De-legitimising Deregulation, By Ifeanyi Uddin

Ifeanyi Uddin

The judgment, last week, of a federal high court, in which it found (amongst others) government’s deregulation of the downstream sector of the oil and gas industry “unlawful, illegal, null, void and of no effect whatsoever, being in flagrant violation of the mandatory provision of section 4 of the Price Control Act, cap P28, Laws of the Federation of Nigeria, 2004” was as intriguing as enforcement of the ruling will prove problematic. I am not learned enough to enter an unqualified opinion in this matter (I must admit), but I believe that arguing against market-determined prices for petrol on the strength of the Constitution’s freedom of movement guarantee is similar to arguing against market determined prices for phone calls (and newspapers) on the back of the Constitution’s freedom of expression guarantee.

It is no surprise that there are people in the country who would rather not pay for the services they enjoy. These folks are present everywhere, and they are not all freeloaders. Amongst their ranks are to be encountered ideologues of “government as nanny”. Irrespective of the thought patterns that instruct it behoves a responsible government create structures for the enforcement of all properly entered contracts. The resistance early last year to government’s increase in the pump price of petrol was essentially a response to the federal government failing to carry out another such important duty. My sense of the ball, which government dropped then, was not so much the decision to raise prices, but the fear that the accounting behind government’s decision was (and still is) fatally flawed.

That said, it is a big scandal to find that the Price Control Act is still in place, after 27 years of trying to make the structure of our economy more effective. There is, arguably, a sequencing failure here. And nowhere is this failure more obvious now, after this high court ruling, than in the fact that the Nigeria Railways (NRC) Act 1955 has not been amended (or repealed, either). Yet since the act vests all rail tracks in Nigeria in the NRC, technically, it is either that the proposed Lagos State Metroline is illegal in the same degree, or that Lagos State plans at the end of the line’s construction to hand it over to an NRC-appointed general manager.

Clearly, there is a strong case to be made for thoroughgoing legal reforms as condition precedent to further reforms of the economy. And I am hoping here that we agree on the need to reform the economy and how it is managed. Still, just as crucial, there is a compelling need to look at how we think of the reform process, and the goals that we strive for. Ludwig Von Mises provides the central argument for me in this regard: “every step that takes us away from private ownership…and from the use of money also takes us away from rational economics”.

There are few signals more efficient in an economy, than when the price of a good captures both the cost to the supplier of bringing it to the market, and the value to the buyer of using the good. The other alternative is to have a munificent polymath agree one price for such goods/services that approximates both the production cost and consumption utilities. Since this godsend must exercise this function across the economy, it is evidently a well nigh impossible goal, as all failed previous collectivist economies amply demonstrate.

Markets do fail. Because temporary imperfections in the structure of particular industries render monopoly supply the most effective means. Or, since no supplier can capture all the gains from providing the service (education and health, for example) strong, non-market incentives are required to drive the price mechanism in affected sectors of the economy. In principle, I am all for a transition from state-provision of any good/service, to provision of same by the private sector. The state does not vanish in this process. Instead, it emerges as a strong regulator of the space in which private operators play.

On this reasoning, what this ruling does is muddy the waters. Besides, it adverts attention to a number of questions. First, what happens to private sector investment in the downstream sector of the oil and gas industry? Two levels to this question. There are those investments that have been committed in the hope of leveraging the liberalised price regime: tank firms, private jetties, tankers, pump stations, and staff. Then we must also mull over the outlook for planned investments. One thing for sure: until the outlook is clearer, bank lending to the sub-sector will slow to a trickle.

All told, I consider this judgment a net negative.

Mr. Uddin, an economic historian, and columnist for Premium Times, writes from Lagos

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