According to AO Lawal’s Economics textbook, companies consider the availability of factors of production before they would locate their operations. In that secondary school textbook, there was a section he called “Location and Localization of Industries”.
In Nigeria today, ENERGY is one of the key components of production, and without energy, you have no economy. In Germany, industrial output is fading because cheap energy from Russia has gone. But Germany will be back – they will find a way to subsidize energy for their industries.
Nigeria, by removing fuel subsidy, instead of fixing the corruption which makes production-oriented fuel subsidy ineffective, will trigger an avalanche of degraded production output that will decimate the economy. It is not a smart policy to think markets will pay the full cost of energy when EVERY productive nation in the world subsidies energy, including US, Japan, China and everyone!
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Our problem is not fuel subsidy; our problem is the corruption in fuel subsidy which makes fuel subsidy look bad. Yes, open borders, fake invoicing, etc are not due to fuel subsidies; those are weaknesses in governance. Fix them and give manufacturers in Nigeria the opportunities to compete because at N617 per litre, the only option is closure, since there is no national grid-anchored electricity in our generator economy!
Petroleum pump price rose to N617 per litre at various outlets of the Nigerian National Petroleum Company Limited (NNPCL) in Abuja on Tuesday.
The development comes months after the oil company approved an upward review in the pump price of petroleum nationwide.
President Bola Tinubu had, in his inaugural address on 29 May, announced the removal of fuel subsidy.
Following the announcement, the Nigerian National Petroleum Company Limited (NNPCL) directed its outlets nationwide to sell fuel between N480 and N570 per litre, an almost 200 per cent increase from the initial price below N200.
The hike immediately triggered an increase in transportation fares and prices of goods and services by various percentages.
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Comment 1: It doesn’t matter how many times and how succinctly put this explanation is, you will still find a good number of us who would argue otherwise. Many of these ‘great thinkers’ carry emblems of academic or professional achievements, including in areas that are heavily steeped in finance & economics. So it’s little wonder how these really strange ideas make it to official policy positions.
The only sad thing about governance and policymaking to be more specific, is that the outcome often tends to present in the form of lagging indicators, which then provides the architects of the policy enough legroom for plausible deniability: “yes, I agree that things are so bad but our policy would have turned this country to heaven on earth by now…if it wasn’t for that time 16 years ago that so so and so party killed one live cow per day”.
So here we are. Sidon look.
Organizations and business leaders have their work cut out of them. Strategy upon strategy; risk model upon risk model. We go explain tire
My Response: Go to any high rise in Marina Lagos, watch how many ships are coming to Nigeria; all are fully loaded. Then watch those leaving Nigeria, most are empty. What does that tell us? Companies prefer to make outside and sell to us. That is why you have no Michelin, etc; we continue to use most of those products even though they do not exist in Nigeria.
Transcorp acquired a wine concentrate making company (Terragro) around 2014 from Benue state. After some months, it shut it down. Why? You can spend $70 (all costs including S+H) and import from South Africa what you can make in Benue at $100.
Key issue there: energy.
Let us continue to have the debate in the nation. But I want to see any person cite any productive economy which does not subsidize energy.
Comment 3: Professor, it is now very bad. Aside the cost of the fuel, the quality of those PMS are zero. Some friends of mine now leave their car behind since driving from Ikeja to Ajah now cost 80,000 naira from Monday to Friday. My car run on 2.4L engine yet I have accounted for 60k naira fuel for 2 kilometers journey per day.
This afternoon, a litre was sold for 568 naira in Mobil while others sold at 617 naira. By implications of this, many SME business will fade and corporates will reduce staff headcount to remain conservative and fiduciary practice. 10 companies close up in Ibadan last week and many more will happen nationwide this week.
Removing subsidy and floating the Naira same time was nothing but pure illiteracy towards an importing based nation.
Indeed, there was a country.
My Response: Great comment but LIKING it would make it seem we are happy on the things noted. But I am confident that our leaders have foot soldiers who are collecting data. They need to open plan B because if we lose most of those small SMEs, Nigeria will struggle at scale.
Comment 4: Ruling Nigeria will never be a tea party. Nigeria needs a plan for her energy sector. Subsidy might not look like a good option to the government of the day owing to paucity of funds but people are really suffering. I still maintain that Gas remains our best way out of this problem. The federal and State governments’ need to engage with the private sector. Probably give an incentive to companies that wants to change their source of energy to gas. Their should also be incentive to companies on the supply side, that is those putting infrastructure in place for people to be able to use gas for transport, manufacturing and cooking. Doing anything that would be only convenient to one side is asking for trouble. We need to support production and find ways of alleviating the suffering of many Nigerians’
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The problem? The people who claim to know politics and understand governance, how many actual businesses have they set up and run successfully by themselves? Yea, career politicians and ‘technocrats’ are magically great wealth creators and economic managers. Aside from riches acquired through political patronage, fraud and corruption, how many people in this country qualify to give opinions on economic systems building and public governance?
You have to be very careful with the sort of people you engage with in public spaces, because most of those with loudest mouths have never run any enterprise successfully in their entire existence, not even a kiosk!
If you want to know where things are headed, just close your eyes for five minutes, and then open, what did you see? Of course anything beyond your understanding must have come from the devil, and once you say it repeatedly, it becomes your personal reality…
If they like, let them ramp up their propaganda and defend the indefensible, if you don’t have it in you, you don’t have it; no middle ground. Data can very stubborn, especially when the math is not mathing.
You all will be alright.
We die here.