What is happening in Nigeria today is not difficult to understand. It is simply the law of demand and supply playing itself out in all facet of Nigeria economy. Nigerians are in untenable position and suffering due to avoidable and unavoidable mistakes. President Buhari’s government are instituting a number of policies without thinking through the repercussions of such policies. When all is said and done, law of demand and supply will hold swear regardless of what the government of the day does.
Why does Nigeria have fuel scarcity (gas) when the country is the 6th largest producer of crude oil in the world? The reason is because demand is more than supply. Nigerian government established refineries which is working at less than 30 percent of its capacity due to lack of maintenance and corruption. The refineries should have been able to supplement imported refined oil. President Buhari’s government further compounded the problem by removing fuel subsidy from fuel importers. Fuel importers, import refined fuel from the international market. Federal government reason for such drastic action is that the fuel subsidy program is riddled with corruption. It is true that the program is riddled with corruption but the program should have been retained with more oversight until viable alternative supply is found.
Why can’t the NNPC get rid of the middlemen (fuel importers) and import the required barrel of oil in-order to stabilize the market. The end result of the current policy is that fuel supply is low and will not be over any time soon unless the government reinstate fuel subsidy program. Call from various quarters for Minister of state, Mr. Ibe Kachikwu’s resignation is not going to solve any problem in the short and long run. He is right to say that he does not have a magic wand. The demand for fuel is far more than the supply which caused the scarcity. Period. Mandating domestic or private fuel importers to adhere to government mandated price will fail since it runs contrary to the law of supply and demand. One only has to look at Venezuela to see how imposition of price control by the government has decimated their economy. Common household necessities like toilet papers is in short supply in Venezuela because business people cannot afford to lose money in their investments.
Why is the dollar exchange rate too high and price of imported food very high? Currently one dollar exchanges at between 300 to $350 naira. Again the reason is due to the law of demand and supply. The demand for dollar far exceeds the supply so the price of dollar went up significantly in the parallel market (black market) which is a better measure of the actual worth of dollar compared to government mandated rate of one dollar to 197 naira. The government compounded the problem by shutting off dollar supply to the Bureau the Exchanges which further decreased the quantity of dollar in circulation. The devastating consequence of this policy is that price of imported foods has doubled and in some cases tripled. When importers of those goods are forced to buy dollars at high rate, they will have no choice but to pass on the extra cost of the dollar to the consumers. The only way out of this debacle is to increase dollar supply for limited time period until fuel price improves in the international market.
Why has Nigerian foreign exchange earnings declined precipitously? Again the reason is that fuel supply in the world is more than demand. There is oil glut in the world market which resulted in dramatic decrease of fuel price from the high of $100 to current rate of between $27 to $42 per barrel. The end result is that Nigeria which practically relies on oil for their foreign exchange is not able to generate enough revenue for recurrent and capital expenditures.
There is no way to get around the law of demand and supply. Any government effort to circumvent the law of demand and supply will create unintended consequences and will ultimately fail.