 Welcome back. On Tuesday, the Director of Press and Public Relations at the Ministry of Labor and Employment announced that the federal government plans to increase the current pay of government workers by 40%. Now, this increase is the force since the national minimum wage rate increased from 18,000 to 30,000 Naira in April of 2019, which applied to all employers of labor in Nigeria with more than 25 employees. Although the government's decision to increase the minimum wage is driven by the rise in the cost of leaving over the last four years and the expected impact of the removal of fuel subsidies and the purchase and power of households, data from the National Bureau of Statistics shows that average prices have risen by 85% over the same period. I have financial and economic expert Bolaho or Lodger. They're joining me now to analyze this development. Good morning to you Bolaho. Thanks for joining us on Business Insights. Yeah, good morning Justin. Nice to be on the program. Yes, it is indeed our pleasure to have you. Now, first off, Bolaho, let's get your summary review of the fuel subsidy removal at this particular time. Well, there's never going to be a perfect time for the removal of subsidy without some contestations and protests of effect. The closest we have had to a very good time were those seasons when crude oil price was extremely low. In fact, at the point in time in year 2020, crude oil in the international market became zero. Zero dollar was a value. Some even argued I went negative. So those who have been the closer we will ever have to a perfect season to have removed the fuel subsidy. Unfortunately, we missed those two windows. There was one in 2015. There has been another one now. There was another one in 2020. So it is what it is. Where we are right now is a situation in which the payment for fuel subsidy has become a major distortion and a source of economic leakage. So we must confront it. The question now is how do we approach that? In my opinion, that is the how that is the issue. Not whether we should remove fuel subsidy or not. I believe we should remove subsidy on PMS for how we go about that to minimize the burden on the people and to ensure soft landing and effective implementation is what I think we should be doing. All right. Speaking of implementation, the house and the soft landing like you have mentioned, there has been talk of inflation that will accompany the removal. And incidentally, the federal government is increasing workers' pay by 40%. But let's also bear in mind that prices have gone so fast to as much as an increase rather by as much as 85%. So just how far will this go with 40% increment and of course, and the prices of good and services spiking by 85%. It's a cocktail of problems, which is why it requires careful thinking through. We must think through the entire process and manage it properly. And it starts from being able to build trust with the people. To build trust with the people, we have to come to the table with honesty. And I'll give you a very important part of honesty. As we speak today, we do not know for certain how many liters of PMS is consumed in Nigeria until. And it is not impossible to know. We can know it if we're really serious about knowing it. It comes across to me as if we have deliberately chosen not to know it because we needed to leave a gap somewhere for some certain level of shenanigans that have been out there for a long time to continue. There are beneficiaries of the current regime and they will want it to continue along that line. Part of the things you also need to put on the table is that citizens are sensitive to the fact that we are not refining our crude oil in Nigeria. They want a situation that we can make and say our refineries, the public refineries especially are working. Can we get those public refineries to indeed work? I know the contract has been signed. In fact, the second phase for the protocol refinery contract is still this month. Second phase should have been completed in the month of April. So where are we on that? How many liters of fuel are we going to be able to produce from our public refineries by the end of June when the first subsidy is being proposed? Will the refineries be on stream by the end of June? We don't know. Coming back to the issue of the problem that increased in salary itself will cost. Definitely it will fuel its own size of the inflation and that is because our approach to salary increment has never been scientific. Rather it has been arbitrary. So 40% if I ask now the people who determine what exactly was the basis for arriving at 40%, you'll be shocked that the basis will not be convincing. It will be totally against the reality of the situation unlike most structural societies where there are elements of scientific basis. There are empirical data that are fed into certain variables which are fed into some template to arrive at how much percentage are we increasing salaries with. We don't seem to do that here. We work up and decide oh it should be 80 to 30. Oh it should be 30 to whatever. That's fast for the minimum. And all these things have their impact because it becomes very difficult to harmonize policies. So there will be an element of inflation from that salary increase. Now I'm also more worried about the reaction of the people to issues of salary increase as well as possible no subsidy. A very good example of the way people behave is what we saw during the cashless policy. The attitude of the POS operator. So you're going to have a reaction from segments of the society that will say oh because they have increased your salary by 40%. I mean this is outside of the normal economic reaction. The psychological reaction of the market to say they have increased your salary by 40%. I must take my own share of that 40% and you start to see prices increase you know more than correspondingly in the market just as a reaction to that increase to say I want to take my own part of it. When you also remove first subsidy apart from the normal economic reaction you also have the people reaction which will further aggravate the problem. We saw that with the POS issues. What you will find is let's say price has become price of PMS becomes triple. But don't forget that that triple price in the bus in the commercial bus of 10 passengers that increment is going to be shared out by 10 passengers. Sometimes you will be shared out by more than 10 passengers as passengers are light along the way and new passengers are picked up. But you will be surprised at the rates of increments by the operators of those services. Even in those periods when well price increased by 20% operators of transportation double prices or even went more than double because there was a 20% increase in well price. And they will tell you that don't you know that well price has increased. Meanwhile 12th price only increased by 20% you have double your own price despite the fact that the increment of 20% is going to be shared across 10% percent. There is also the people reaction who has to coordinate and manage all these reactions for a softer effect on the people. Okay well let's look at another issue right now because the federal government announced them an 800 million US dollar World Bank grant. In your opinion do you really think this would actually serve the palliative measures that it intends to? The government is targeting 50 million vulnerable Nigerians or 10 million households. Just what are your thoughts about this really? Well palliatives do work to a certain extent. I think there is a psychological part of the palliative that oh I'm getting something from the government. It means that the government thought about me. But also there is the tendency for it to you know exert a little bit of inflationary pressure as well because we're actually pumping that money into the system. However by the concept behind palliative measures don't forget that in COVID season for example America printed literally 2.5 trillion dollars and just shared out to people as palliative. So and the implication is the same thing as what we're trying to serve in Nigeria today. In those extreme seasons in America and not just America it was across the world that palliatives were administered. It was administered because it is perceived that number one it will put a little bit of money in the hands of the lowest rung of the ladder and there is also the psychological part of government thought about me and is giving me some. For that amount as far as fuel subsidy is concerned in Nigeria I am not so sure that I will cut it. I think it will be too small. It will come to about 5000 naira per month but the kind of increases were likely to see both in the transport sector another segment of the society are going to be much more than what 5000 can solve especially in Orbran Nigeria. But my bigger worry is the capacity to even implement a cash transfer. The database have we ever audited that database before? Who are the people there? Is it a case of five million real people and five million ghosts? We are persistently seeing ghosts. Ghosts are all over in the system from the federal government to the state government and all similar schemes that involve passing money on to people. Whether it's the Amnesty payment that you want to look at or it is the special labor works that employ someone as 74000 Nigerians across the government sometimes last year. We have not shown the capacity to be able to implement those kinds of transfer effectively. A lot of that money I fear went up in the wrong hands and will not get to the intended people who are the lowest wrong of the ladder. So we might end up pumping 800 million dollars that will go into the hands of the people that are not intended for and will just cause an additional inflationary pressure on their economy. I must say a very big thank you to Bona Ho for finding time to share those useful insights of course on the fuel subsidy removal and the impact of Nigerian workers on Nigerian workers that ease. We do appreciate your time Bona Ho. Thanks for having me. All right there is more to expect on business insight after this quick break stay with us.