The current crises pervading the Nigerian economy are symptomatic of a market system that has been captured or cornered by vested interests.
The other possible cause is state failure. While such an economy still retains the toga of a market economy, its operating system and fundamentals have been altered in favour of the controlling powers. There are production and supply hiccups and these are manifesting in cost and price upheavals. Unfortunately, the searchlight for corrections is being focused on the symptoms, not the causes.
That is the reason the trouble with the Nigerian economy is unlikely to end soon. The economy is now rested on inefficiency, which is the first instrument of such a state or group capture of an economy. Inefficiency is the antithesis of a market economy, which ordinarily exists to ensure an even and efficient allocation of resources to achieve the optimum consumer benefits.
Nigeria faces the worst kind of social and economic dislocations in decades because of national inefficiency that finds support through the activities of equally inefficient institutions. Why is NNPCL still saddled with the sole responsibility of administering the oil industry operations, even with the Ministry of Petroleum Resources, and the regulator? NNPCL is the sole importer of petrol into Nigeria, and with that kind of arrangement, can Nigerians look forward to an efficient (not perfect) oil market?
Competition is the heart of the market economy, because therein lies the hope for consumer protection. But NNPC as a monopoly cannot ensure or struggle for efficiency in the local oil and gas industry. Its survival does not depend on being efficient and being competitive. Nigerians have enjoyed neither of these during the reign of NNPCL as an organisation. Had there been an element of competition in the oil market, Nigeria would not have been in the kind of amorphous situation in which we all have been thrown into.
Think about it: what difference does it make that we have regulators in the oil and gas industry but only one or sole importer? Ours has become a situation of one powerful institution that combines at the same time the elements of a regulator and an operator. Even on the verge of a major shift in this sector, with the coming onstream of the long-awaited Dangote Refinery, why are we still being rail-rolled into the arms of NNPCL as the sole buyer of the output of the new refinery?
NNPCL cannot continue to cling to a position that no longer exists for it in the new scheme of things in the Nigerian economy of today. Nigeria cannot claim to be reforming its economy while it is wholesomely carrying along inefficient or even dead entities that add no value to the economy, whether as producers or regulators. I do not know to what extent the framers of the Petroleum Industry Act thought about the dynamics of the economy, not just the Nigerian economy, but the global economy.
Nigeria cannot pretend to be running a market-based economy when the government is threatening to go to shops to enforce price control. The Federal Competition and Consumer Protection Commission recently directed traders to "bring down" prices and gave them a month to comply. A market economy should be able to do that. And the reason why the government is doing this now is not the usual market-failure argument under which governments seek to intervene in markets. This is different. The commission should know that without competition in the most critical areas of the economy, consumer protection by way of lower prices cannot be achieved by fiat.
A market economy gives buyers the power of choice and that choice is based on the assumption that consumers are rational beings. Rationality means that a typical consumer would prefer a lower price for a higher one for the same product or service that gives the same value or benefit. Unfortunately, Nigeria is currently experiencing a deliberate exclusion of competition in key sectors such as energy and power.
Now, something must be fundamentally wrong in an economy where there are not a few producers who can say genuinely that their costs are lower than others', and based on that they can charge lower prices. If we had such producers, surely they would experience the power of the market economy because the rational buyers would flock to their shops, factories, or warehouses. So, something is amiss in an economy where consumers cannot exercise any choice based on genuine price differentiation.
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It is that fundamental challenge that the government should focus on tackling. Why is it that every producer in Nigeria today is crying about high costs, while the consumers on their part lament over ever-increasing prices? Which of the three broad market types in today's Nigeria is immune from price increases? Is the financial markets, where the central bank has continuously raised interest rates to keep up with the inflation rate? Or is the factor market, where the increase in the cost of funds has filtered into the financial markets, raising the cost of everything used in the production process? From labour costs or wages to the prices of raw materials, plants, and equipment, all costs have risen. And if all these production elements have experienced cost increases, who says that the products resulting from these processes will not rise in price?
