^^^And when crude oil becomes a natural resource on the shores of those European countries.

A case for subsidy is the fact that 60% of working Nigerians live on 18000naira or less monthly, there is no unemplyment benefit or social security scheme for the unemployed. the only thing Nigerians can safely claim they benefit as dividend of democracy is subsidy on essential goods or product. yet someone wants this to be taken away from the masses, we have no problem keeping an expensive legislative arm of government, that at best can describe as a drain to the nation's purse,.

Main thing I've learned from the past few posts is that either my intuition about how economics works is terrible, or for some reason this intuition just isn't applicable to the Nigerian setting.

Either way, I should probably comment less on Nigerian policy I guess.

Though I wonder why Aganga seems to be against this subsidy too. He is a legit economist type, yet seems to be reasoning in the same (wrong?) way that I'm thinking about things

ekt_bear:

or for some reason this intuition just isn't applicable to the Nigerian setting.

The answer!

ekt_bear:



Though I wonder why Aganga seems to be against this subsidy too. He is a legit economist type, yet seems to be reasoning in the same (wrong?) way that I'm thinking about things

Now part of the ruling class. Simple!

As it is now, refining crude in Nigeria is a non-viable business. The market price for brand new refineries is at least $1 Billion dollars (conservative estimate). The bank that will lend money for such a commercial undertaking will be charging market interest rates; crude is bought at market prices. The labor that will work in the refinery will be paid market wages. And yet Nigerians expect the final product to be sold at below market price (cost + profit)? It doesn't work!! No bank will even lend money to build refineries in Nigeria until the industry is deregulated!

^-- Somehow the idea is that you can get crude for your refinery at below-market prices. Or that the Nigerian FG will make up the difference between the N65 you are supposed to sell locally and the N130 it can get abroad. . .

The best way to subsidize a good or service is by targeting i.e subsidies be paid directly to beneficiaries and not a blanket subsidization for everybody that distorts the economy.

Whenever goods or services are being forced to be sold at below market prices, shortages will always occur and black markets thrive. It happened in the Soviet Union when bread was scarce, adulterated, sold in the black market while there where long lines in the official market. And yet they were the biggest producers of wheat at the time. See!

ekt_bear:

^-- Somehow the idea is that you can get crude for your refinery at below-market prices. Or that the Nigerian FG will make up the difference between the N65 you are supposed to sell locally and the N130 it can get abroad. . .

Even if i buy crude at below market from the government and refine, it will still be scarce as it will be smuggled out the country and sold at market price. This is exactly what is happening now! Nigeria is subsidizing the West African subregion for petroleum products as there is serious smuggling going on.

The moment the products are deregulated, there is will be a sharp drop in our "national demand" for petroleum products as smuggling will be uneconomical.

^--That is exactly the same thing I've been saying in this thread. But everyone shouted it down as me not understanding Nigeria, not having lived there long enough, etc, etc. As if Nigeria is some magical place where the laws of economics and human nature don't apply 

Anyway, I'm mostly done with this thread. . . not really easy to get people to change their minds about certain beliefs

kalokalo:

Even if i buy crude at below market from the government and refine, it will still be scarce as it will be smuggled out the country and sold at market price. This is exactly what is happening now! Nigeria is subsidizing the West African subregion for petroleum products as there is serious smuggling going on.

The moment the products are deregulated, there is will be a sharp drop in our "national demand" for petroleum products as smuggling will be uneconomical.

So to tackle a problem caused by greed and incompetence, you effect a change of policy that effectively increases the level of poverty for 150m people? There are ways to deal with smuggling without removing the subsidy. Smuggling is a by-product of the main problem; corruption, greed, and incompetence are the main problems. The people are suffering already, should they suffer?

So after the subsidy is removed and smuggling terminated, what next? The govt. build new roads, solve the power problem, improve education, etc?

kalokalo:

Even if i buy crude at below market from the government and refine, it will still be scarce as it will be smuggled out the country and sold at market price. This is exactly what is happening now! Nigeria is subsidizing the West African subregion for petroleum products as there is serious smuggling going on.

Happening NOW where?? In Nigeria? Where??

kalokalo:

The moment the products are deregulated, there is will be a sharp drop in our "national demand" for petroleum products as smuggling will be uneconomical. 

How did you figure this? A Sharp drop in "national demand" because you have concluded that demand is where it is today because of smugglers?

I have always pushed for a more efficient government who can regulate and also play a part in the economy while everyone has been shouting privatisation, we need to sort our government out before we ask for progress, unfortunately, we are stuck with the same set of people for another four years. I checked my electricity bill last month and it was 6K, I only got on average 6hours of power per day, now when they increase it by a factor of 4 later this month, I will be paying 24K for 6 hours, what happens when it is privatised? We had the best opportunity to vote out these thieves but people voted along ethnic lines, we are in for a very very rough ride.

Kobojunkie:

Happening NOW where?? In Nigeria? Where??
How did you figure this? A Sharp drop in "national demand" because you have concluded that demand is where it is today because of smugglers?

You just like to argue for argument sake. There is smuggling of petrol out of nigeria to neighboring countries. This is especially very prevalent in the Southwest and North to Benin republic, Niger, Chad etc. An excellent example is Yar Adua friend and confidante, Alhaji Dahiru Mangal. He was a big time petrol smuggler out of Katsina to Niger. I cited him because he is the one that was reported about on the news. There are many others we don't even know. Read the news my friend!

Kobojunkie:

How did you figure this? A Sharp drop in "national demand" because you have concluded that demand is where it is today because of smugglers?

My point is that our demand is not real. It is effectively higher because a big chunk is taken across the borders.

kalokalo:

The best way to subsidize a good or service is by targeting i.e subsidies be paid directly to beneficiaries and not a blanket subsidization for everybody that distorts the economy.

Whenever goods or services are being forced to be sold at below market prices, shortages will always occur and black markets thrive. It happened in the Soviet Union when bread was scarce, adulterated, sold in the black market while there where long lines in the official market. And yet they were the biggest producers of wheat at the time. See!

I didn't want to say anything about your posts but . . .

Can you read again what you typed. Are there shortages in Saudi, Iran, Libya, etc. Oga o

kalokalo:

Even if i buy crude at below market from the government and refine, it will still be scarce as it will be smuggled out the country and sold at market price. This is exactly what is happening now! Nigeria is subsidizing the West African subregion for petroleum products as there is serious smuggling going on.

 

And, somebody posted this. How do you subsidize these West African countries? Are they selling below the so-called market prices there? Something they don't want to do at home?

Katsumoto:

So to tackle a problem caused by greed and incompetence, you effect a change of policy that effectively increases the level of poverty for 150m people? There are ways to deal with smuggling without removing the subsidy. Smuggling is a by-product of the main problem; corruption, greed, and incompetence are the main problems. The people are suffering already, should they suffer?

So after the subsidy is removed and smuggling terminated, what next? The govt. build new roads, solve the power problem, improve education, etc?

How many people buy those products at the official price (I hate that word)? Apart from Lagos, Abuja and PH, where else in Nigeria do people buy petroleum products at government price? How much is kerosene now? How much is petrol in Aba as we speak? How much is diesel? The laws of economics and human nature will always defeat whatever social goal the government has!. Private sector efficiency and participation is what will bring down price in the long run NOT by state fiat. we are currently experiencing the same problems the Soviet Union went through in the eighties due to rigid price control. the result was inefficiency, scarcity, black market, long lines etc.

kalokalo:

You just like to argue for argument sake. There is smuggling of petrol out of nigeria to neighboring countries. This is especially very prevalent in the Southwest and North to Benin republic, Niger, Chad etc. An excellent example is Yar Adua friend and confidante, Alhaji Dahiru Mangal. He was a big time petrol smuggler out of Katsina to Niger. I cited him because he is the one that was reported about on the news. There are many others we don't even know. Read the news my friend!

Are these smugglers faceless. What is the masses concern if a govt can't combat corruption?

So because people in, say, US pay N130 I also have to pay the same here in Naija, even though their per capita income is more than 10times ours. All these IMF apologists dont know the most simple fact about economic relativity: which is that economic policies have to be applied considering the peculiar conditions of each state/country. That's why in Lagos I pay for my electricity while my friend in Adamawa claims government pays for electricity in that state.

kalokalo:

How many people buy those products at the official price (I hate that word)? Apart from Lagos, Abuja and PH, where else in Nigeria do people buy petroleum products at government price? How much is kerosene now? How much is petrol in Aba as we speak? How much is diesel? The laws of economics and human nature will always defeat whatever social goal the government has!. Private sector efficiency and participation is what will bring down price in the long run NOT by state fiat. we are currently experiencing the same problems the Soviet Union went through in the eighties due to rigid price control. the result was inefficiency, scarcity, black market, long lines etc.

I asked some questions which you side-stepped with personal opinion.
1. If smuggling is a major problem as you have identified, why are you not advocating that govt. deals with that problem instead of going with a policy that will cause untold hardship for millions. Afterall, smuggling is a crime.

2. You previously advocated that govt spends the funds gained from the subsidy removal on the people; how will the nigerian govt do this? Will it be in the same manner in which the OBJ govt spent $16B on power without an increase in supply?

Applying a subsidy to a product or service is not the same as price control. In price control, a supplier is forced to sell at a particular price; which may even be at or below cost price. Subsidy is different in that govt makes up the shortfall in the suppliers price and the market price.

There are subsidies in many countries (many western countries at that) and those countries don't have smuggling problems.

I am not advocating that the subsidies last forever but a few things must happen before it is even considered

1. The income and standard of living of the average Nigerian must improve greatly
2. The current corruption, wastage, and incompetence must be eliminated
3. When govt. solves the power problem, demand will for petroleum products will reduce as people won't need to buy for generators.

@Katsumoto

Until we get a government that is at least competent in the key areas, nothing good will happen, our government is reactionary, is it the common man that is smuggling the fuel, do they use Jerry Cans for the smuggling? Why do we have the Customs and Excise department, abeg their apologists should tell us something else, our wahala is that our leadeers do not take decisions that dont favour them, imagine the senate passing a law that will benefit a few individuals.
Let GEJ try to remove the subsidy, he will hear wen.

kalokalo:

You just like to argue for argument sake. There is smuggling of petrol out of nigeria to neighboring countries. This is especially very prevalent in the Southwest and North to Benin republic, Niger, Chad etc. An excellent example is Yar Adua friend and confidante, Alhaji Dahiru Mangal. He was a big time petrol smuggler out of Katsina to Niger. I cited him because he is the one that was reported about on the news. There are many others we don't even know. Read the news my friend!

My point is that our demand is not real. It is effectively higher because a big chunk is taken across the borders.

You sure I am the one who likes to argue for argument sake? Asking you questions of your own claims is not to be considered an attempt to argue for the sake of it? I am sorry, I don't just swallow what you post just because. I prefer to know where you get your information from. After all, even the forum rules would sort of encourage that we provide sources for claims made.

Of course fuel is smuggled BUT your conclusion was that it accounted for much of the demand and I very much would like to know where you get this INFORMATION from.  I read the news and I have not read, even recently, anyone making this particular claim.  How did you come about this claim that our demand is NOT REAL? HOW??

kalokalo:

How many people buy those products at the official price (I hate that word)? Apart from Lagos, Abuja and PH, where else in Nigeria do people buy petroleum products at government price? How much is kerosene now? How much is petrol in Aba as we speak? How much is diesel? The laws of economics and human nature will always defeat whatever social goal the government has!. Private sector efficiency and participation is what will bring down price in the long run NOT by state fiat. we are currently experiencing the same problems the Soviet Union went through in the eighties due to rigid price control. the result was inefficiency, scarcity, black market, long lines etc.

But doesn't this sort of nullify much of your initial argument then?

hmmm the chicken and the egg;

refineries aren't working and so fuel is (which is bullshit imo because the fuel is still expensive and unfordable) -

VS

because of subsidization refineries aren't working.


The government is taking the WHOOOOLE COUNTRY for a ride!

Its kool sha, you voted for the president so shall you continue to live in darkness under the reign of the PDP!

ekt_bear:

^-- Somehow the idea is that you can get crude for your refinery at below-market prices. Or that the Nigerian FG will make up the difference between the N65 you are supposed to sell locally and the N130 it can get abroad. . .

ekt_bear:

^--That is exactly the same thing I've been saying in this thread. But everyone shouted it down as me not understanding Nigeria, not having lived there long enough, etc, etc. As if Nigeria is some magical place where the laws of economics and human nature don't apply 

Anyway, I'm mostly done with this thread. . . not really easy to get people to change their minds about certain beliefs

@ekt_bear,  I have followed your comments on this thread and I can see why you became frustrated.  However your mistake is that you  overlooked a key element  of the psychological make up of the average Nigerian:  we like awoof and freebees   We are also extremely short sighted and sentimental.    The same people who  are crying out for the continuation of the petroleum subsidies, also want to have good roads, schools and hospitals.  However they would be the first to complain if taxes are increased, because according to them it will hurt the "common man".
The fact is that common sense and economic logic  would always be alien to people who have an entitlement culture: it's like trying to convince a welfare addict to get off his backside and get a job, and not expect him to come up with arguments why such a move is not worth his while, or how difficult it is to get the "right job".    At the end of the day these same people will carry on complaining about bad government and mismanagement, when in a few years time the oil price crashes and Nigeria has nothing to show for the high oil revenues during the boom years except:  billions of wasted dollars in petroleum subsidies.    You are however right that Nigeria is a fairytale land where laws of economics and human nature are twisted to suit our world view.   Is it any wonder why  we are where we are?

roflmao!!

ekt_bear:

Main thing I've learned from the past few posts is that either my intuition about how economics works is terrible, or for some reason this intuition just isn't applicable to the Nigerian setting.

Either way, I should probably comment less on Nigerian policy I guess.

Though I wonder why Aganga seems to be against this subsidy too. He is a legit economist type, yet seems to be reasoning in the same (wrong?) way that I'm thinking about things

I'll recommend this book to you and whoever is interested in this topic: How Rich Countries Got Rich , and Why Poor Countries Stay Poor by Erik Reinert

Secondly, Aganga is a Goldman Sachs insider. That by itself should cause a double take. Considering the same roundabout logic has been used to transfer billions of dollars of wealth from the American middle class to a few, I'd be at least wary whenever my views agree with Aganga.

Finally, food production is heavily subsidized in the US, manufacturing is heavily subsidized in Germany etc. Whats good for the geese,

kulutempa:

@ekt_bear,  I have followed your comments on this thread and I can see why you became frustrated.  However your mistake is that you  overlooked a key element  of the psychological make up of the average Nigerian:  we like awoof and freebees   We are also extremely short sighted and sentimental.    The same people who  are crying out for the continuation of the petroleum subsidies, also want to have good roads, schools and hospitals.  However they would be the first to complain if taxes are increased, because according to them it will hurt the "common man".
The fact is that common sense and economic logic  would always be alien to people who have an entitlement culture: it's like trying to convince a welfare addict to get off his backside and get a job, and not expect him to come up with arguments why such a move is not worth his while, or how difficult it is to get the "right job".    At the end of the day these same people will carry on complaining about bad government and mismanagement, when in a few years time the oil price crashes and Nigeria has nothing to show for the high oil revenues during the boom years except:  billions of wasted dollars in petroleum subsidies.    You are however right that Nigeria is a fairytale land where laws of economics and human nature are twisted to suit our world view.   Is it any wonder why  we are where we are?

You managed to repeat the same right wing agenda without addressing some of the other questions posed.
You allege that Nigerians like awoof and freebies; they want to have good roads, hospitals, contant power, etc without paying for it. Yet you fail to address years of coruption, wastage, and corruption by successive Nigerian govts. Why should Nigerians feel like paying more in taxes (cos they do pay taxes) when they are aware of the despicable levels of corruption in their country?

Are Nigerians not aware that OBJ's govt spent $16B on power with no increase in supply? Are they not aware that there is spending on power by successive govts every year? Are they not aware that every member of the NASS earns in excess of $1.2M per year while the president of the US earns $400k. Value for money; are they more productive than Obama? Are they not aware that most roads in Nigeria are tarred regularly on paper with nothing done on ground? There are several more examples to list; too many to list. Are they not aware that the price of Brent Crude as hovered above $115/barrel? Consecutive estimates put Nigeria's output at 300,000 barrels per day when it has capacity to produce 2.2M barrels per day.

I am going to ask you the same questions I put to others against subsidy
1. What do you do with funds used on the subsidy when you remove the subsidy?
2. How do you ensure that the funds are spent judiciously in a system notorious for corruption?
3. How do you alleviate the resultant hardship on a people who live on less than $2/day?
4. Should subsidy be removed before corruption is tackled?

birdman:

I'll recommend this book to you and whoever is interested in this topic: How Rich Countries Got Rich , and Why Poor Countries Stay Poor by Erik Reinert

Secondly, Aganga is a Goldman Sachs insider. That by itself should cause a double take. Considering the same roundabout logic has been used to transfer billions of dollars of wealth from the American middle class to a few, I'd be at least wary whenever my views agree with Aganga.

Finally, food production is heavily subsidized in the US, manufacturing is heavily subsidized in Germany etc. Whats good for the geese,

There is certainly an agenda with Aganga; since he became Finance minister, the IMF has been more vocal about issues in Nigeria.

If the NGA government wants to improve the petrol situation they should build more refineries and produce more gasoline and other petroleum products.
Nigeria wont need to import oil becos we have oil at home. Refine the oil here and do not import. Importing petroleum products make it more expensive at the Nigerian pumps.
Nigerian refineries are not producing enough gasoline and diesel.
The electricity problem can be solved by using natural gas power plants to generate electricity. They have tried this but it needs more effort and success.

The subsidy is not the problem. The problem is mainly bad decision making on the part of government officials.

Tell the IMF guy that he should reserve his advice to his boss who does not know the difference between a child and adult and when to keep his dkc inside his y-front or boxers


https://www.nairaland.com/nigeria/topic-667608.0.html#top

If GEJ would defie IMF advise and do the best thing for the country, then I my trust in this government may start to increase.