Imagine a busy street where kids run around unsupervised. It’s chaotic, unpredictable, and can be risky. Now, think of our economy as a similar playground where businesses and people interact. Some believe that markets can handle themselves just like those unsupervised kids. But is it really that simple?
This idea suggests that when everyone follows their own interests, an invisible hand guides everything to balance—resources are used well, prices adjust, and everyone benefits. Sounds perfect, right?
In reality, we see that government intervention is often needed to keep things on track and ensure fairness. While free-market advocates argue against government intervention, the Nigerian experience suggests that strategic oversight is essential for market efficiency and social welfare.
“While free-market advocates argue against government intervention, the Nigerian experience suggests that strategic oversight is essential for market efficiency and social welfare.”
Real-world markets are susceptible to failures such as monopolies, externalities, and information asymmetry. For example, Nigeria’s telecommunications sector has experienced monopolistic control by MTN and Airtel, leading to high costs and service quality issues.
In July 2024, the Nigerian Communications Commission (NCC) highlighted growing concerns about the dominance of major telecom operators in Nigeria’s telecommunications sector. Key players such as MTN Nigeria and Airtel Nigeria hold significant market shares, leading to several issues that have prompted calls for regulatory intervention.
MTN Nigeria and Airtel Nigeria collectively control over 66 percent of the market share in the telecommunications sector, according to data from Statista. MTN alone accounts for approximately 37.4 percent of the mobile subscriber base in Nigeria, while Airtel holds around 28.9 percent.
This concentration of market power limits competition, reducing the incentives for these companies to improve services or offer competitive pricing. New entrants and smaller players struggle to compete, leading to a less dynamic market.
Consumers have reported high costs for mobile data and call services. The dominance of a few major players means that pricing is less competitive, and promotional offers are often limited. For example, a recent survey indicated that Nigerians pay among the highest prices for mobile data compared to other African countries.
With limited competition, there are fewer choices for consumers who are dissatisfied with their service providers. This lack of alternative options further entrenches the pricing power of dominant players.
Despite the high prices, service quality has often been criticised. Frequent network outages and slow internet speeds have been reported, particularly in underserved areas. For instance, network coverage and reliability have been questioned in rural regions where service quality lags behind urban areas.
Complaints about poor customer service and inadequate responses to issues have also been prevalent. Consumers have expressed frustration over long wait times for customer support and the slow resolution of service problems.
The NCC has recognised the need for increased regulatory oversight to address these concerns. The commission has proposed new regulations to promote fair competition and improve service quality. This includes measures to prevent anti-competitive practices and ensure that smaller players have a fair chance to compete.
This serves as a testament that, without necessary government intervention, dominant market players would optimise their monopolistic power to the fullest, neglecting the welfare of customers.
Similarly, free markets do not inherently address issues of inequality and poverty. Despite its significant natural resource wealth, Nigeria faces substantial income inequality. The benefits of the country’s oil wealth have not been evenly distributed, leaving a large portion of the population in poverty.
Nigeria is often described as an oil-rich nation with vast reserves that have the potential to drive substantial economic growth. However, this wealth has not translated into widespread prosperity. Ranked as the fourth-largest economy in Africa by the IMF, Nigeria has 87 million people living below the poverty line—the largest poor population after India.
The oil and gas sector starkly illustrates the limitations of self-regulating markets. The concentration of wealth and power in the hands of a few has led to significant socio-economic challenges. Corruption and mismanagement within the Nigerian National Petroleum Corporation (NNPC) have resulted in massive revenue losses and environmental degradation.
Read also: The idea of free market economy is illusionary – Fashola
The current oil production crisis underscores these issues. Nigeria is now producing 1.3 million barrels per day less than it used to, falling short of the OPEC production quota of 1.58 million barrels per day. This decline undermines Nigeria’s position in the global oil market and highlights economic difficulties for millions of Nigerians.
A report by the Nigeria Extractive Industries Transparency Initiative (NEITI) has revealed extensive revenue leakages due to poor regulation and oversight. This situation emphasises the need for effective government intervention to ensure that the wealth generated from oil benefits the broader population.
Not leaving any stone untouched is an externality—costs or benefits that affect third parties who are not directly involved in the economic transaction. Oil spills are a significant externality in the Niger Delta.
According to the Nigerian Extractive Industries Transparency Initiative (NEITI), over 1,000 oil spills occurred in the region between 2010 and 2020. These spills have severely impacted local ecosystems and communities.
The Environmental Rights Action (ERA) reports that oil spills in the Niger Delta have led to the contamination of drinking water sources and farmland, affecting agricultural productivity and local health, impacting sources of livelihood, and creating societal conflicts—a great challenge.
Gas flaring, the burning of natural gas associated with oil extraction, is another critical externality. Nigeria is one of the world’s largest gas-flaring nations.
The World Bank’s Global Gas Flaring Reduction Partnership (GGFR) data indicates that in 2021, Nigeria flared approximately 2.4 billion cubic metres of gas, ranking it among the top flaring countries globally.
Gas flaring contributes to air pollution and has been linked to respiratory problems and other health issues in local communities. In 2023, according to the World Bank’s Global Gas Flaring Tracker Report, Nigeria held the 8th position on the list of the top nine gas-flaring countries in the world with 3.9 billion cubic metres, with Mexico being the last on the list. Mexico. These countries account for approximately 75 percent of all gas flares globally and nearly 46 percent of global oil production.
The environmental damage from oil spills and gas flaring imposes significant costs on local communities. The Niger Delta’s agricultural sector has suffered due to soil contamination, leading to reduced crop yields and a loss of income for farmers.
Fisheries have also been adversely affected, with a substantial decline in fish populations reported by local fishermen. The health impacts of pollution further strain community resources, leading to higher healthcare costs and a reduced quality of life.
Mind you, the free-market approach is not entirely flawed; it offers several benefits, including fostering innovation, enhancing efficiency, and promoting competition. In a free market, businesses are driven by competition to improve their products and services, leading to increased consumer choice and lower prices.
This competitive environment encourages innovation as companies strive to differentiate themselves and capture market share.
However, while these advantages are significant, the Nigerian experience demonstrates that strategic oversight is crucial for ensuring market efficiency and social welfare. Government intervention can help address market failures, such as monopolies and inequality, which free markets alone may not effectively manage.
By combining the benefits of free-market principles with necessary regulatory measures, we can create a more balanced and equitable economic environment.
Oluwatobi Ojabello, senior economic analyst at BusinessDay, holds a BSc and an MSc in Economics as well as a PhD (in view) in Economics (Covenant, Ota).
Wasiu Alli is a business and finance journalist at BusinessDay who writes about the economy, business trends, and politics. He holds a BA. Ed. and M. Ed. in English Language and Education.
