A professor of Economics at the Ekiti State University, Ado Ekiti, Taiwo Owoeye, speaks with IMOLEAYO OYEDEYI on recent exchange rate policy emplaced by the Central Bank of Nigeria, among other sundry economic issues affecting the country.
Recently, the Central Bank of Nigeria (CBN) threw open the forex market by authorising banks to freely trade foreign exchange at market-determined rates, what is your take on this policy?
It is the right policy by the government. This is because the multiple exchange rates that we have before are not appropriate for the economy, because on one hand, you have the official exchange rate, which is above N400 to a dollar. And then you have the black market rate, which was about N750 to a dollar. In between the two, you have about three or four other exchange rates that are also not appropriate. So, the multiple exchange rate was very bad as it did not allow foreign investors to bring their investments into the country. So, I believe scrapping it is very in order. It will be recalled that the World Bank and the International Monetary Fund (IMF) as well as other global monetary giants have argued repeatedly in the past that it is better for Nigeria to operate a single exchange rate that will reflect the market forces. I guess that is what this government is ultimately doing. And to me, it is the appropriate thing.
But what do you think will be its positive and negative effects on the Nigerian economy going forward?
It will affect the economy as it has its own merits and demerits. The merit of it is: firstly, it will allow people who want to invest in Nigeria now to bring in their hard currencies, because they can always get back their investment at market determined rates. It will also increase the supply of dollars in the economy. The second thing it will do is that it will increase the amount generated into the Federation Accounts, from which the three levels of governments get their monthly allocations. This is because any income that the country has now which is dollar-denominated will be calculated using the realistic exchange rate, which is the one determined by the market, instead of the former official exchange rate used by the commercial banks.
But the flip side of it is that the price we are buying petroleum products, which has been recently deregulated, may likely change if the exchange rate that the Nigeria National Petroleum Corporation Limited (NNPCL) uses to calculate the current price of fuel is actually different from the one we are having now. So we might have a situation where we may likely have to pay more for petrol consumption. The second disadvantage is that there are so many things we price at the official exchange rate before, such as payment of flight tickets, payment of foreign tuition and examination fees and others. You will have to pay for these things at the official foreign exchange rate and this will increase the amount we will be paying for them in naira. It will also be the same for other goods and products we are bringing into the country at the official exchange rate. So, the effects of the policy are going to be in two ways. On the merit side, it will improve the economy, but on the demerit side, it will cause problems for the people.
But all in all, I still believe it is the best policy, because what we receive from the federation accounts will eventually increase overtime, because the rate at which the dollar is now being exchanged to the naira will improve and bring more revenue to the three levels of government.
In all, is there anything the government can do to cushion the negative effect the policy may have on the masses?
Yes, there are. And one of the things the government can do is to make sure that we improve our supply of dollars. This is because if we improve the supply of dollars in the economy, the exchange rate will stabilise over time. This is one of the key things. And the government can do this by making sure that we do not have the arbitrate, which simply means the difference between the official rate and the black market rate of the dollar, such that we will bring in as much dollars as possible to make sure that the demand for dollars by different Nigerians either to attend university abroad or to import goods and products is well met by the government.
The second thing the government can do is to look at how to increase the supply of dollars by making sure that whatever activities we are doing now that are fetching us dollars is intensified, maybe through foreign remittances or exporting of goods. Also, the government can create a situation whereby our demands and reliance on foreign goods can be drastically reduced. A very good exchange is ensuring that fuel is domestically refined in the country, because we spend a lot of our dollar-earnings on importing petroleum products. So if we can start refining in the country, the cost of shipping the fuel and other dollar-related costs will be greatly reduced. These are the things the government can do.
Talking about the fuel subsidy, what economic-survival strategies can you offer to the government that will cushion the effects of the removal on Nigerians?
Removing the subsidy is what we have to do. The fact that we have not done it before is even a problem. So, doing it now is like confronting a problem we should have confronted before. The fact is there is no time you face a problem that will not result in some consequences for you. So, obviously we will have some consequences with the subsidy removal. But the government can try as much as possible to make sure that we start having more transparency within the oil and gas industry. Secondly, the government can also reduce the burden of the removal on the masses by firstly ensuring that the efficiency of the distribution of petroleum products is improved. The third thing the government can do is to ensure that, given the resources that will be generated through the subsidy removal, salaries of workers at all levels in the country are increased, so that they can be able to meet some of their obligations in the no-subsidy regime. The truth of the matter is that the subsidy has been long overdue for removal. But now that it has been removed, the government must work on ways that will reduce its negative effects on the people. Having said this, the price at which we are buying petroleum products now will eventually come down if we begin to refine within Nigeria. All in all, the government should come up with a long term plan to reduce the economic burden that the subsidy removal will have on the people as time goes on.
You will agree with me that even if Tinubu’s presidency has expressed its readiness to fix the moribund refineries of the country, this won’t come anytime soon. But what are the immediate mechanisms you think governments, especially those closer to the people can do in order to cushion the subsidy removal effects?
One of the easiest things the governments can do is to improve and increase public transports. If you go to some of the advanced countries in the world, the public transport system is very cheap. So, we can begin to reintroduce that. For the inter-state, we can begin to look at how people can travel on big public buses at a very pocket-friendly rate. This is very important, especially for the teeming masses, who do not have personal cars or are financially buoyant enough to spend huge amounts on private transportations. Just like I have said above, the second thing is to immediately increase the salaries of workers across the board. This is very important, because one of the tragedies of the oil subsidy is that most of the money the government generated from exporting crude oil was used to subsidise fuel for us. In fact, for almost two years now, the NNPCL has not paid a dime into the federation account out of proceeds made from oil sales.
The corporation claimed that it has been using the proceeds to subsidise the commodity for Nigerians’ consumption. But now that the subsidy is removed, I believe the corporation can begin to put more money into the federation account and with the deregulation of the exchange rates, the funds that will be going into the FAAC monthly or annually will increase. And by doing so, we can begin to talk about increments in salaries. My estimate as an economist is that the increment in salaries should be anything above 50 per cent. If the government can do this, then it will be easier for the people to confront whatever challenge the subsidy removal throws at them.
Meanwhile, the problem that necessitated the removal of the fuel subsidy is not even the corruption and smuggling associated with it, but the fact that we are using oil revenue that is decreasing day by day to subsidise consumption of fuel that grows rapidly with the country’s population. The implication is if we haven’t removed the subsidy now, in the next five to ten years, we may be using the entire government revenue to pay it.
There were reports that the country was consuming about 67million litres daily before the subsidy removal. But now, it is being put at figures less than 15million litres per day. What can you say on the disparity in the two figures, though unofficial?
Just as you said, the figures are not official. So, they may not be true. This is because there are two problems. The first is that we do not actually know the quantity of fuel we were consuming before because of the subsidy. And the reason we did not know this is because the subsidy itself is enmeshed in fraud. So if people are now throwing around figures that we were consuming 67million litres before and suddenly the quantity has dropped, that is their own claim. It is not yet official and we can’t rely on it. But the truth of the matter is that because subsidy itself is a web of fraud, we did not know the quantity we were consuming then. So, all I can say now is that we should wait for at least a month after the subsidy removal. It is then we can know the exact quantity of fuel we are really consuming. But the fact still remains that the subsidy removal will reduce the quantity of fuel we are consuming as the consumption will now be determined by market forces.
Speaking of education, you are a lecturer in a public university. Recently, the federal government emplaced student’s loan, but reports say that the government will soon introduce tuition fees payment into the public university system. There are fears that this may not be in the best interest of poor Nigerians, whose children flood the federal institutions and that even the student’s loan system may end up being a fiasco that will further make life harder for Nigerians. What is your take on this?
Well, I see the student’s loan as the first step in redeeming the Nigerian university and tertiary education system. The problem we have is that we are used to the system that was largely dominated by the oil boom which we had in the past when people would go to the university and never pay any tuition till they graduate.
In fact, then, some people were fed and even being paid to go to the university. But things have changed from that period till now. So what the government has done now is to say well, we are going to introduce students’ loan to help indigent students and to also make sure that students who can afford to pay tuition get the best of education. As we speak now, most federal universities do not have tuition. And in places where they have, those tuitions are not cost-reflective tuition that reflects the cost of providing education for Nigerian students. So what the government has done is very good and I support it. I believe after having cost-reflective tuition, the government should make sure that students who are unable to meet that cost-reflective tuition are able to easily access the students’ loan to help them fund their education.
But there are some issues with even the student’s loan. For example, one of the terms of the loan is that if you are earning more than N500,000 per year, you will not have access to the loan. But N500,000 per year is very low, given the inflationary level in Nigeria. So this has to be amended. But as it is, the fact that the process has started is very good. But after the students’ loan availability and the introduction of tuition, the government should re-organise the system in such a way that the structural defects that are within the public university system are addressed. Most public universities in Nigeria have cost and income structure that is not appropriate and this must be addressed. But in the interim, we can say the government has done the right thing by starting the process.
I know some people may argue against the introduction of tuition for the federal institutions, but this has to be, because we are one of the few countries in Africa, not even in the world, that is presently not introducing tuition in its federal institutions. And this is because many of us believe that the system of free tuition we operated in the first era is still the appropriate system for education now. But it is not, because the oil boom that was in place then is no longer available now. The oil revenue is depreciating daily, so, there is no way the government can improve the standard of the education system without tuition, even if the government will also need to carry out structural reforms of the whole system.
YOU SHOULD NOT MISS THESE HEADLINES FROM NIGERIAN TRIBUNE
WEEK BRIEF: Emefiele’s suspension, arrest and Nigeria Air’s revelations top news
The story of the suspension of the Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele by President Bola Tinubu broke the internet on…
95% of Nigerian male celebrities, including myself, ‘do both men and women’ — Actor Uche Maduagwu
Controversial Nollywood actor Uche Maduagwu has claimed that no fewer than 95% of both married and single celebrities, including…
Real Reason Tinubu suspended Emefiele — FG
President Bola Tinubu, on Friday, ordered immediate suspension of Mr Godwin Emefiele as…
10 points from President Tinubu’s Democracy Day broadcast
In commemoration of this year’s Democracy Day celebration, President Bola Tinubu made his…
[PHOTOS] Hilda Baci: Lady begins 120 hours cook-a-thon to break Guinness Records
DURING his inauguration speech, President Bola Ahmed Tinubu announced that the era of…
SERIE A: Victor Osimhen becomes first African to win Capocannoniere award
A chef identified as Damilola Adeparusi has begun a 120-hour cooking marathon in Oye Local Government Area in…
and then