About Subsidies, Corruption and You
There is corruption everywhere. One of the things history teaches us is that corruption in a state cannot be completely eliminated.
But what we can hope to happen is the graduation from low quality corruption to high quality ones.
Subsidies create low quality corruption (See my piece titled Dangote Is Not Your Friend (1)). That's why the most celebrated businessmen here rely on the government for subsidies and special tax rebates.
A Journey Across the Oceans…
Look up the 1MDB multi billion dollar scandal in Malaysia (2) and be amazed. It is considered one of the world's biggest financial frauds. The case is still unraveling. It has led to investigations in at least half a dozen countries, and led to what Loretta Lynch, former US attorney general, refers to as "the largest kleptocracy case" in US history (3). Malaysia has a gdp per capita (PPP) of $34,567 (4). Nigeria has 6,172.
In Japan, before Abe announced his resignation (5), he was facing backlash culminating in an approval rating of 36% as at July 2020 due to the perceived corruption in his cabinet. His former Justice Minister paid a sum of $280,000 in cash to 94 political leaders in exchange for their efforts to secure votes for his wife's electoral campaign (6). Another $1.4bn transfer for electoral campaigns backed by his Chief Cabinet Secretary is being investigated. Japan has a gdp per capita (PPP) of $46,827. (7) Nigeria has 6,172.
Some people however think that it's corruption that is holding Nigeria back. It's grossly misguided.
Is Corruption Holding Nigeria Back?
Think about it, which industry in Nigeria do we not have corruption? I don't know of any. But I prefer the corruption in the Banking industry to that of the Oil & Gas. I prefer the corruption of the Telecommunications industry to that of the Power industry. I know that while not ideal, I still prefer MTN's $1.5 billion fine (8) to the embarrassing P&ID $9.6 billion case. (9)
I prefer the corruption of the Entertainment industry to the Education. I prefer Technology to Postal Service.
What do the industries I prefer have in common? They are not under the control of the government. They can largely fix their prices without the overbearing influence of the government.
This morning, a friend tagged me to a post by a well meaning Nigerian denouncing the removal of subsidies under any circumstances. I don't think that's the right approach. I fully support removal of subsidies as long as we deregulate. What we have and have been discussing in the last few days under this government is of course a sham. Don't be bamboozled, this is no removal of subsidies. Like Dr. Jekwu Ozoemene said, "N10k a month recharge card Hailers defending increased fuel price as deregulation. Ask what has been deregulated or how the price was arrived at and you will see brains full of sawdust and condemned engine oil."
Some say we have to be sure the subsidy removed would not be looted. I don't think that's the right approach. While it's important for the government to provide palliatives to cushion the effect of the initial high prices, the merits of deregulation is that it will encourage investment in the oil industry. Investments that would lead to the emergence of the private refineries creating a better maintenance culture of the refineries (our current refineries should be sold) and this will likely reduce unemployment by employing both skilled and unskilled labour. They would also engage in the training of manpower in Nigeria and thereby contribute to human development in the country.
No Substitute for Deregulation…
Deregulation offers more benefits because the oil market will become more competitive and efficient, and the resulting benefits will be passed on to Nigerians in the form of eventual lower product prices, better quality of service and ease as well as constant availability of the product.
Think of the telecommunications industry. Think of the banking industry. Think of the hassles of telling NITEL to f-off (10). Think of the pains of consolidating of banks (11). Charles Soludo’s bank consolidation was instrumental to the emergence of globally reknowned FinTechs in Nigeria today.
Has corruption in telecomms stopped you from enjoying good telecommunications services? Has corruption in banking stopped you from getting good banking services? There is high quality corruption in telecommunications but low quality corruption in NIPOST. Crappy services for expensive prices.
But if you think we need to eliminate corruption or be sure that corruption will be eliminated before we remove subsidies, then we are on a long thing.
We have not removed subsidies yet the price has increased from N20 in 1999 to N161 as at today (12). That's 705% in 21 years. Under Muhammadu Buhari alone, it's increased 86% with little improvement in the sector. We have borne all the pains, but none of the gains.
A Lesson from Personal Finance…
While you as a person should seek to minimize expenses, the key to the good life is to increase your earnings. Subsidies is akin to minimizing your expenses (which unfortunately won't last forever anyway) to increasing your earnings through the government taking their hands off the industry and allowing private individuals like you run the show.
But if you want to wait till corruption is eliminated, then I'm sorry because you will....
I won't be surprised if after reading this, some still say it's textbook economics I've espoused. It's the usual Nigerian exceptionalism that has kept us stuck.