Reflections on Naira-for-Crude -By Abiodun Komolafe

The Naira-for-Crude initiative has ignited a profound debate in Nigeria’s economic landscape, yielding tangible results, such as the consistent drop in petrol prices. It is a development warmly received by many citizens.

Meanwhile, the Federal Government’s influence on petrol prices demonstrates its authority, even as it raises fundamental questions about the interplay between state power and economic dynamics. If successfully implemented, the initiative could foster economic stability, diminish foreign currency dependence, and redefine Nigeria’s economic trajectory. However, a pressing question lingers: should these price drops translate to a reduced cost of living?

The main thing about the Naira-for-Crude initiative is that it was thought of at all. For that, the Bola Tinubu-led government, which thought of it, deserves immense credit for conceptualizing this initiative! Such is the low level of policy formulation, not to mention implementation, in Nigeria.

That said, a key point is to examine the opportunity cost of the initiative, which is crucial to consider. By selling crude in naira to producers, credit leads to a loss of foreign exchange that could have been earned to shore up Nigeria’s perennial balance of payments crisis. This is a significant consideration. In spite of this, the government was correct to focus on value-added local production, which can accelerate real sustainable development and boost value-creating exports. This kind of forward-thinking is exactly what Nigeria needs, and the government deserves commendation for this initiative.

Obviously, we are not just talking about crude here; we are also talking about its derivatives, which are crucial for local manufacturing production and have export potential. This initiative presents a win-win situation! Properly implemented, it can transform Nigeria into a regional aviation hub for West, Central, and even East Africa. The gains will be phenomenal, with significant ripple effects on the aviation industry, including improved pricing, earnings and local job creation. The Federal Government’s efforts are truly commendable!

Another significant development is the healthy competition among major market players, which can drive efficiency and productivity, ultimately benefiting consumers. Nonetheless, this competition also raises concerns about potential market manipulation and the need for effective regulation. The government’s role in ensuring fair competition and regulating the market is therefore crucial.

At a time like this, the role of key stakeholders, such as Aliko Dangote, Africa’s richest nan, and Zacch Adelabu, the Executive Chairman of the Federal Inland Revenue Service (FIRS), cannot be overstated. Dangote’s involvement in the initiative has been particularly noteworthy, given his company’s market position. If he hadn’t taken the risk to build such a massive refinery, the Naira-for-Crude initiative might not have been conceptualized, let alone succeeded. In light of this, Dangote deserves significant praise, especially considering the internal opposition he faced from those benefiting from the status quo.

Going forward, this strategic approach of leveraging local competitive advantage for sustainable development and consumer benefits should be extended to other Dangote products, such as cement and sugar. The key point though is that it must be implemented with a clear and fair-trading focus. Again, this raises important questions about corporate social responsibility and the distribution of benefits and costs. Impliedly, if Dangote benefits from increased sales and revenue, it can be argued that he has a responsibility to share some of these benefits with consumers.

This brings to mind the clear reservations and murmurs of disaffection about the prices of many essential goods in Nigeria. The question that must be faced and answered is whether these prices are determined by competitive market forces or by cartels, reminiscent of the ‘robber barons’ who dominated the US economic landscape about 150 years ago. It took President Theodore Roosevelt, who took office in 1901, to initiate policies that eventually curbed the monopoly power of the John D. Rockefellers, the Andrew Carnegies, and the Andrew Mellons.

A striking example of the destructive effect of cartels and monopolies is how Rockefeller’s interests hindered the growth of electric cars. In the early 1900s, electric vehicles dominated the scene, with very few cars running on premium motor spirit (PMS). Rockefeller, controlling a significant portion of the oil refinery industry, needed outlets for his fuel and leveraged his influence over state governments to suppress electric cars.

As president, Roosevelt championed government regulation, conservation and social justice, earning him a reputation as a progressive leader. Roosevelt, in particular, publicly accused Rockefeller’s Standard Oil of criminal acts, and in 1911, the US Supreme Court ruled that Standard Oil had violated the Sherman Antitrust Act. Of course, it’s because of Rockefeller that we are seeing electric cars as a new phenomenon. It is actually older than the PMS dominance. Nigeria should learn from this in building a more positive, productive and sustainable political economy.

Drawing parallels from history to contemporary times, this piece would be incomplete without giving great credit to Adedeji, who also doubles as the Chairman of the Technical Sub-Committee on Domestic Sales of Crude Oil and Refined Products in Naira, and his team. Again, the key point here is that his background in the private sector brings a fresh perspective, distinct from those who have spent their entire careers in the public sector. This diversity of experience enables Adedeji, a technocrat from Iwo-Ate, Oyo State, to approach challenges with unique insights.

Adedeji’s unique blend of private and public sector experience serves as a valuable model for governments at all levels, including subnational and local governments. This approach has been advocated by many experts, who suggest adopting the French-type public service model, where civil servants gain experience in the private sector and NGOs to broaden their perspectives. Similar models are also applied, albeit to a lesser extent, in countries like Germany and the Netherlands.

The emergence of leaders like Adedeji and Taiwo Oyedele (Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms) offers no answers if the Nigerian political establishment cannot find a feasible way to adapt a model that has shown tangible benefits. Given the excellent efforts of individuals like Adedeji, it is imperative to adopt a model that marks a decisive and irreversible break from an underachieving past. Failing to do so would be tragic!

The Naira-for-Crude initiative can be seen as a strategic move to reconfigure the state-economy relationship, even as it raises important questions about power dynamics, economic systems, and the distribution of benefits and costs. The government’s decision to sell crude oil in naira is an exercise of sovereign power, aiming to shape the economic environment to its advantage.

This move has potential benefits, such as promoting economic stability, reducing foreign currency dependence, and boosting the government’s legitimacy. However, it also requires careful consideration of potential consequences, including the impact on the naira’s value and economic instability. In the end, by fostering stability and predictability, the government can create a conducive environment for economic growth and development.

Building on this momentum, Tinubu’s leadership in reshaping the state-economy dynamic is noteworthy. His administration has taken significant steps, including approving crude oil sales in naira to reduce dependence on foreign currency and stabilize the naira, as well as implementing economic reforms like removing fuel subsidies, which has saved over N1 trillion for the country.

In addition, the President has engaged with stakeholders like Dangote to address challenges and introduced initiatives to support micro-, small-, and medium-scale enterprises, including a N75 billion credit facility. However, the success of these efforts hinges on securing natural resources and promoting private sector participation. The role of private sector players will be essential in driving investments and promoting economic growth. Overall, Tinubu’s leadership, policy, and effective implementation will be crucial to the initiative’s success.

May the Lamb of God, who takes away the sin of the world, grant us peace in Nigeria!

*KOMOLAFE wrote in from Ijebu-Jesa, Osun State, Nigeria (ijebujesa@yahoo.co.uk; 08033614419 – SMS only)