Fiscal collapse would’ve brought more hardship than subsidy removal – Prof Ojowu

In this interview, Mannir Dan-Ali spoke with the former Chief Economic Adviser to President Olusegun Obasanjo who also served as Chief Executive Officer of the National Planning Commission (NPC), Professor Ode Ojowu. He spoke on the fuel subsidy removal and the conversation around the cost of governance. Excerpt:

Which of the activities you’ve engaged in have been your delight, is it in the classroom or being an adviser to political leaders?

The two are linked, all my life, I have been teaching right from primary school to university but in 1984, when I first entered the public space to deal with public issues, it changed my understanding of the classroom.  There was a lot more to what we were teaching that was not captured from what was happening outside. So, in terms of loving it, I have always been happy that I had a public sector experience to take back to the classroom because the classroom is my area of interest.

It has been very interesting working with the government; dining with presidents; dealing with ministers and understanding the economic perspective from the point of view of policy and interest structure to bring back to the classroom.

When you are invited for policy advice, you can see or fail to see how what you are recommending is implemented, which may make you happy or frustrated.

But in a classroom, you can see potential future humans taking responsibilities when they grow up; that by itself does not tell you whether they will do what you are teaching them.

So, I have always liked it that I teach people who will take responsibilities after us. While the public sector gives you an immediate assessment on what you are doing right or wrong, the long-term hope for Nigeria lies in the classroom.

How do you rate the current administration with its implementation of some tough policies and not having cabinet members yet and few advisory appointments?

I think what Tinubu has done is courageous for two important reasons, there is no more road along which to kick the subsidy can. It is either you face a fiscal collapse of the state, which is very threatening and we are already borrowing money to pay for subsidy.

It is either the subsidy was gone or the fiscal stability of the state was gone. The fiscal collapse is a far greater threat to Nigeria than the sufferings arising from the removal of fuel subsidy.

Are you sure that ordinary Nigerians will agree with you on that since there has been more inflation in the economy?

They are right but that is not my point. I am saying that fiscal collapse is a greater threat to the hardship suffered from the removal of fuel subsidy. If you have a fiscal collapse, you won’t be able to pay for your salary anymore and it is the next step to a state failure.

So, if you can’t run the state at all, then it is very difficult to receive it. Fiscal collapse leads to political chaos. What we are suffering now is a reality of our inability or unwillingness to face this same reality way back and we are going to suffer severely.

The good thing is that the debate is now taking place within the framework of subsidy removal, not debating on whether or not to remove the subsidy, so both the people and government will find a mechanism for adjustment which is already happening in many ways.

There is also the forex which was moved from N460 to over N750 and there is electricity tariff increase locking. Are you sure we can accommodate all these at the same time?

Well, they are already here. What they have done in foreign exchange unification, which is an intention, because it is a process to get it unified, the gap between the official rate and black market was above 60 per cent which provided the space for arbitrage but since the announcement, that has collapsed to about 10 per cent.

What we are witnessing in terms of rising prices, yes, that will be there, but it will be short-lived if the policies to follow are vigorously pursued.

My hope is that the courage with which he announced the subsidy is gone, will be followed by the same fiscal discipline to ensure that efficiency of government is restored.

Which is what people are saying, that the cost of the governance is taking a huge chunk of the country’s resources, shouldn’t it be something to look at?

The cost of governance is not something you can announce is gone. We know and talk about the cost of governance but we don’t know the drivers of these costs.

I know that individuals think it is the number of people. Whether you are looking at Oronsaye report or any other, the idea is to reduce the number of people working and the parastatals.

The challenge here is that maybe it is not a wrong place to look at but I also know there are establishments with fixed populations whose expenditure keep rising, like the National Assembly. It is one of the spenders that everyone is complaining about.

Are you saying that if the president has political courage there should be one legislative house?

No, that is not my point, there is a technical dimension, we need to have information on spending and efficiency in public spending but we can’t have and access this spending until details are available. What we have as expenditure, even insiders as an advisory council, we sought to know how much is spent per personnel, and how much is spent on a particular road.

There is a portal at the Office of the Accountant General of the Federation, but it does not give you the granular details you want to see to know exactly the drivers of public expenditure.

Does this explain why the former accountant general was put on trial for embezzlement?

Precisely, if you follow the chart of account, not simply to know that I have spent so much in health but the details of the spending in education, health, transport and other sectors and make the portal live, every spending will be tracked.

It is not just a political will, there are technical issues and administrative issues. We need to have what we call administrative clarification of expenditure so that we can know how many times we buy cars in a year.

If we have a detailed chart of accounts, it will enable us to know how many times we are changing capital expenditure.  For instance, you bought 20 computers last year, and this year you still budget for 20 computers. Do computers disappear every year? So, without the details of spending available to individuals and interest groups, we won’t know if it is the number or staff strength that determines the expenditure or the actual expenditure like overhead that is not properly detailed.

Are you sure that this time the subsidy will be gone for good before now we have seen it reappear after the removal announcement?

As I said earlier, we need to commend President Tinubu for saying the subsidy is gone. We import our refined product and any time the difference between the dollar and naira alters, there must be continuous adjustment of the price.

The problem we have is the nature of the commodity, there is no direct substitute for it. You can’t say since the price of PMS has gone up, let me use another thing. However, we have seen the coping mechanism of Nigerians. If the import price goes up and is adjusted accordingly, then there is no subsidy. The fear here is that since the commodity is not always in adequate supply, it is possible that even though the market is deregulated, those who import can still collude to alter the price.

With the Dangote refinery coming on stream, do you share the sentiments that it will solve the issue?

Provided that we understand the refinery is not for philanthropic purposes. When it comes on stream, it may not necessarily reduce the price of PMS.

Even when freight and other prices are not included?

It depends on the efficiency of their own production.  If they buy crude oil at the international rate, we don’t expect them to lower the price for us. The only advantage we might have is when the freight charges are reduced and other charges related to importation are reduced, as such, it would be domestic. Since it is domestic, it has a lot of products for the country.

If all those things are properly priced and suppliers do not take undue advantage of a near-monopoly situation, then we can see an improvement in the price. What is most important is the reliability of supply so that people can’t collude and say there is no PMS.