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Whoever says fuel is being subsidised is a poor economist

Posted by By TUNDE RAHEEM, Akure on 2007/07/03 | Views: 393 |

Whoever says fuel is being subsidised is a poor economist


Renowned economist, Prof. Sam Aluko has described as unjustified the Federal Government’s hike of the Value Added Tax (VAT) and prices of petroleum products which recently plunged the nation into four days of instability arising from a nationwide strike called by organised labour in protest against it.

Renowned economist, Prof. Sam Aluko has described as unjustified the Federal Government’s hike of the Value Added Tax (VAT) and prices of petroleum products which recently plunged the nation into four days of instability arising from a nationwide strike called by organised labour in protest against it.

Government has always hinged the increase in fuel prices on the argument that it could no longer afford the massive subsidy on refined oil imports. Indeed, it claimed that at the N70 per litre compromise price reached with the workers, it still subsidises petrol with N30 per litre.

But Prof Aluko described this as a big lie aimed at deceiving the people. According to the expert who was one-time Chairman of the Economic Intelligence Committee, the claim stands on its head, the economic logic that a commodity is considered subsidised when the cost of its production is higher than the cost it is sold.

“I warned them last year not to increase the VAT and fuel price because government is not subsidising anything. Whoever tells them that they are subsidising is just deceiving them because they are poor economists. You subsidise something when your cost of production is higher than your cost of sale.
“The cost of production of a litre of oil in Nigeria is N11 per litre production from the soil to the refinery. So, if you are selling it for N20 per litre, you are still getting N9 per litre surplus not to talk of when you are selling it for N65. But if you go and import from England, it is like a man who produces gari, he sells in England where a cup of gari is about 10 times the cost in Nigeria and then he imports gari from America and says he is subsidising,” Aluko said.

The former university don blamed former president, Olusegun Obasanjo for inflicting pains on Nigerians, saying: “He kept on saying that he was subsidising the price of oil. From where? Is it from Obasanjo’s farm? A nation that is sensible, reasonable should know who is paying the subsidy or where they are getting the subsidy. Is it from income tax? Is it from VAT? Is it from custom duties? Where are they getting N30 per litre for subsidy? They are just deceiving Nigerians…”

Prof. Aluko said the higher the price of oil rises in the world market, the less Nigerians should pay for petrol at home as the nation would be making more money even in excess of its budget.
He wondered how the Nigerian government could not copy the former Iraqi President, Saddam Hussein, who declared free sale of fuel to his nationals every weekend on account of profit Iraq earned when oil price rose for the first time in 1981 since after 1973.

He regretted that Obasanjo had surrendered the nation’s economy to foreign interests.
Aluko, who spoke in an interview with Daily Sun in Akure, also bared his mind on sundry issues. The controversial sale of the refineries and other national assets, government’s monetisation policy, the Niger Delta crisis and charted an economic blueprint he would want President Umaru Yar’Adua to implement.

Excerpts:
Sir, how will you analyse the economic policies of Obasanjo’s administration in the last eight years?
When he was Head of State in 1979, he behaved like a true nationalist, three of the four refineries emanated from him. He did so well for the nation. That was why I was one of those who supported him during 1999 elections against all odds. But surprisingly, when he became the president, his whole ideas changed and he sold Nigeria to the West. I wrote the review of the economic policy of the government and it was published, about 30 pages. There was nothing in favour of Nigerians including the payment of external debt.

He refused to pay internal debt. You don’t energise an economy when you keep your country poor and you are paying your external debt. It is when you pay your internal debt that you will stimulate the economic growth and you will be able to pay your external debt. But he was more interested in paying external debt, selling our refineries, selling our assets against the Constitution. All he did about this monetisation, sale of government properties is against the Constitution. The Constitution states that all that is owned by government will continue to be run by government until the National Assembly says otherwise.

But he suppressed the National Assembly, his party and the nation. Even look at the fuel thing, he kept on saying that he was subsidising the price of oil, from where? Is it from Obasanjo’s farm? A nation that is sensible, reasonable should know who is paying the subsidy or where are they getting the subsidy? Is it from income tax? Is it from VAT? Is it from custom duties? Where are they getting N30 per litre for subsidy? They are just deceiving Nigerians, they are collecting rent, they are collecting money that is due to us as a country. The higher the price of oil rises at the world market, we should pay less at home because we are making more money than what we budgeted or bargained for. I was in Iraq in 1981 when the first oil price rose after 1973, the former president of Iraq, Saddam Hussein, declared that every weekend Iraqis should buy oil free, every Friday because he was a Muslim. So they should not pay for fuel because they were getting more money than they budgeted for. He did this because the price of oil had increased in the world market.

But here, anytime the price of oil rises in the world market, you say we must pay more because they are importing. Why are they importing? Obasanjo, in three years built three refineries, in eight years he could not even make one of the four refineries work! Something must be wrong somewhere, so he was anti-people, he was parading around the world, running around the world because he thought they would support him to continue. His eight years’ policies did not favour the downtrodden masses and you could find out that by the time he left office, the economy was poorer than when he took over in 1999. Forget about all statistics the Central Bank governor is quoting that we now have a better reserve saying that inflation has reduced drastically in eight years. Obasanjo had six economic advisers, they couldn’t tolerate him.

They have five chairmen of PDP and five Senate presidents. I mean it is a calamity because I know he could do more, because I know he loves this country. But I was so disappointed because before he became head of state, before he was sworn-in, I had a meeting with him and I told him that as the chairman of Economic Intelligence Committee that for every shipload of oil imported to Nigeria, the people are making $110,000 profit and that they would not allow our refineries to work unless they stop the importation of fuel. Because the profit is so much and he assured me as a true friend that he would not allow importation of fuel.

But the importation of fuel was his main priority in his last eight years in office. When you want to lift fuel, you know that currently there is 20 million litres of fuel in Ore. You kept it there and you asked us to be lifting fuel in Lagos from private depots and these privates depots are supplied by government. But there are 28 depots which government had where you could lift in Ore but they will ask us to go to Lagos, go to Port Harcourt. Again, I hope that Yar’Adua will look at all these anomalies and will not allow Obasanjo to manipulate him like a puppet who is being controlled from outside. We have no meaningful economic policy now and if we continue like this and think by 2020 we will be one of the countries with the largest economy, let me tell you the truth. We will be one of the 20 poorest economies because that was what he said in 1999 that before 2020, we would be one of the 10 largest, today we are the poorest economy in West Africa per capita.

Government is very rich, but our people are very poor because of the economic polices of government and unless we pursue industrialisation, all these free market, private sector, which private sector? Unless we allow government to be the leader of the economy and that is what our Constitution says because if government does not lead the economy the private sector cannot even succeed. Some people are saying that the private sector is the engine of the economy. Where is the engine in the private sector? Who are those in the private sector? The only significant private sector in this country are, UAC, Cadbury, Guinness all owned by foreigners.

Where is the private engine that will sustain the economy? Unless we energize the economy by government, we will never make it. I have told them times without number that they just have to energise the civil service. They have destroyed the civil service by saying government has no business in doing business. They have demoralized the civil service, retired them, they are not well paid and they even refused to allow them to have an input. Government is civil service, government is not politicians, president, governor, commissioner and not senator. Once you demoralize and behead the civil service, you are finished. That is why at the end of his office, Obasanjo said there are saboteurs because he did not do the right thing.

When Obasanjo was in government he increased VAT from 5 percent to 10 percent and also increased the pump price of fuel from N65 to N75. Sir, what is your view on this?
Many people feel that Obasanjo is wicked. It is not so, he acted according to the wish of the people that are pushing him from the outside. In 1999, the major oil companies came to my committee, National Economic Intelligence Committee and told us to sell all our refineries, that refineries don’t pay, we should sell all our refineries, that the pump price in 1999 should be about N100 per litre. That was before Obasanjo came. So I asked them that if refineries don’t pay, who do you want to sell the refineries to, who will buy what doesn’t pay?

Do you want us to sell to your countries where we import fuel? I told them it is because you want us to continue to import fuel from your country, Total, Agip, Shell, BP. So that we will continue to look up to your country all the time. I told them that any country that sells its refineries won’t last three months and I warned Obasanjo. So, it was they who went ahead to convince him that the refineries should be sold, that is why he is saying pump price should be N100 per litre. I think Obasanjo will be regretting that he couldn’t make pump price N100 before he left. He wanted to make sure that it was more than N100 because that was the advice he was getting from day-to-day from these oil majors who are foreigners, who want us to be importing fuel from their countries.

What are we importing today? Our oil is the finest, sweetest and most qualitative in the world, but those who are importing oil are importing the crudest and worst quality into Nigeria. We are producing the best quality oil, we are consuming the worst quality oil because instead of refining it in Warri, Calabar and Kaduna, we kept them idle by importing abandoned oil from abroad. I told Obasanjo by now that we should have about 20 refineries in Nigeria. After I left government in 1999, I wrote to all governors along the coast from Lagos to Calabar, to say look, let each of you try to build a refinery. If you cannot do it alone, combine with neighboring state and build refinery. I said Lagos should have a refinery because it consumes 30 percent of the total oil consumed in this country.

Not only that, I sent to them, refineries around the world, about 200 refineries that I know around the world from the smallest to the largest. At least in Ondo State, if people can build a refinery that can take care of Ondo and Ekiti states alone, at least it will help to a certain extent. Till date, has any of them built any refinery? They used the money for different things, they finance their elections, they rigged them. So, it is unfortunate because this nation that has been blessed abundantly, we don’t deserve what we get and we don’t get what we deserve. So, increasing the price was totally wrong. As for VAT, I was one of those who introduced VAT into this country. I served all the committees, before we could get even 5 percent accepted by government in 1993 to start. January 1994, it was great job, they were saying it is going to cause a lot of problems, people would not accept it because there is hardly any country in the world where VAT has been introduced that there was no riot except Nigeria. Because we put it at 5% and we exempted those that would affect common people.

So, we assured government that they should give it a trial and even up till now, the 5% is not being fully administered. The whole of services, accountants, lawyers charge fees from their clients, he has to charge 5%. Is that operating in Nigeria? I have told the Federal Inland Revenue Service several times because I am one of their consultants. I told them, look, you are not even effectively implementing the 5% let alone increasing it. Let us deepen the implementing of the 5% first, you could get double what you are getting now from the 5% and don’t increase it, if you increase it, the nation will not accept. There is no doubt that there is a clause that says the minister can increase it but that was during the military. When they took the 10% to the National Assembly, they turned it down and told them again last year, when I met one of them, that they should not try it and even if they want to increase it, they should not increase it to more than 6% that is what they do in advanced countries.

They will say five to five and a half percent. I was in Egypt when the price of bread was increased by one penny, there was riot in Egypt, government had to withdraw it. But in this country, they have taken us for a ride, they say let us pray in the church that there would be peace. When there is no justice, there can be no peace. So, the government is taking the people for granted by increasing VAT from 5% to 10%. I have all the VAT rates in the whole world, about 132 countries in the world today that are collecting VAT, they don’t just say 10%, it is absolutely wrong.

I warned them last year not to increase the VAT rate and fuel price because government is not subsidising anything, whoever tells them that they are subsidising is just deceiving them because they are poor economists, you subsidise something when your cost of production is higher than your cost of sale. The cost of production of a litre of oil in Nigeria is N11 per litre production from the soil to the refinery, so if you are selling it for N20 per litre, you are still getting N9 per litter surplus not to talk of when you are selling for N65. But if you go and import from England it is like a man who produces gari, he sells to England where a cup of gari is about 10 times the cost in Nigeria and then he imports gari from America and says he is subsidising.

So he has got more than 10 times what he should get; he is now paying a little more than what he should pay at home, he is saying that he is subsidising. In Economics that is what is called unearned income that shows that government is earning so much unearned income. In fact, if the price of oil rises in the oil market; they should reduce the selling price of petrol kerosine and diesel in Nigeria so that we can get the benefit. I mean it is like a farmer who sells yam in the market and he continues to suffer his children and say let me sell this yam because I will make more money. It is a terrible situation. They prefer to sell the crude at a very high price so that they can have enough money to steal and use to rig elections. That is why we have money at local government and state levels and yet they keep saying they are subsidising, from where are they getting the subsidy?

Is it from Obasanjo’s farm or Dangote’s sugar factory? It is from the oil! So it is unfortunate. If I were Obasanjo by the time I was going, I will continue with the price so that they could continue to pray for me that at least I am going. But the reverse is the case; everybody is cursing him, the burden he brought on us is not right.
Now that President Yar‘Adu is in charge, what economic policy will you advise the man to implement?
I will continue to write to him as I used to write to Obasanjo. I think he should know that as long as he continues to follow what World Bank and IMF say, he cannot succeed because IMF says you should retrench people, and as long you continue to retrench people, you are putting the economy in shambles. You could see that during the last elections, there was no armed robbery, there was no armed robbery on the road or in the house, everybody was engaged in campaigning and going around with the politicians. We should be looking for more people to work rather than sacking them.

If you think somebody is not doing enough well in job, it is reasonable to sack such person. When Britain and Europe were in our situation, they used to go to the streets to carry those who are not working and put them in place that they will be useful. That is what we should be doing, there should be no graduate who has left school who wants to work that should not be given something to do. There are so many things that are left undone in this country. Look at our roads, you can put 2 million people on the roads to make it accessible. Look at their highways in Europe; clean and superb. Go from Akure to Abuja, let me tell you, supposing we have built about 12 refineries in this country, do you know the number of people that will be working there.

We will be exporting instead of importing. All the industries we built in this state from 1979 to 1990 have been sold. We set up a bank, it has been sold. And we wanted to open three banks, a commercial bank, an agricultural bank and industrial bank for Ondo State which comprises both Ondo and Ekiti that time but nobody is thinking of that now. I will advise Yar’Adua to have a four-year development plan, it is in our constitution, section of our government is supposed to have a development plan, all our 774 local governments is supposed to have a development plan, planning means control, he who fails to plan as the saying goes plans to fail. I will advise him that he must return to our former five or four years of making progress.

That means you don’t subscribe to the idea of privatisation policy? Do you want President Yar’Adua to reverse the privatisation policy?
Yes if he can, he should stop the sale of refineries, let private operators build their own, after all, competition is the best. If government has refineries and the private sector does the same and if the private refinery is working well, the government refinery will imitate them. Why do we want to turn public monopoly to private monopoly? Why? Dangote or Otedola, why can’t they build their own refineries, let them go and build their own. When government wants to destroy something, they will withdraw grant from it.

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Comments (3)

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Okfold(Sobe, Edo, Nigeria)says...

I want the meaning of female owan name Ekeke (Edo state)

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Toluwalase Samuel Olufemi(Ijebu, Ogun, Nigeria)says...

Authority belongs to God, once He decrees it is final and binding

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Ikponmwosa Osamede(Edo, Nigeria)says...

Your meaning of Osamede is wrong. Osamede means God has given me a crown