“Subsidy in itself is not a bad thing and governments all over the world subsidize critical sectors of its economy. It is the manner of applying the subsidies that could create distortions and shortchange the economy, which is what has been done all this while. It is still possible to stop paying subsidies on petroleum products without increasing the pump prices if done properly,” Madaki said.
A professor of energy economics at the University of Ibadan and Director of the Centre for Petroleum, Energy Economics and Law (CPEEL), Adeola Adenikinju, said the move shows Tinubu’s readiness to tackle Nigeria’s economic challenges.
He noted that electricity supply would improve drastically if both national and subnational governments are allowed to generate, transmit and distribute electricity across their domain using resources available in their areas – hydro, coal, gas, oil, solar, winds and wastes.
Adenikinju, who is also a member of the Monetary Policy Committee (MPC), said the President’s promise to provide a conducive environment for local and foreign investors to play would also help to drive investment in the electricity sector, adding that an improved macroeconomic environment like low inflation, low-interest rates, harmonised exchange rate, ability to repatriate dividends and profits, if implemented, would change the investment climate in Nigeria.
“Fuel subsidy has to go,” Adenikinju said, noting that subsidy has deprived the economy and the petroleum sector of huge investments, jobs and revenues.
“Our neighbours have higher fuel prices and lower inflation and poverty rates. Across Nigeria, fuel prices are much higher than the official prices. Yet, there is no data to show that inflation rates are higher in those areas.
The government needs to support mass transport systems and implement effective cash transfers to vulnerable households to mitigate the initial pain of fuel price adjustment. In the long term, the Nigerian economy would be better for it,” he said.
The professor urged labour unions to support what is best for the economy, stressing that the poor are already paying the market price for kerosene, and the transport and manufacturing sectors, also pay the market price for diesel.
But a professor emeritus in Petroleum Economics and Policy Research at Louisiana State University, Centre for Energy Studies, Wunmi Iledare, said subsidy removal could not be done through a mere announcement.
“This is only doable with a transformational leadership mindset with strategic thinking. The president must make professional appointments apolitical in the energy sector to succeed. Appointments based on rewards will not fix the aching problems in the energy sector,” Iledare said.
The Central Bank of Nigeria (CBN), three years ago, pledged to work towards achieving and harmonising the extremely-divergent foreign exchange rate. But it remained at the level of promise with investors citing the rigidity of the market and wide arbitrage as major disincentives.
In his speech, Tinubu charged: “The Central Bank must work towards a unified exchange rate. This will direct funds away from arbitrage into meaningful investment in the plant, equipment and jobs that power the real economy.
“Interest rates need to be reduced to increase investment and consumer purchasing in ways that sustain the economy at a higher level.
“Whatever merits it had in concept, the currency swap was too harshly applied by the CBN given the number of unbanked Nigerians. The policy shall be reviewed. In the meantime, my administration will treat both currencies as legal tender.”
An economist, Prof Ken Ife, lauded the President for demonstrating the courage to embark on some “housecleaning” to achieve price stability, noting: “Obviously, he dropped the hint on arbitrage.
Arbitrage is a part of the things that will come under the category of cleaning up because it means that some people may be profiteering from the present system.
“He has an agenda. But my only advice is that the problems of the monetary policy are about inflation, high exchange rate, interest rates and high monetary policy rates in the economy. These things are about rates and prices.
“The demand and supply sides have to be looked at carefully. About 70 per cent of the foreign exchange of Nigeria comes from NNPC Limited while 10 per cent comes from gas. Another 10 per cent is split between foreign direct Investments and portfolio investments which have been dwindling.”
Ife, who is a member of the governing council of the Ministry of Finance Incorporated (MOFI), said the mounting debts, and oil theft that is responsible for Nigeria’s inability to meet its OPEC, hence the dwindling revenues are very formidable challenges.
The Chief Executive Officer of Dairy Hills Limited, Kelvin Emmanuel also lauded the President’s foresightedness, saying collapsing all the forex intermediation windows at the Central Bank by allowing the banks to determine rates through a float would bring back foreign direct investors, export proceeds without rebates and higher diaspora remittances.
“A single exchange rate will enable market makers in the Nigeria Autonomous Foreign Exchange Fixings (NAFEX) to find a forward curve required to structure medium- and long-term contracts to hedge currency risk for long-term non-speculative foreign direct investments,” he explained.
He was, however, quick to add the idea that the CBN could cap MPR as a tool to slow down prime lending rates, and impact lower commercial lending rates, is likely to be a farce, saying: “This is because the real driver of inflation, and the reason inflation is unresponsive to MPR hikes as the real problem to solve is the distortion in the FX markets.”
On his part, the Chief Executive of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, welcomed the President’s roadmap. According to him, “achieving a unified exchange rate is not tantamount to a devaluation proposition, but a pricing mechanism that reflects the demand and supply fundamentals in the foreign exchange market which allows for rate adjustments as and when necessary”.
Yusuf maintained that it is a policy regime that would reduce uncertainty and inspire the confidence of investors and minimize discretion and arbitrage in the foreign exchange allocation mechanism.
“A unified exchange rate regime will enhance liquidity in the foreign exchange market. It reduces uncertainty in the foreign exchange market and therefore enhances the confidence of investors and it is more transparent as a mechanism for forex allocation.
It also minimises discretion in the allocation of forex and reduces corruption vulnerabilities and reduces opportunities for round-tripping and other sharp practices,” he said.
On subsidy removal, the CPPE Chief Executive said the move would free about N7 trillion into the federation account, saying this would reduce the fiscal deficit and ultimately ease the burden of mounting debt.
“This will positively affect the investment space. Currently, it is extremely difficult to attract private investment into our petroleum downstream sector because of the unsustainable subsidy regime and the stifling regulatory environment. The subsidy removal will eliminate the distortions and stimulate investment,” he said.
