De-regulation of Oil Prices in the Nigerian Economy: Implications and Prospects

(being a paper presented at the opening plenary session of Nigerian Institute of Marketing Eastern chapters on Friday 8 February 2002, at Awka, Anambra State)

Anayo D. Nkamnebe
Department of Marketing Nnamdi Azikiwe University PMB 5025, Awka-Nigeria e-mail: nkamnebe@skannet.com.ng

Introduction Recently, the federal government announced an upward adjustment in the petroleum product prices. This exercise has become an annual ritual in the nations fiscal policy, which if not checked will lead to speculation. This of course is not ideal for planning any development initiative. No wonder organized labour embarked on a strike that would have crippled the nations economy but for the intervention of the federal might. Despite this, fear and suspicion still reside in the mind of Nigerians. In this paper, we examined some critical orthodoxy that bears on price adjustments. We hope that the issues raised will serve as a food for thought to listeners and also the conclusions arrived at, will help to achieve better life for Nigerians. Resolving the Question Of Price Adjustment In trying to justify her action, government insisted that her recent action in adjusting prices of petroleum products upwards is predicated upon a global macroeconomic policy that is hinged on market participation rather than state domination. In this regard, government argues that privatisation of nations economy holds the key to macroeconomic development. If we follow this argument, the question that must be addressed, is whether privatisation is ideal for Nigerian economy. Thus our discussion shall be directed at the implications of privatisation or nonprivatisation on the economy; the structures that would help to optimise the gains of privatisation, and to answer the question of whether Nigeria can afford not to privatise. All these will be discussed within the context of consumer welfares.

The Privatisation Question Privatisation has to do with adopting private sector orientations, rules, and procedure to execute public policies. In Nigeria, government ventured into business ownership essentially to set up a framework to initiate and sustain economic development. In other words, commercial objectives were not the primary aim of these businesses. Whether this objective was met, may be outside the scope of this paper, but suffice to say that these businesses are now regarded as a drain in the government revenue. This makes government continued involvement in business a very weak argument. Privatisation option has been widely applauded as one of the most viable options of economic development. This argument sounds quite plausible, yet it is covered with a lot of difficulties. This calls for clearer understanding of its implications on the economy and consumer. Implications of Privatisation In a very simple term, privatisation could be said to have both good and ugly dimensions. The negative implications can be summarized as follows: 1. In the short run and even the medium term, prices must escalate due to profit-making tendency of investing capitalist. This means that the era of government subsidy is fast withdrawing into antiquity. Yet majority of Nigerians are poor, the question of how to caution the immediate effect of the programme becomes imperative. 2. In a situation where the privatisation process is not properly handled, it will lead to transfer of public monopoly into the hands of private capitalists. This no doubt will lead to exploitation. 3. It may lead to scarcity of those goods and services which private capitalist may not be interested in producing. We shall recall that one of the key reasons why government ventured into business was to provide those goods that may not be attractive to private investors in terms of profit-making. 4. Again it may lead to lopsided distribution, which will tend to deny sections of the society certain services. The case of GSM is a good example.

Despite these weaknesses, privatisation has good prospects for development if properly managed. We summarize some of the frequently touted benefits as follows: 1. Corrupt and mismanaged government bureaucracy will be eliminated. 2. It will attract private entrepreneurship with is many positive implications, especially in the area of efficient utilisation of resources. 3. It will induce competition, which is important in moderating market forces to the benefit of consumers. 4. It will lead to availability of goods and services. 5. Government will concentrate on governance etc. However, for all these to be realizable, certain structures and fundamentals must be present. We summarize them as follows: 1. Transparent and accountable governance 2. Re-engineered social structure 3. Free press 4. An efficient public service 5. An independent judicial system and the legal framework to enforce contracts 6. The accountable administration of funds 7. An independent public Auditor responsible to a representative legislative. 8. Respect for the law and human rights at all levels of government 9. A pluralistic institutional structure Concluding Remark The global trend is moving towards private sector led development initiative. Also, multilateral finance institutions support privatisation that it makes it one of its numerous conditionality. This makes it difficult for Nigeria to shun the programme even if it wants. There is no doubt the programme may have its good intensions and a lot of sacrifices. This calls for our government to implement it in such a manner as to minimise these sacrifices and maximize its gains. This can only be achieved if the programme is given human face.