Governments versus markets, By Uddin Ifeanyi

Why do Nigerians continue to struggle with the notion of the market, especially the primary role that it allows private sector operators. In the consensual reading, government (a less malign influence than private sector operators) is set up as counterpoint to the rapacious instincts of business folk – one reason why successive federal government’s pledges to move the economy from a public sector-led to a private sector-led growth model has been stuck in rhetorical mud. Over the years, though, dirigisme has failed ever so woefully in delivering benefits to the people. That the economy is in the rut that it is today, is as much the result of statist policies as it is indicative of the state’s incompetent intervention.

Interestingly, developments in the economy, since the Tinubu administration assumed office, last year, have supplied fagot to the conflagration around the utility of markets for developing economies. The recent increase in petrol prices have seen this fire burn brighter still. How else does one explain the jump in the pump-station prices of petrol in the wake of the federal government’s weak-kneed reforms to the economy, but by business folk’s love for price-gouging practices?

Ironically, the Tinubu administration’s attempts at reforming the downstream oil and gas sector offers rich pickings for anyone looking to understand markets well enough to make a case for favouring them as the preferred route to Nigeria’s growth and development. Markets thrive on several assumptions, the two most important of which partly reflect the freedoms without which a democracy is but a sham, and the exercise of authority, without which autocracies cease to be. The first of these non-antagonistic contradictions is the market’s bias for sundry freedoms: of buyers, to enter and exit markets with portmanteaux of products and services of their choosing; and of sellers to buy or refrain from buying these goods and services at the prices offered by their producers.

Done properly, the profusion of sellers and buyers should push the prices of good and services down (or up) until their prices equals the cost of producing an additional unit of each. Put this way, competition in markets compel sellers/producers of goods and services to seek ways of pushing costs down. Investment in new process technologies, ways of organising production or work processes, exploitation of cheaper input sources, etc. all fulfill this condition. Accordingly, an effective downstream oil and gas market would eschew monopolies in crude oil refining, while removing impediments in the way of petrol imports. This way, both refiners of crude oil and importers of petrol would seek incentives to bring their costs down in order to remain competitive.

Ideally, the supply side of the downstream oil and gas market would then sign forward contracts for supply of inputs that lock prices in over clear plan periods and then hedge these contracts against future price movements that, with the right shock to market conditions, might leave them out of pocket. Customers gain from the steady prices that this practice usually results in. On the downside, competition over prices could also have sellers/producers cut corners – by importing expired products, or in this case substandard fuel, for instance. This latter reason is why markets also need regulations and competent regulators – the second of the non-antagonistic contradictions that markets are based on – to thrive.

A proper regulatory environment in the downstream oil and gas sector works when government sets product standards against which refiners and fuel importers’ activities, may be gauged. Fuels with high octane levels do not burn easily, and the levels of compression required to ignite them means that they work better in high-performance vehicles. Lead as a petrol additive has also been implicated in public health concerns. If our governments exist to optimise our welfare, then the composition of petrol refined in or imported into the country would have to reflect all of these.

Government is responsible for ensuring that the quality of products, goods, and services consumed in the economy are consistent with the goal of improving the people’s welfare. Markets should be allowed to find the prices that help the economy best allocate resources.

Uddin Ifeanyi, journalist manqué and retired civil servant, can be reached @IfeanyiUddin.