Nigeria’s dangerous return to price control and command economy

A number of initiatives and policy pronouncements by agencies of the Federal Government of Nigeria (FGN) in the past few days amply signal the country’s descent to a command economy regime. This is as against Nigeria’s current economic system that is largely a ‘mixed economy.’ First was the order issued by the Federal Competition and Consumer Protection Commission (FCCPC), threatening to penalise businesses involved in what it termed “price fixing and gouging”; and gave a one month moratorium for them to cut prices.

The second was the statement by the Nigerian National Petroleum Company Limited (NNPCL) that it would be the sole “seller” of petroleum motor spirit (PMS) being produced by the Dangote Refinery. This was also followed by a new pump price template from the NNPCL, barely 48 hours before the commercial roll out of PMS from the new refinery. The new template carries PMS pump price range of between N868 per litre and N930 per litre for various locations, as against the N658 per litre that had subsisted for months.

Also, another agency of government – the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) – was the body that announced the debut production capacity of the Dangote Refinery in its first month of take-off. The NMDPRA said that Dangote Refinery was set to supply 25 million litres of petrol daily to the Nigerian market all through September. The agency also said this amount will be increased to 30 million litres daily from October.

Obviously, these sorts of pronouncements from the FCCPC and NMDPRA can only come from agencies of government in a command economy setting. This is where the government, rather than the traditional free market economy laws of supply and demand, mandates which goods and services will be produced and how they will be distributed and sold. Due to lack of free-market competition, command economies discourage innovation; and industry leaders are rewarded for merely following government directives rather than creating new products and solutions.

Therefore, the directive by the FCCPC to traders did not bother the agency about how they go about getting their goods, but must insist on their prices to the final consumer. Pointedly, the agency is veering into price control duties rather than its consumer protection remit.

As a country, Nigeria has had an ugly taste of the rigid price control (embedded in the command economy) during its years of “essential commodities” in 1984/85. Government of that era focused on importation of those commodities it believed served the needs of the people, and sold at prices solely fixed by it. Within a short span of time, not only did those commodities get scarcer, local substitutes or alternatives got driven out of existence. As a consequence, even local manufacturers were wiped out, unwittingly.

Now, to what extent is the government involved in the troubles the food sellers (for instance) go through to source their wares and bring them to the market? For importers of some of these “essential commodities,” the crash of the naira in the foreign exchange (FX) market since mid-2023 has meant paying through their nose to import/stock their shops. These importers have to procure the very costly dollar to source their goods and have them in the supermarkets.

When these businesses factor in their transportation costs, electricity supply cost (including standby generators), security, accommodation, among others, their selling prices would obviously come very high. And the government now, by fiat (through FCCPC), gives them one month ultimatum to ‘crash’ their prices or face sanctions. Why should the government and its agencies not opt to address the FX challenges and other costs faced by these traders rather than arbitrarily ordering them to slash prices of their goods?

This is where the command economy mindset comes in; rather than dealing with the root causes of the high prices of goods and services (consistently rising inflation), the government opts to ‘deal with’ businesses. Thus, before the expiration of the one month ultimatum given to the traders by the FCCPC to slash prices of their goods, many of them would have either closed shop, divested or relocated.

The point is that the government cannot be in control of what doesn’t belong to it. Traders, or businesses, as economic agents only take advantage of the operating environment provided by the government. In the free market economy that Nigeria operates, businesses only need the enabling environment — and respond to stimuli provided through government policies and programmes. Therefore, price control (or price fixing) by the agencies of government usually ends up killing entrepreneurship, innovation and enterprise.

This is why it is a cause for worry that the NNPCL has come to be the sole off-taker and sole supplier of the Dangote Refinery PMS. And barely a few hours to the official roll out of the PMS, the state-owned oil behemoth (now regulator and operator) issued a new price template for the product — hiking its prices to unprecedented levels. In other words, the unfounded fears that Dangote Refinery was going to operate as a private monopoly is now to materialise in the NNPCL functioning as a state monopoly.

Under the unfolding scenario, the NNPCL will not only solely supply the PMS but will also fix the pump price — as it has just done. Apparently, the NNPCL has positioned itself to ‘milk’ Nigerians to not only pay its reported outstanding huge debt of about $6 billion but also to become profitable as a ‘business.’ This strategy typifies a monopoly that can set prices without oversight because of non-existent rivals in its industry. Apparently, because of the largely inelastic demand for PMS, government agencies — as regulators and operators — are fixing prices of the products that leave Nigerians with no choices.

If NNPCL and its kindred regulatory agencies have displayed a track record of being business savvy over the years, would the downstream sector of the oil industry in Nigeria be in the sorry state that it is today? Would the four state-owned oil refineries in Port Harcourt, Warri and Kaduna have been run aground and left moribund for years? Would the thriving bizarre phenomenon of ravaging oil theft have festered in Nigeria?

Now, rather than encouraging private sector operators to set up more refineries, the tortuous and harrowing experience the NNPCL and its sister agencies subjected Dangote Refinery really scares investors. It is public knowledge that just a couple of weeks ago, the CEO of NMDPRA told the whole world that Dangote Refinery had not even been licensed. He went further to say that the refinery was at a mere 45 percent level of completion.

Today, the same agency — NMDPRA — is the one dictating and directing the debut volume that Dangote Refinery must have — and that is only 25 million litres of petrol daily. This is only to be scaled up to 30 million in October. Who says these figures truly depict Dangote Refinery’s plans and projections? Are these not part of the behind-the-scenes conditions and directives rammed down the throat of the fledgling refining empire?

In all of these, where lies the consideration for the welfare and wellbeing of Nigerians — and, by extension, the economic progress of the country? Arbitrary hikes in the prices of PMS and related products directly harm the economy: quantum rise in the cost of goods and services — leading to run-away inflationary trend. This translates to continued impoverishment of Nigerians; crashing standard of living and rising misery index.

If the business behemoth — the Dangote Group — could go through all the hassles it did to set up the refinery, only to be ‘shadowed’ by the NNPCL and its co-hots, which other private investor has the clout and muscle to toe Dangote’s line? There was perceived and obvious sabotage by even key operators in the down- and upstream sectors of the oil industry. As it is today, Dangote has been effectively edged out from interfacing with neither the PMS distributors nor the ultimate consumers. Only the NNPCL looms large, unfortunately!  

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