Engineer Sunday Adebayo Babalola, a retired Deputy Director of defunct Department of Petroleum Resources, in this interview with SUCCESS NWOGU, speaks on current issues in Nigeria’s economy
There have been divergent responses to the withdrawal of subsidy on Premium Motor Spirit by the current administration of President Bola Tinubu. How do you react to the development?
Thank God they have the boldness to implement it. In any case, the sitting President just gave the announcement, the immediate past President, Muhammadu Buhari, maybe because he was going had said that by the end of June, there would be no subsidy again, that it was not in the budget. So technically, he removed it. The current President confirmed the removal during his inaugural speech, and that is good. Also, the Nigerian National Petro- leum Company Limited (NNPCL) came up with a new petrol pump price template and we see the prices in various places. People can buy and sell what they have. Their negotiation with sellers will be strictly to businesses, their negotiation with depots will be strictly to business and everything will be controlled by the market economy. You will see that eventually, we will no longer see any queues in Nigeria. Queues will be a thing of the past because if you do not like the price at my petrol station, you will go and buy from another person.
But there are concerns that it will bring more hardship to the country. How true is this?
Wait a minute! What hardship? Has it been that the same price of petrol in Lagos is the same thing they are selling in Sokoto or Enugu? In the big cities, Lagos basically and Abuja, Lagos consumes maybe 60 per cent of what the nation consumes and the other ones share it. The people who are bringing food from rural areas to the cities buy fuel at exorbitant prices and they are paying exorbitantly.
What are you telling Nigerians concerning this high template from NNPCL?
It will come down because it is just like the telephone prices came down. When mobile telephones came newly to Nige- ria, there was a time we used to buy a sim card for N35,000, which was almost equivalent to $500 at that time. Today, you get Subscriber Identity Module (SIM) card for free. So when the market forces take effect, everything will come down. The diesel price is already coming down. Though there are initial pains, such as the petrol pump price increase, and the attendant hike in transportation and pos- sible inflation; still we are going to make progress. The question now is since it has been removed, what are we going to use the money that we are gaining from the removal to do? There was a time they bud- geted N450 million for subsidy but by the end of that year, it was N2 trillion they spent. How? Why and where? The previous year, it was N250 billion but that year N450 billion was budgeted and they spent close to N2 trillion. It would have continued to be like that except that President Tinubu has removed it.
What is your advice to the current government?
They should also plough the money that will be saved from subsidy withdrawal into things and sectors that will benefit the people and transform the nation. There are ways they can do it. Do not ask me the ways, that is my own trade secret. If they want the way, they should invite me and I will tell them. The administration of the outgone President did not implement subsidy withdrawal. Is it that the administration did not effect it? I will not say it is right or that it is wrong because I do not have all the facts that they had. When you are thinking from outside the system, you can propound so many theories and you can come up with many suggestions. But the reality is that you may not have seen some of the things they saw and they will not openly reveal them because of security implications and confidentiality. I do not have the facts they had so I will not be able to say they did right or that they did wrongly. But sincerely speaking, talking from my own point of view, I think the removal of subsidy will move the country forward. I will keep saying that anytime. Except that the petrol subsidy has now been removed, we would have kept roaming in the same place. We do not even know how much we are consuming. When I was in DPR, it was 36 million barrels per day that Nigeria was consuming but now they said it is 63 million.
What has changed? Has the number of vehicles increased?
Are people using their generators increased? In developed countries, the margin of increase is always realistic and small. For instance, they may use 10 million two years ago, 10 million last year and 10.5 million this year. It does not increase astronomically. But why did our own suddenly jump from 36 million to 63 million and even different organisations are giving different figures? Such a thing should be checked and what is creating it is open doors for corruption that we see. But some people, including organised la- bour, are not pleased with the way the petrol subsidy was removed. Their position is that before the subsidy was removed, stakeholders should have been carried along and cer- tain things should have been put in place to cushion the harsh effect of the removal. What are the things that must be done? For instance that the nation’s refineries should be functional. The refineries should have been priva- tised. But now that the NNPCL is a limited liability company, it will do better. But you have four refineries that are not working at all and you are paying staff salaries; it does not make sense. Only the government can do that. It is not about privatising refineries and removing the subsidy. The refineries themselves should know that they have to work in order for them to make money. The crude oil they would have sent to the refineries, they send the crude abroad. They import white products from that crude oil. We are losing money. You are exporting crude oil and you are importing the white products at exorbitant prices. I do not know what arrangement they reached with all the people who are helping them to do that. Until we study that agreement, we will not be able to say exactly what it should be. You have to remember that people like me sitting outside, it is differ- ent from when I was inside. When I was in- side, I could go around and get the data but now I am outside, I can not get the data and the facts around those things to be able to give them concrete advice. But I can tell you that it will be difficult for us to make any progress if we were still subsidising white products. You are going to use the money to repair the refineries.
Where are you going to get the money, if you even keep borrowing to keep subsiding?
They have made Turn Around Maintenance (TAM) many times on the refineries. How do you service a car that has not been working and you keep servic- ing it, you change parts and it has not been working and you keep spending money on it? And that is what they have been doing. Engaging in TAM on something that has not been working for a long time.
Many people are against Nigeria accepting the $800 million loan facility the World Bank offered to the country to cushion the harsh effects of the petrol subsidy removal. What is your position?
We should ask certain questions. What are the conditions for this offer from the World Bank? Once you see the conditions, we have settled one. And if the conditions are tenable to us, we have settled the second decision. Remember the days of the Structural Ad- justment Programme (SAP), they gave the government loan on the condition that they must do SAP, which brought the naira to be devalued. The devaluation of the naira to the level it is today started at that time. After settling the issues for the conditions of the World Bank loan, you now come to the issue of what the money will be used for. You can not just collect mon- ey and start thinking of what you will use it for. If I am going to ap- proach a bank to give me a loan, I already know what I am going to use that money for. When I collect the money before thinking or knowing what I am going to use it for, that money will be wasted. You cannot do without taking loans but let us know the condi- tions that the loan is offered for. Let us be sure that those condi- tions are not going to put more hardship on the country or on the people. Let us know what we are going to do with the money and put the money directly into those things and not divert the money at all, and some big people embezzle the money because they are in the position. The Federal Government said they are going to use part of the money for the FG’s social safety net, and that they would give N5,000 to 10 million households for six months as a palliative for removing the petrol subsidy.
How does that make any sense? You give N5,000. N5,000 is how many dollars? At the Central Bank of Nigeria’s rate of N450/$1, it is less than $12. At the black market rate of about N740/$1, it is less than $7. You see we are pursuing what we should not be pursuing. You collect such money and you will now be giving people N5,000 each for what? To do what? What business can you do with N5,000 in Nigeria now? That is why I said we should know what they will use the money for before they collect it ooh!!
If the $800 million from the World Bank they want to collect is to alleviate poverty, I do not support it. It does not make any sense in reality. How will that al- leviate poverty? Are they going to divide the money among the poor? If they are sharing it, the story of this country is the per- son who will be sharing it will take three-quarters of it. So they should not take us through that path. They should leave the thing the way it is now and everything will take good course in due time. Moreover, the so-called percent- age of poor people were the ones that were bearing the brunt of the petrol subsidy. They live in far-flung places like villages. In the village where I grew up, I do not know when they ever sold petrol at the controlled price. It has not happened in the last 20 years. And those people are al- ready used to it. When you were buying it for N145 per litre in La- gos, we were buying it for N300 and more there. So which pov- erty are they alleviating? They should not just collect any loan for this purpose. They should not. People even queried why should Nigeria propose to col- lect the $800m when the country is highly indebted. It can be an argument for and against. If you want to use your own money to do business, if you are going to use it to do some- thing concrete that we all see, I do not think it is a bad idea to col- lect the loan. But if you are just going to collect and pay people N5,000 and the remaining ones, they share it among themselves, and life continues, that is unac- ceptable. It is a sad situation. Sincerely, nobody does business with their own money. People who use only their money for business may not expand. Tak- ing a loan is not bad but the loan itself should be able to pay back by itself. When you are taking a loan and you are distributing it where you cannot get the capital back not to talk of the interest, what are we talking about? How many people will you give N5,000 today in Nigeria who will use it for any business? What business will they use N5,000 to do? But if you use it for something that will help people, that is acceptable. There are many things that you can do that will help people and enhance their well-being. The Country Director of the World Bank, Shubham Chaud- huri, said the facility’s rate is considerate compared to the do- mestic money market and Euro- bond. That Nigeria already has a N10.78 trillion budget deficit and the nation’s revenue is low, so taking loans to service the budget is inevitable. That the World Bank facility rate is more reasonable. The World Bank Country Di- rector is right. I said before that you need money to be able to make money. If they are going to use the loan right, nothing is wrong in taking any loan. But we are not even sure that they will use the money for something that will pay back the money. FG said part of the money will be used to distribute N5,000 to the vulnerable poor. How does N5,000 to individuals correct and help deficits in individuals? It does not make any sense. If they are going to use the money to create businesses, to teach people how to fish instead of them collecting fish, then it is going to be okay. There is no country that is not in- debted in today’s world including the Almighty United States of America. They are indebted but what did they choose to use their money to do? Politicians all over the world are looking for an easy way of pacifying the people. For instance, giving them N5,000 every month. But when they finish the N5,000 what will happen? Is N5,000 equivalent to employment that will give somebody N100,000 or N50,000 monthly? The N5,000 with our exchange rate is next to nothing.
Dangote refinery has been commissioned. He is a businessman who will want to recoup his in- vestments, pay the loans he used in building the refinery and make a profit. Will the refinery impact positively on or be beneficial to Nigeria?
It is a good thing. Whether it will be beneficial, we will wait and see because Aliko Dangote is in business, a businessman is always alive to his business. He is always thinking of how he will generate revenue from what he is doing. He is not a charity organisation. We have to bear that in mind. The organisation, Dangote, will start looking at how best to use its resources. It is possible that he will consider giving Nigeria part of it if the conditions are right or he can decide to take his product out- side. For it to benefit us in the country, we will wait and see. Of course, it is going to benefit Nigeria because he will employ more people and those people he will employ will also socially impact their environment. The organisation, itself will create many direct and indirect busi- nesses around because people are going to be employed. That is going to happen. But for the larger society, the whole of Nigeria, we need to wait and see. Its impact will depend on several factors including the conditions they will give him to supply his product to the country. I am not too sure that they have agreed on that yet. If they have, beautiful and great.
As of the fourth quarter (Q4) of 2020, the Nationa Bureau of Statistics (NBS) said Nigeria’s unemployment rate stood at 33.3 per cent. The Nigerian Economic Summit Group (NESG) projected it will rise to 37 per cent in 2023, while Global audit and tax advisory firm, KPMG, projected that Nigeria’s unemployment rate is expected to rise to 40.6 per cent in 2023. People have said it is a time bomb. How do you respond to this Nigeria’s high unemployment rate?
Sincerely it is a time bomb. How the bomb is going to explode is what we can not see for now because a hungry man is an angry man. So the government needs to find ways to tackle this unemployment. The government should create an en- vironment for businesses to do business. That will provide substantially more jobs for unem- ployed people. Which business are you going to do in Nigeria with a bank loan of almost 30 per cent interest rate? Nobody will collect that. Except if you are trading, then you collect it to go and buy large goods and trade and within three months you pay back. Even with that one, the profit margin will be reasonably low.
Nigeria still has high inflation. What is your advice to the new government?
I have a friend who is an economist, in fact, a guru in economics and he told me that there are three indices that they look at when they want to con- trol inflation. The indices are the exchange rate, interest rate and inflation rate. He said you can control two. So they try to control the interest rates and exchange rates. But sincerely at about N760/$1 on the black market, the interest rate of between 22 per cent and 30 per cent, what are you controlling? You are not controlling anything. My prayer is that President Tinubu will not print more money because that will kill everything. Because the time this thing started, he sug- gested to President Buhari that he should print more money. The printing of money is what is bringing high inflation in the US today. They are printing more money and it is now hyperinfla- tion. They said it was going to be transitory but it has come to stay. My advice is that they should try to control the other two. We have every means to control them if we look inwards.