President backs down on fuel price increases, but it is still winter in Nigeria

Nigeria's government reimposed fuel subsidies after massive protests. But initial decision raises questions about government's moral or political credibility over calls for austerity.

My wife, Chizo, from the Nigerian city of Port Harcourt, went to Moneygram this morning. She sent money to her brother, a front-line oil worker, who is the mainstay of the domestic economy of her extended family. Because of the strikes in Nigeria, her brother isn’t working — and isn’t earning. He does have savings, but no ATM card, and his bank isn’t open. The bank’s workers seem to be on strike. Meanwhile, prices are soaring for essentials; the rises are probably temporary, but they bite. In a country where most ordinary people live close to the edge, a few days without pay can send a person hurtling towards oblivion.

I don’t claim to understand why Nigerians are revolting over the sudden and misguided decision by the government of Goodluck Jonathan to dramatically raise the basic price of petrol. In Nigeria, as in many African nations, government sets the price of petrol. In Nigeria, petrol prices have long been set well below market prices. At first, the subsidies for fuel were intended for the wealthy. Forty years ago, only the wealthy could afford a car, only the wealthy could even use any form of transport to travel on a regular basis. Rather than a subsidy for the poor, the freeze on fuel prices was intended to help the rich.

The strange history of fuel prices highlights the difficulties of analyzing what the protests portend. In the broadest (and ideal) sense, pegging fuel prices at market levels will promote more efficient use. That’s good in the abstract. But in the real world of Nigeria, there are two problems with raising fuel prices abruptly. First, the effect on the poor — and that’s most Nigerians — is awful. A decent government would take immediate, firm, and effective steps to mitigate, if not remove, any adverse impacts of the fuel increase on poor Nigerians. No such plan or actions are in the works.

More significantly, the Nigerian government has no moral, political, or pragmatic credibility. Critics rightly argue that the government could simply raise fuel prices and pocket the increase. There are enough examples of government officials stealing government funds to make such a scenario seem inevitable, not just probable.

(On Monday, President Jonathan announced that he would restore fuel subsidies, after a week of citizen protests and a looming oil-worker strike threatened to shut down the Nigerian economy.)

The solution to the problem is actually easy to locate. The government of Goodluck Jonathan should declare that the refinery capacity in Nigeria — the lack of which forces the government to import petrol at market prices — should be expanded before any fuel price increase occurs. The Nigerian government, in short, should function here on a “prove it to me” basis. Once petrol is being refined in Nigeria, by Nigerians, on a sustainable basis, then the fuel subsidy can be eliminated.

Even opponents of the elimination of the fuel hike know well that Nigeria, a major world producer of crude oil, ought to have the capacity to meet its own domestic needs for refined gasoline. The failure of Nigeria to meet its own needs holds up the country to ridicule. The question is not whether to remedy this failure, but how.

In implementing the fuel hike, Nigeria’s finance minister deserves special criticism. Ngozi Okonjo-Iweala is an internationally respected economic thinker, a former senior official at the World Bank and a former finance minister in former President Olusegun Obasanjo’s important transitional government. She should know better than to impose, without conditions on the government’s own energy bureaucrats, a dramatic and sudden rise in fuel prices that does not also include some penalties and some incentives for the Nigerian government to expand its domestic refining capacity quickly. How she, with her past accolades, could design a program that gives the government perverse incentives is a mystery.

Ngozi Okonjo-Iweala must explain to her own people, and the international community, why the fuel increases must come before the improvements in government services. Nigerians of all persuasions are justifiably concerned that their state apparatus has failed. They are rightly suspicious that government is a mere formality in Nigeria and that any increases in government revenues will be looted.

To be sure, Ngozi Okonjo-Iweala can argue that the government of Nigeria needs the funds to restructure its domestic energy economy. While true, those funds can and should come from existing crude-oil revenues. Those funds should come out of the massive existing government expenditures which are directed towards the benefit of a few.

As the most respected member of the current Nigerian government, Ngozi Okonjo-Iweala cannot pretend that Nigeria is a blank slate on which to write. Resistance by the people of Nigeria does not have long roots and the year 2012 may not bring the so-called “Nigerian spring.” Yet even if the fuel-subsidy protests would end tomorrow — and even if the government makes good on suggestions that the increases may be rescinded or cancelled — they have already delivered an undeniable verdict: for the Nigerian government, it is winter.

G. Pascal Zachary is a professor of practice at Arizona State University, where he teaches a seminar on technology, development and sub-Saharan Arica. This blog first appeared on his blog site, Africa Works.