Fuel scarcity: FX subsidy for marketers = bad idea.

Apparently the fuel scarcity is still a thing. I wouldn’t know given that I’ve been in a part of the country where we have more liberal petrol stations that adjust their prices with the times. We pay somewhere around N230 per litre with no fuel queues and most seem to just get on with it. But I digress.

I read on the news yesterday that one of the options being considered to ease the fuel crisis was an even bigger foreign exchange subsidy to fuel marketers. Something about selling dollars at N205 per dollar (I might have heard wrong because that sounds ridiculous) so that fuel marketers can import fuel and sell at N145 per litre.

Why is this a bad idea? It is because fuel in Ghana, and Cameroon, and Niger, and Burkina Faso, and repeat for every country within driving distance from Nigeria, currently sells fuel for north of N210 per litre. If you give a foreign exchange subsidy to your marketers then, if they are honest, they will start importing fuel for the whole West Africa and more. And of course we will pay for it in cold hard foreign exchange.

Giving the marketers a foreign exchange subsidy would be synonymous to opening the drain on our sink of foreign exchange reserves, and watching dollars flow out. It would be foolish to trade a fuel crisis for an FX crisis but we seem to experts at doing foolish things so you never know.

The short term solution is simply to increase prices. Even Saudi Arabia, the Bill Gates of crude oil producers, has increased prices so what are we waiting for? Do we really think we can manage until after elections in 2019? The more permanent solution is to stop fixing prices completely. Fuel is a commodity like everything else. Just let markets work.

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