forgive my poor pun)…for every refinery chemical engineer, there are at least 3 people who he depends on for service…It would surprise you how much employment cottage industries generate. It’s not the same salary as the senator, but it gets garri on the table.

    This is probably a too simplistic model, as we would get foreign contractors to work the repairs maintenance etc…

    An issue you didn’t address is the effect of reaping the effect of having abundance. I can bet if we have more refined products, people being people would find uses for them. A downside is probably a lower oil price with lots of cars on the road (doubt if the oil price affects the kind of car we drive in Nigeria at moment anyway).

    My thoughts are we would be generating jobs in the long run. Nothing fancy, but jobs never the less. There would be mini factories ready to service the facilities and the families of the refinery employees. At what cost is another problem – the environmental and the capital. I doubt if that has been thought through – benefit vs. cost?

    #abitoframble

  2. @Allen; one thing I noticed when looking for information for this article was the number of fires! It’s as if it has been appointed unto every refinery to catch fire at least once. I found it really spooky. Regarding employment, my point is that these jobs already exist. Transporting fuel around the country is already an established business complete with cabal sef. Our refineries are also working. According to NNPC they are averaging 45% production combined at the moment. 30% of our current usage is locally refined. But according to the FG, the locally refined petrol is also subsidised because NNPC pays ‘market rate’ for the crude it refines. It’s all very silly. There will be jobs created no doubt but I’d like to weigh that against businesses that will no longer be viable with increased energy costs. ——————Regards,Feyi FawehinmiFrom my iPhone

  3. i concur with Mr. Fawehinmi. the issue isn’t whether jobs would be created at all; it is whether the net effect on the unemployment situation would profit us. would the jobs created surpass those which would be lost in the subsidy removal; the businesses which would collapse under the increased economic strain? Infaltion levels would rise astronomically; and the net effect would be felt not only by those in or in some way connected to the downstream petroleum sector. The resultant effect would be catastrophic. So creation of a few jobs connected to the refineries (which there is no guarantee would materialise) and by the government’s so-called employment provision programmes would not match the loss of jobs to be expected. The government needs to tackle head-on the rot and corruption in that sector; and reduce the costs of recurrent expenditure to free up funds for infrastructure provision. they need to bleed first;m as our leaders and the ones with the mandate; we voted them in for a reason; to protect our interests. An example is the grossly excessive amount of money allocated to “presidential feeding”. its a shame and a pity what is happening in our dear country.

  4. Subsidies (and taxes) always distort markets and the regulations around them can cause unexpected disincentives to change. And corruption opportunities. Subsidies in one area mean taxes in another, so removing subsidy SHOULD lower taxation elsewhere. Also it is better to have refinery capacity that exceeds local demand as then the surplus can be exported. One refined barrel is worth more than one unrefined one. This is why your senator was on about exporting jobs. Do it yourself! Also Nigeria, with its own oil, should have cheaper energy so refining margins can be higher/petrol cost lower. 120N per litre is less than half the UK price! Removing the subsidy will be painful but it is better economically. Love the comment about stiingy Brits. How true! And I am one.

  5. Nigeria’s subsidy isn’t subsidy below the cost of refining. It’s subsidy for Govt’s ineptitude, because Nigeria isn’t refining, so there’s no need to accept this false opposition between deregulation and subsidy. When the refineries work, then the subsidy would of itself be removed.

    And, see Mr. Fawehinmi’s excellent piece on Private investors and Nigeria’s refining options. Govt has got to work. Lemme even add to all the comparative info Mr. Fawehinmi provides on Brazil a quote. According to Perry Anderson, Brazilians learnt under president Fernando Henrique Cardoso that ‘the notion that the key to attracting [private investment] was deregulation and privatisation à l’outrance was extraordinarily naive.’

    There really is no such thing as a general, always go for it case for privatization+dereg. Every case has to be decided on its own merits, and in Nigeria’s case an argument hasn’t even been made. All the rhetoric, numbers and interpretations the Govt has provided aren’t worth a clipped farthing.

    Although, farming in Nigeria is to a large extent not mechanized, the okada is the ubiquitous farm machine, and it’s a productivity tool not some fancy, status symbol. I, personally, can report that this is true for farming communities in many areas south of Nigeria. That’s one of many possible lenses through which to view the employment for the rural poor, farming.

    As to the urban poor, when we moved to our own home in one of the subtopias of Ibadan, a decade ago, we became neighbours to a large community of migrant worker families from the Middle Belt who worked as sharecroppers. Today, most of the men are no longer farmers. They are now Okadamen. Ways of earning a livelihood have changed but the Okada remains the same: two-stroke engine running on petrol.

    Lagos. which reportedly has 700,000 commercial okadas in operation, now has a large number of migrant workers from parts of Northern Nigeria as okadamen. Their presence is very pronounced on Victoria Island and, of course, in Sabo-Yaba. Interestingly, there are also a large number of Policemen and Soldiers who moonlight as okadamen in Yaba, probably pays better and is more dignifying than hustling Danfos for ‘shandy.’

    The government ought to be able to tell us how many okada are plying Nigerian roads: they have been issuing them registration plates. The number plates for okada are distinct, and a fairly reasonable estimate can be made from the records of the Federal Road Safety Commission. The government may be unable to tell danfos apart from molues based on just the type of registration plates issued those kinds of vehicles, but if I may ask you: do you believe Government’s claims that mass transit in the metropolises is powered largely by Diesel?

    Now, I’ve been wondering: the pump price of Petrol is almost half that of Diesel yet I don’t think members of the National Union of Road Transportation Workers (NURTW) have been trading their Diesel engines for Petrol engines. This could mean that the impact of the cost of fuel on their bottom lines is minimal.

    However, it could mean the margin the drivers running Petrol engines enjoy isn’t that much larger than their counterparts who run on Diesel. If the latter possibility is the case then it may well be that the price of Diesel has maintained the level it has because Petrol is N65/litre.

    I wish I’d the resources to do some fieldwork to try to establish the relationship(s) between Petrol and Diesel.

    A doubling of the pump price of Petrol may lead to a doubling in the price of Diesel or some such upward pressure on the price of Diesel. There is some substitution possible, between Diesel and Petrol engines, and Diesel has averaged N114/litre in the last five years that Petrol was held at N65. I had to trudge through some figures provided by NNPC, add them up to get that average. I must admit I was quite drunk at the time so don’t take my word for it.

    Five years is enough time for a significant number of the Diesel engines to have been traded for Petrol engines if indeed the lower price of Petrol is a competitive advantage. Has that been happening? If that hasn’t, it may suggests that the prices of Petrol and Diesel, contrary to the Government’s implicit assumptions, are linked.

    The danfo drivers, the okadamen, agberos—all these people depend on a means of livelihood that is about to be hit by increasing costs of service delivery and a reduction in demand since the ultimate substitution is to fire one’s Legedes Benz, or to paraphrase Dr. Abati: na so-so trek we go dey trek.

    And, the okadamen would be hardest hit since some of their fares would soon return to trekking distances they used to travel on okada in less austere times. I wonder what consultations were held with NURTW and what palliatives the government has targeted at these citizens. I would be particularly interested in knowing whether Government has discussed the issue of not raising prices with them as that is what affects me directly. Oh, the SURE document reminds me of the Sure Banker football pools paper. Proposal wey no get budget, wey no get log frame, na suegbe-o! They say, in that SURE doc, that they would buy vehicles and give them out/ lend them out, hire-purchase, what has that got to do with anything?
    The hike in fares, for instance?

    Then, there’s the possibility that the planned 100% duty on wheat coupled with the removal of the Petrol subsidy will drive up costs and cut-off demand for bakers and those caterers who bake for birthdays and weddings, the madams who fry kpo-fu by the roadside, the ladies who supply chin-chin to primary schools and the housewives who sell flour and baking equipment to them all.

    Everywhere one looks one will see the small people getting squeezed. I do not respect a government that is not sensitive to the plight of women in society. Perhaps, those ladies are expected to consider making bean cakes, plaintain chips and other kinds of fries, from yam, potato. What are the palliatives for them?

    It’s disturbing that the Finance Minster hasn’t told us how they expect to overcome the deficits Govt. is bound to encounter on the expenditure side due to inflation. That’s a s sure as rain. And since the expenditure side should be that side which underwrites the safety nets, they seem to be setting themselves up for not delivering sh*t, sawing off the branch on which they are sitting as it is.

    One would have expected the Fin. Minister to remember how the oil benchmark price ‘pegs’ under her watch in 2005 and 2006 put the domestic economy and Govt. expenditure through the wringer. But I guess it’s true what they say, she don’t care, she has her head in the Bretton Clouds. So long as Washington is happy, the Nigerian children should be sacrificed to Moloch to guarantee the future of their parents.

    This subsidy thing is personal. I saw how my mum, an entrepreneur, was squeezed by Govt policy over the years, while those she’d left in the civil service were able to keep demanding pay raises and come out better of. Her resignation had been about productivity. Every hour spent in the civil service could be more productively spent at her business, but it didn’t pan out in the end.

    Now, my brother resigned his bank job to focus on his apparel business.Don’t get me wrong, I’m not saying banks are in any way the paradises of goldbricking that the civil service is. Just that from day one, electricity, the lack of it, has been squeezing my brother real bad. I mean, from day one, he’d to sink some capital in to buying a generator (petrol), money that could have been invested in an inventory of fabrics.

    Servicing that gen, fueling it, all the other operating expenses–my bro is Nigerian–right?–resilient, but Police and Ama kip kip are eating his Nigerian lunch. He never asked for any import substitution/protection; he felt he could lick ’em Italians and South Africans with a finger. All he asked was for electricity but he didn’t get it, yet he kept keeping.

    Now the man in the fedora want’s to squeeze my brother. Like they squeezed our mum. Sheee*it! I’m going to resist this wickedness to the death of me. The cost of generating electricity doubles while at the same time the income effect will see to it that demand for custom apparel drop , what with having to eat first before bothering about looking fly.

    We now see the contradictions in the growth strategy of a Govt that won’t provide electricity but which thinks it can get away with incompetence andwhich smugly points to the deregulation of Telecoms, Banking and Retail as proof of it’s genius. As those industries expand won’t their demand for electricity and consequently petroleum products go through the roof? Spoke with one of the staff of the new KFC franchise and Deyvani’s already telling their staff they can’t afford to give them pay raises because of how much they’re expending on Diesel.

    Yet Govt says it’s the cars, the rich, that are creating the unsustainable demand. The cars consume more than all the okadas and i-better-pass-my-neighbour generating sets? And it’s all the hospitals, factories (cement), construction companies, mining companies, schools, residences that have to generate their own electricity. Like I said, I suspect it don’t matter whether you’re on Diesel or Petrol.

    How did Govt determine that the ‘rich benefit disproportionately from the subsidy’?Tha’s a lie! In an equation with two variables, the rich and the poor, how do you (re)solve the equation for one variable without a second equation on which you can base simultaneous solution technique? I mean, how do you determine who weighs more between the fat man and the tall man without more information than just that there’s a fat man and a tall man, nothing about their actual weights?

    Clearly, Jonathan and his stooges, whether intuitively or consciously have have hit on dividing Nigerians along class lines as one stratagem for pushing through their agenda. I don’t deny there are Differences. But political manipulation of ethnic and religious difference has played a significant part in the violence that colour our history. Jonathan is trying to layer class divisions onto that and make things worse.

    So, we shouldn’t be surprised if we begin to see drivers dragging their employers out from the ‘owner’s corner’ and beating their brains out. Tenants doing their landlords in. I don’t deny the existence of difference but violence as a way of handling differences seems to follow only whenever there’s some politics in the mix. I mean, we have ultra-orthodox Jews, They are fundamentalists but they don’t resort to violence. I think violence and fundamentalism go hand in hand in Nigeria because of politicians who manipulate difference for political ends.

    Jonathan’s Govt is sinister.

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