President backs down on fuel price increases, but it is still winter in Nigeria
More significantly, the Nigerian government has no moral, political, or pragmatic credibility. Critics rightly argue that the government could simply raise fuel prices and pocket the increase. There are enough examples of government officials stealing government funds to make such a scenario seem inevitable, not just probable.
(On Monday, President Jonathan announced that he would restore fuel subsidies, after a week of citizen protests and a looming oil-worker strike threatened to shut down the Nigerian economy.)
The solution to the problem is actually easy to locate. The government of Goodluck Jonathan should declare that the refinery capacity in Nigeria — the lack of which forces the government to import petrol at market prices — should be expanded before any fuel price increase occurs. The Nigerian government, in short, should function here on a “prove it to me” basis. Once petrol is being refined in Nigeria, by Nigerians, on a sustainable basis, then the fuel subsidy can be eliminated.
Even opponents of the elimination of the fuel hike know well that Nigeria, a major world producer of crude oil, ought to have the capacity to meet its own domestic needs for refined gasoline. The failure of Nigeria to meet its own needs holds up the country to ridicule. The question is not whether to remedy this failure, but how.
In implementing the fuel hike, Nigeria’s finance minister deserves special criticism. Ngozi Okonjo-Iweala is an internationally respected economic thinker, a former senior official at the World Bank and a former finance minister in former President Olusegun Obasanjo’s important transitional government. She should know better than to impose, without conditions on the government’s own energy bureaucrats, a dramatic and sudden rise in fuel prices that does not also include some penalties and some incentives for the Nigerian government to expand its domestic refining capacity quickly. How she, with her past accolades, could design a program that gives the government perverse incentives is a mystery.