Don’t be deceived, there is no oil subsidy – Sam Aluko


Octogenarian Professor Sam Aluko, economist, former Special Adviser on Economic Planning to the Ondo State governor in the Second Republic, and chairman of National Economic Intelligence Committee (NEIC) under the military administration of the late General Sani Abacha, speaks with Hakeem Gbadamosi in Akure, Ondo State, on some topical issues in Nigeria and the way forward. Excerpts:

There is an ongoing controversy for the Federal Government will soon remove the oil subsidy; what is your view on this?
We have been talking about the removal of oil subsidy from 1999 when Obasanjo came in and at that time, oil was sold for N18 per liter. But today, we are paying N65 per liter and they are still talking of oil subsidy.

At that time, Obasanjo increased (petrol per liter) to N20, N22, N25; as I keep on saying, it’s a deceit. When I was in (the Abacha) government, I told them and they agreed that when you said you are subsidizing something, it means you are paying less than the cost of production.

For instance, if government wants to subsidise the price of yam and yam is selling for a thousand Naira in the market, and government demanded for N800 and promised that it would give the farmers N200, so that food can be cheap, one can now say government is subsidising the cost of yam, for the consumers. Similarly in the petroleum case, the cost of exploration of oil should not be more than N40 now and we are buying petrol for N65, kerosene for N100 and almost N150 for diesel.

So how can government be talking about subsidy when the cost of production of oil is less than what we are paying now? To me, we are paying tax to the government each litre of fuel bought. In other countries, it is through such things that government makes money. For instance, the cost of production in England is about 30p and so when they charge 1 Pound, they know that government is collecting 70p as tax on a litre of petrol.

And as they will tell their people, anytime they want to raise the state’s revenue, they put additional tax. They won’t be saying they are removing subsidy but they call it taxing; because that is the easiest way to tax. It’s a consumption thing and people who consume petrol are mainly those who have cars. They are plain to their citizens that they are collecting tax. Same thing obtains in America where they pay road tax or fuel tax.

That means the government has not been sincere?
They have not been sincere at all. Instead of refining our oil, and tell us we want to be collecting tax on it, they are selling our crude without any additional effort on exploration-which is done by foreigners, anyway. So, the NNPC does not explore more than 10 percent of the crude oil we export. So government has no cost; they export the crude, make a lot of money and use that money to import fuel instead of refining here.

If they say they are subsidizing oil, from where are they subsidizing, from yam? Because 95 percent of government revenue comes from oil, so you cannot use oil to subsidize oil, so government is making a lot of money from export of our crude oil because the cost of production of our crude oil is about a quarter of what they are selling. So they are making a lot of money from exporting crude, they are using part of that money to import; so if they are subsidizing, let’s ask them: where are they getting the money from? At least, 90 percent of Nigerians don’t pay tax. Or are they subsidising from our tax? Everybody depends on that oil money. So where are they getting the money from? Definitely from the oil. So you cannot be using oil money to subsidise oil when you derive your revenue from the oil. Government is only deceiving us and they have been doing that time and time again. When I was in government, when they increased fuel from N14 to N18, we objected then, my committee, the National Economic Intelligence Committee objected, since the government was making so much money from the oil. The citizens ought to pay less and now that the government is increasing the price by N4, why not put the increase into infrastructure and that’s the reason Abacha established the Petroleum Trust Fund (PTF) and put that increase into the developmental fund to make roads and some other infrastructure. (President Olusegun) Obasanjo came and abolished PTF and put nothing in its place. So that time, government did not say they remove subsidy; they said that the increase in the price of oil would be put into developmental fund to give Nigerians better roads, electricity, hospitals and so many other infrastructure. That was the government that was sincere with us because they knew they were making a lot of money from oil. Every oil-producing country does that for it citizens. I was in Iraq before Hussein was killed by the Americans. Every Friday, Hussein will say ‘this oil is a natural resources from God, it is a God’s gift and we are making a lot of money from it, all the Iraqis should buy free fuel every Friday.’ He did not say they are going to remove subsidy. Instead of our government to do something similar, they are only oppressing us with the oil. I think it is unfair. In some civilized countries, such government would be voted out of power, so the question of oil subsidy is a fraud.

The Governor of Central Bank of Nigeria, Sanusi Lamido Sanusi, recently proposed the interest free policy for the banking system, in line with Islamic banking. Do you see the policy being sustained?
It cannot work in Nigeria and has never worked anywhere even in Islamic countries because when you put money in bank, you expect something from it. Now, he said he is going to introduce interest-free banking; it never worked anywhere; it never work even in Pakistan. Because you cannot borrow money from the bank and expect the bank not to charge interest.

What would the bank use to pay its workers? Like they said that instead of charging interest, they would do profit sharing, that bank would only take shares instead of charging interest. Banks are not set up to run business but set up to finance business, so how many businesses would a banker involve in? It just can’t work because the whole theory was wrong. Government can only give people interest-free loan because they are collecting tax.

No bank can run an interest-free loan, no bank can runs efficiently on an interest-free loan because profit sharing is not the same thing as interest rate. If he wants to reduce the rate of interest, he can do that legitimately because the present interest rate is unnecessarily high. It’s unreasonable, unsustainable and cannot develop the economy.

Nobody today can borrow money from the bank and run viable, profitable business unless he is importing drugs or oil, where they make a lot of profit. But if you want to run genuine business, you cannot borrow money from the bank or else, you will be bankrupt. So I can understand if Sanusi said the interest rate is too high but to say Islamic banking will be the answer, it cannot work.

What do you think is responsible for the fall in the standard of education in our country?
There are three main causes. One, there is no much incentive. In our own time, when we were growing up, you look up to something, that if you are going to secondary school, you will get a job which will improve your status. Or that if you go to the university, you are on top of the world.

So all these are no longer there; even those who have higher Degrees in the university have no job. So there is no incentive; even the reading culture is gone. In our own time we are always eager to learn how to read we always benefited from it.

Secondly, the teachers that were teaching in our time were regarded, respected, they were adored, so they were dedicated and students wanted to be like teachers. Today, nobody would want to be teachers because they have seen that the status of their teachers has fallen. Teachers are no longer respected, and the teachers themselves are no longer dedicated.

Sadly, books are no longer there again and therefore, education itself is becoming a secondary issue. And government is no longer making the education environment attractive. When we were young in my town, the best building in the town was the primary school. Today, the worst building in my town is the primary school; we have schools without windows, we have children studying under trees, so why should education not fall?

When you look at the structure from the pre-primary to the university level, everything is in doldrums. And the UNESCO law says government should put 26 percent of the resources into education and that’s not even the issue because when we were young, government did not even put 26 percent. But the government was inspecting schools.

Teachers knew that inspectors could come, but now no more inspectors; instead of spreading out the inspectorate division of schools to do as when we were young, they now say they want to establish Quality Assurance, and who is the chairman of the quality of assurance? Politicians, who will be there to divert money into their political parties.

That is not quality assurance; quality assurance is inspection, supervision. There is a Ministry of Education, there is the inspectorate division with no vehicle to move around; and then you go and set up a new quality assurance agency, where Jeeps and expensive cars are given to the chairman of the board and others who knew nothing about the system,.

We are not doing the right thing. Education should be made attractive both to the students and the teachers. So when you come out of school and you can’t get employment, what is the purpose of going to school then? I have a number of students. I don’t see them read, all they do is go to the internet and watch African Magic, that’s why there is cultism.

If a student knows that if he is out of the university he will get a good job, why would he be wasting his time in the school belonging to a cult knowing full well that there is a job waiting for him outside. So the standard has fallen at all levels and the commitment has fallen and the environment has fallen and now government is not ready to put more money into education, they are privatizing it, giving primary school, secondary school and university to private individuals. How will a private person run a first class university?

They can start with beautiful buildings but I tell you, in five years or 10 years, they will know it is not easy to run a private university, that’s why you find a university now charging N1.5 million per session. How many parents in this country can afford that? And considering that our constitution provide that education should be free at all levels. So why will it not be deteriorating?

You are an economist and had been involved in the economy planning of the nation. Looking at the nation’s economy, it has been deteriorating. What do you think is responsible for this and what can be done to make the economy stable?
There is a saying that, ‘if you fail to plan you have planned to fail’. Before independence in 1960, there had been a development plan: this will help to know where money should go, so that is why at the end, government will know what it has achieved each year.

But since 1985 when (General Ibrahim) Babangida introduced Structural Adjustment Programme (SAP)… saying that the government has no business in the economy but the private individual but where are private individuals in Nigeria? We’ve been talking about private individuals setting up refinery in the country since 1980 and there has not been a single refinery set up by any private individual.

You could see the (Chief Obafemi) Awolowo period; he set up industrial estate, agricultural estate, rubber, cocoa plantation, paper manufacturing and so many others. Where are they now? When we (the civilian administration of Governor Adekunle Ajasin in Ondo State) came out in 1980, we set up 12 industries; the military came and privatised them.

Many of them are dead today. In Ekiti, we set up a textile mill, producing one of the best, quality products. They privatised it but where is the industry today? They sold all the machines and ran away. We have bricks industry in Ekiti; if you see what bricks is made of in UK and America, most of their buildings were made of bricks but here it’s cement.

We do import cement, even food, because we had no plan for agriculture. Our cocoa used to be the best in the world until they abolished Cocoa Marketing Board. I told them in 1985 that with the abolition of the marketing board, farmers will weep; and today, the farmers are crying that the government should come to their aid.

And where is the government help now? That is why you see many people voting for Jonathan colonial period, each kilometer of road is manned by one overseer and an engineer but today you can travel from here to Abuja without seeing a single road mender and we have two million kilometers of road in Nigeria. If we want our road to be like the Americans’ and Europeans’, we can put three million workers on the road and they won’t be enough. We set up road tolls so as to generate revenue.

Obasanjo came one day and abolished the tolls because he felt some people were making money from it. I travelled from Washington to Boston in America and I can recollect our bus pay tolls over 20 times before getting to our destination. America is the richest country in the world. They can do without toll but they know the importance of the toll.

We have stopped planning and we have started failing, because we failed to plan. No matter the budget… and that is one of the reasons we have corrupt leaders because when you have a lot of money, there is no plan to spend it. The man in charge may at the end of the month divert the money, having realised that it has not been spent. He converts it to his personal account, but if he knows that he has to spend the money on this road and that he has a target to achieve, he will act.

That’s why you find in government for example, the budget that would be ready by December 31 and should start operating January 1 is not signed until June. So what type of government is that? Some people called themselves Awoists but when I look at them, I laugh because I see them as crooks. Awolowo had the best efficient civil service during his time but today in this country, the civil service cannot do anything because they have demoralised the civil service.

Awolowo used government to introduce free education, to establish farm settlement, to build roads but today, what do these ministries do? They only use the ministry to share money and this is one of the reasons there is unemployment and that is why Naira is falling.

In 1980, a Naira was worth two Dollars but today it’s N160 to a Dollar and it’s going down because we are not producing and as long as you consume without production, the economy cannot grow. So, we need to go back to planning, if we want to succeed. Nigeria is planning to be among the largest 20 economies in 2020. If we are going by 2020, we will not be one of the best 50 because other countries are planning ahead of us. We are the largest importer of food in the whole world and that is why we are where we are.

Your son was once a senator and during that time, former President Obasanjo accused him of mismanagement of funds and called him a thief. What was your reaction then?
Really, I don’t support anybody mismanaging government fund. When the matter blew open, I went to the National Assembly to find out what really happened and try to establish if money really got missing and the Director of Budget there confirmed to me that there was no money loss.

The problem they had was that my son was living in England and he came back and suggested that we cannot be doing all these things by hand and brought the idea of computer and he invited computer experts, saying every senator should learn how to use computer and asked the computer expert to get them computers.

But as for what they quoted for the computers, my son said ‘no, it is just too much.’ And I was told there was nothing like that. I am not in support of spending and mismanaging government money, but they said he gave the money to his father and mother. Even when I was in government, I didn’t take money.

Why Obasanjo was doing that at that time was because I wrote that Obasanjo should trim down the number of his special advisers. He had about 85 special advisers, although it’s even worse today. What they are even accusing the senators for is now child’s play today. What a senator earns today is even close to what the 109 senators earned then. Obasanjo is my friend and usually, I don’t expose my friends to public ridicule but I had to tell him that he was lying and not doing well.

Later, we reconciled. He wrote a nice letter to me. In fact, I must confess this that one of the hardest working Presidents we had in this country was Obasanjo. He worked very well but was working in the wrong direction, depending on the World Bank and the IMF but government could not do anything on the market economy. I told him the policy he was following will at the end of his regime fail, more than in the beginning, and that is what has happened.

Everybody is now abusing him; it’s not as if he doesn’t work but because of the wrong policies, like privatization, and our constitution is against privatization. Our constitution states that government shall be the main controller of the main sector of the economy. Private people can do what they like but government must be the main propeller of the economy and not the private sector. Some few days ago, someone was saying the whole economy is silent because government has not appointed ministers.

If it is the private sector that are propellers of the economy, why should the economy become silent? If a private sector is not assisted by government, that sector will fail. For instance, government had to raise a large amount of money to assist (Aliko) Dangote. In 1999, was he the richest man in Africa? But because of the patronage from government…the same with our friend, (Femi) Otedola, who is now the largest exporter of petroleum for government and that’s how it should be.

In some other countries, government patronage is the largest instrument of private development. Like in America, the government controls 62 percent of the National Income and they use the 62 percent to promote private sector, private university, private enterprise and others. So, government is very vital to the economy and our government has not realised that. In Europe and America, if you want anything, you go to your local or state government but here, local government is fraudulent, state governments are inactive and the Federal Government is the most corrupt.

You see, our state government is now saying they must rely on federal revenue before paying the N18, 000 minimum wages to workers; why are they asking the Federal Government to give them more money and not the private sector? Why don’t they say ‘private sector, bring more work to the government so that government can collect money and pay the wages’, and our constitution doesn’t talk of the minimum wage but minimum living wage, which means that apart from the individual getting money ,if you have children, government must give you money to maintain them.

What is minimum wage to you is not the same thing with somebody that has three children, Minimum wage in Lagos is not the same minimum wage in Akure, because the cost of living in Lagos is almost double the cost of living in Akure. So if they pay N18, 000 in Akure and pay the same amount in Lagos, you are not doing the right thing; they are just deceiving the public and these are some of the little things we have failed to address.

Agenda for President Goodluck Jonathan?
I voted for Jonathan in spite of my detestation for PDP. I did not vote for PDP and that was the only election I voted for the PDP because of Jonathan. I voted for him because he’s an intellectual; he went to school, taught in the university, he is the first Nigerian president to be highly qualified. I am not saying that education is the only criterion but apart from that, he has character. I hope he will not surround himself with people who have come to steal and not to serve.

My only fear for him now is that all those who lost in the last election are hanging around him to be minister and all they want to do is to come and recover the money lost in the election. The advantage of the presidential system of government is that you can look around the country and pick the best; they don’t have to be PDP members alone. They can come from any party; they can come from the university environment or be industrialists. That is the type of agenda I have for him.

Again he should face the infrastructure and power sector in particular. Our roads should be taken care of; as well as the railways and air travels. Again, the security of the country is another thing: two of my friends came from Germany and they were attacked before they got here and they vowed not to come to Nigeria again. So, how do we expect foreign investors to be here?

When we talk about tourism, people would like to visit a place where their lives are secure. When you know your life is not safe with the Boko Haram, will you visit the states where they are? So, the issue of security must be given priority. Jonathan must know that it is not what the PDP wants but what the nation wants; he must curb his political associates, especially those ministers: let them know that they are there to do.


http://nationalmirroronline.net/interviews/15439.html

The interview is lenghty but key point is that a N5 increase in price of petrol= more oppression for Nigerians

I'm happy to have found this thread. This interview gives a true perspective of the subsidy hullabaloo from an insider.