The LCCI notes with concern the proposal by the Nigeria Labour Congress [NLC] and the Trade Union Congress [TUC] to proceed on strike from Monday 28th September 2020. The LCCI appreciates the perspective of the labour unions with regards to the pains and hardship that the recent price hikes in petrol and electricity will inflict on the citizens. But the chamber also recognizes that the government is faced with very difficult choices at this time.
The Nigerian economy is currently stumbling, having suffered a significant contraction of 6.1% in the second quarter of this year. The economy is yet to recover from the devasting shocks wreaked by Covid 19 and now on the verge of a recessions. The economy needs to be urgently pulled back from the brink through the adoption of appropriate policy reform measures. The reversal of the current reforms would exacerbate the challenges of the faltering Nigerian economy.
The reality is that fiscal space to sustain the humongous, corruption prone and opaque subsidies no longer exists. It is not in the best interest of the citizens, the economy and future generations to encourage the perpetuation of corruption ridden subsidy regimes.
Besides, the country is grappling with a palpable fiscal sustainability challenge. There is mounting public debt which had grown from N12.6 trillion in December 2015 to N31 trillion as at June 2020. This is a n increase of 146%. Debt service to revenue ratio has also been skyrocketing, reaching unsustainable thresholds. Capital budget component of the budget has been diminishing rapidly over time to between 20-25%, fiscal deficit has been stretched to the limit statutorily allowed by the Fiscal Responsibility Act. We have seen large negative variances in revenue performance at all levels of government. The capacity to fund critical economic and social infrastructures had waned considerably. If the country continues with the current trend of monstrous and opaque subsidies, it could slip into bankruptcy.
The economy should be managed in a way to bequeath a good economic legacy to future generations. Nigeria became an oil producing country over six decades ago. Yet there are no significant private sector investments in practically the entire value chain of the downstream petroleum sector. The entire space has been dominated by public enterprises with the attendant inefficiencies and fiscal leakages which had done enormous damage to the Nigerian economy. The economy had been denied the benefits of the vast investment opportunities which the oil and gas sector offers. These include:
- Unlock the huge private investment potentials in the downstream oil sector especially in petroleum product refining. This will ultimately reduce importation of petroleum products and ease the pressure on the foreign exchange market as well as the burden on our foreign reserves.
- Eliminate the patronage, rent seeking activities and corruption that currently characterise the downstream oil sector.
- Create quality jobs for the teeming youths of the country in the downstream oil sector as investment in the sector grows exponentially.
- Makes resources available for government to fix economic and social infrastructures for national development.
The story of the power sector is similar. The sector needs huge investment to guarantee power supply. Attraction of private capital is the best option available to government at this time to guarantee sustained improvement in electricity supply. Attracting private capital requires that pricing must be right to ensure that the economics of investment makes sense to the investors. There is a risk of total collapse of the electricity sector if the sector is left entirely in the realm of public sector. The success story of the private sector driven transformation in the telecoms sector could be replicated in the power sector and the petroleum sector if an appropriate policy environment is created.
In the meantime, we urge the government to urgently put palliatives in place to cushion the effect of the fuel price and electricity tariff hike on the vulnerable segments of the society. This should be the bigger agenda for conversation at this time. The level of poverty is high and worrisome. Therefore, the intervention to mitigate the pains of reforms needs to be urgently activated. More importantly, effective targeting of such palliatives is crucial to ensure that the vulnerable groups are effectively impacted. Social sector investment has been recognized as also crucial to poverty alleviation. These include more investment in health services, education and mass transit. Savings from the current reforms should be targeted to these areas.
The LCCI appeals to labour to engage the government on poverty or hardship mitigating measures to cushion the effects of the price and tariff hike. It is equally paramount to ensure an effective regulatory framework in the electricity and petroleum downstream sectors to protect citizens from the exploitation. The regulators should ensure value for money. Accelerated metering programme should be in place for the power sector. The LCCI urges the labour unions and the government to scale up the dialogue and negotiations to avoid another round of disruption of economic activities in the country.
DR MUDA YUSUF
LAGOS CHAMBER OF COMMERCE AND INDUSTRY
27TH SEPTEMBER 2020.