Bungs

Last time I checked, Apple had $73.7bn in cash sitting on its balance sheet. This is a lot of money no doubt. Apple also has around 917m shares outstanding. Imagine now for a second that Apple decided to return this cash to its shareholders meaning for each share you own, you’d get something like $80. Broadly, you can expect such a move would be quite popular with a lot of shareholders. 

But what would such a move mean? By returning cash to shareholders in such a way, the management of the company would essentially be telling its shareholders that it cant think of anything better to do with the money so the shareholders might as well have it. It cant find a decent company to buy and it has also run out of ideas in terms of product development to spend it on. In fact the company’s management would be saying, we dont trust ourselves to spend this money wisely or profitably on your behalf, so we are returning it to you.

The story of how subsidies are born is not much different most especially poorly targeted subsidies like Nigeria’s fuel subsidies which ensures that Dangote the billionaire pays the same N65 per litre that Danladi the okada rider pays. Without even getting into the massive corruption around the administration of the subsidy, it is dead easy to make an economic argument as to why the subsidies need to go. Imagine if the govt had decided to subsidise the cost of sim cards when GSM came on stream in 2001 (Sim cards went for as high as N10,000 each), its safe to say the prices would not have dropped to the levels they are today where they sell for literarily next to nothing. The argument for letting the market decide prices can be made for practically any product out there. 

The ideal situation is never to have such subsidies in the first place, they dont make any economic sense. This is why those who are making economic arguments for the removal of subsidies are not doing anything special at all; the case for removal can be made in 30 minutes with a bit of patience to an innumerate market woman. 

 

Nigeria’s petrol subsidy came about as a result of an unwritten contractual agreement between the Nigerian people and their government. Essentially the subsidy is a bung. It is based on the understanding that the govt is useless and adds no value to the life of the average Nigerian. The Nigerian govt, half the time, is a criminal enterprise that exists purely for its own benefit. Where even a half decent government elsewhere will make a decent fist of fighting corruption, the Nigerian govt facilitates, enables and emboldens corruption. The case can stronly be made that if the govt was to cease to exist today, corruption will reduce in Nigeria dramatically. 

The govt has admitted that it has no response to poverty in the land other than to turn a blind eye to it. Indeed the task of counting exactly how many people are povery stricken in the land has been abdicated to foreign bodies, the Nigerian govt is unable to identify who is poor in Nigeria and who has been fortunate enough to escape the poverty trap. When it is asked to provide decent water supply to its citizens, it promises not to disturb anyone who builds a borehole for himself. This same understanding applies to electricity provision; we promise you improved power supply but in the meantime buy your own generators…if we fail, we fail. 

Weeping at the poor state of a federal road does not mean you should expect it would be fixed. You will need to drive slowly and carefully with a permanent prayer on your lips as you navigate those roads because if you are involved in an accident and you ended up in a government hospital, your passage to the other side will only be quickened. The list goes on and on.

In exchange for this gross abdication of responsiblity, not to talk of the grand larceny visited on the nation’s resources and sheer rape of anything of value meant for the common good, the govt offered the people the bung of petrol subsidies. ‘Take this below market price petrol in lieu of all the things we should normally be doing for you and in your name’ the govt said. Of course this was always a very lopsided deal massively in the govt’s favour but half bread is better than none. 

When looked at this way, you can then begin to understand that what the govt did on January 1st by removing fuel subsidies was a crude attempt to renegotiate this long standing social contract. Alas, all the reasons why the contract was signed in the first place are firmly in place. In fact so many other things have been sneaked into the agreement from the govt’s side. 

This is the part that the economists who are only interested in moving the numbers around cant argue. It is pointless reducing this matter to a purely economic argument because it was not an economic argument that originated it in the first place. In andvanced economies, subsidies are given to those segments of societies that the govt is practically helpless to do anything about. Free travel is offered to pensioners and under aged kids because, frankly there is no other way to get those people to move around freely given their incomes or lack of it. Etcetera.

Conversely, to quell public anger and stave off any uprising, the Saudi Arabian govt recently announced all manner of bungs and subsidies to its citizens totalling an eye watering $120bn. This is in addition to heavily subsidised petrol which sells for N22 per litre in the Kingdom. The Saudi version of the Nigerian contract isnt much different – in exchange for these bungs, the people grudgingly agree not to turn on the massive corruption, nepotism and fecklessness in what passes for the Saudi govt. Keep an eye on the Kingdom for whenever the govt decides to withdraw some of those bungs. It wont be pretty.

So just like in the case of a cash rich company deciding to return cash to its shareholders, when a govt throws these bungs at its people, it is admitting that it is easier for it to give away the money than to use it to build the kind of society where poverty is reduced to the barest minimum with people able to find a way for themselves. 

There is absolutely nothing about the present govt that suggests that it is indeed time to renegotiate this long standing social contract. Things are in fact getting worse. This is why the argument has quickly moved away from a question of N65 to a situation where everyone is now scrutinising the budget line by line. Predictably, they are finding things which they do not like at all. It is rather ironic that the one item that has really angered the public is the N1bn budget to feed the President in 2012. Of course in a budget of N4.3trn, N1bn is not even a drop in the ocean but what does it matter? The message is clear; how can you want to renegotiate this contract when all the reasons why we signed it in the first place are still there? Are you not still as useless as you were the day we signed it? This one thing that we got from a very lopsided deal against us is the thing you want to take away now?

 

Does it therefore suprise anyone that the govt allowed the subsidy arrangement to get out of hand so much that it can no longer quite afford to pay the subsidies at current levels? Take for example the chart below

Capture

While the Nigerian people were going about their duties, what the Nigerian govt ought to have been doing is keeping an eye on the gap between the actual retail price and the govt approved price and then adjusting accordingly upwards to keep the cost of the subsidies in check. To an extent President Obasanjo understood this and kept raising prices during his 8 years in office. 

But even this simple task was bungled by a govt that was too busy perhaps looting the treasury to adjust prices upwards. Instead, what President Yar’Adua did was to declare another big bung to compensate for his massively rigged elections in 2007. Presumably rigging elections was not expressly stated in the original contract so prices were reduced to N65. Now we are at a point where the gap between the real price and the bung price is at historical levels. Add to that the fact that the govt itself has now encroached on the people’s bung by turning it into a conduit for moving funds to its friends and loved ones – the number of approved marketers jumped from 58 in 2010 to 128 in 2011. I understand President Jonathan was advised in 2010 to increase the govt price but he refused as he had an election to win. Now he wants (and badly needs) to catch up by removing everything in one go. (My personal opinion is that even if the subsidies are removed today, they will return in one form or the other in the next 2 years)

 

This is why this is beyond a fight to have petrol back at N65. If there is going to be a renegotiation of the contract where we are bribed with N65 petrol in exchange for a totally useless govt, then its open season and EVERY aspect of govt is now in play. We can now query any and every aspect of govt spending as well as the debilitating levels of corruption that it tolerates which makes it practically impossible for anything to work in the country. 

 

This is why a support and demand a return to N65 per litre as a starting point for any negotiations. It is the least amount of ‘good faith’ you can get in an agreemen which is built essentially on bad faith. There is no divine right to buy petrol at N65 – indeed if the Niger Delta were to break away from Nigeria today, no one in Lagos, for example, would be able to buy petrol for less than N180 per litre I imagine.

This is why I support the guys at Enough is Enough Nigeria as we try to steer the conversation away from a simplistic one about what is the optimal price point for petrol. If we are going to renegotiate the contract, lets do it properly. Those who say we should let this go and fight for other things are also missing the point the way I see it. The govt removed the subsidies because it needed the money, let’s not fool ourselves over this. If govt projected it would need N1trn in 10 years time, it wont be asking for it today. If it wants the money now, well then now is the best time to renegotiate the contract. Not tomorrow after we’ve handed over the money. No one was getting good governance at N65 per litre so we are not looking back lovingly at that price yearning for a return to the good old days. 

This is not a crisis to be wasted.

FF

 

 

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4 thoughts on “Bungs

  1. Which will be the first state to feed itself without depending on monthly oil allocation? So long as we keep on blogging and tweeting to complain about one single natural resource and how it’s revenue is shared or stolen,bee are just exhibiting our laziness. Let us rise above laziness by going back to our states to see how we can get off oil dependency,corruption etc etc will vanish if we can do this .Lets stop wasting our time.

  2. Which will be the first state to feed itself without depending on monthly oil allocation? So long as we keep on blogging and tweeting to complain about one single natural resource and how it’s revenue is shared or stolen,we are just exhibiting our laziness. Let us rise above laziness by going back to our states to see how we can get off oil dependency,corruption etc etc will vanish if we can do this .Lets stop wasting our time.

  3. Not sure if am for or against subsidy but some arguments puts me off, if fuel sells for N141, will Danladi buy the fuel at a different rate from Dangote?

  4. Pingback: Nigeria's Upcoming Elections: PDP vs APC - Ayiba Magazine

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