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Issues in using price control in Nigeria 19 Mar 2024

Two notable activities (one judicial and the other regulatory) occurred last month. They related to price control and or price fixing as a governmental response to high inflation and the rising cost of living in the country.

One was the judgment of the Federal High Court that was delivered in a suit filed by Femi Falana, SAN, where the court ordered the federal government to fix prices of certain goods including petroleum products pursuant to the provisions of Section 4 of the Price Control Act. Mr. Falana had filed the suit against the Price Control Board and the Attorney General of the Federation (representing the federal government). Neither party filed processes in response nor appeared in the proceedings up until the judgment was delivered.

The second was the meeting held on the 19th of February between the Minister of Works; the Minister of Industry, Trade and Investment; representatives of the three biggest cement manufacturers in Nigeria (BUA Cement, Dangote Cement, and Lafarge Cement); and the Cement Manufacturers Association of Nigeria over the rising prices of cement. It was reported that the meeting concluded with a resolution to peg prices of cement at certain prices.

Nigeria’s inflation rates are high. According to the National Bureau of Statistics (NBS), the country’s inflation rate has continued to rise. From 28.20% in November 2023, the consumer price index rose to 28.93% in December 2023 and to 29.9% in January 2024. The removal of petroleum subsidies and high volatility of foreign exchange have led to rapid and sharp increases in the cost of goods and services. There have been high increases in the prices of fast-moving consumer goods (FMCGs), medicines and medical equipment, construction and building materials, and others.

But is price control the appropriate remedy?

Price control refers to the ability of the government to set prices of goods or services, either by prescribing a price floor (a minimum chargeable price) or a price ceiling (a maximum chargeable price). The underlying principles behind price control is protection of consumers, regulation of competition, and promoting fairness in the market. Thus, we find many countries including Nigeria and the United States of America setting price floors for the labour market with minimum wage. In Nigeria, there is also a regulatory price for the petroleum motor spirit (PMS) – colloquially called petrol. New York City in the USA, through its rent control laws, set price ceiling for the rental market.

While there are many positives for an unregulated market where the factors of demand and supply determine price, it is generally recognised that markets are subject to volatility and some form of regulation – including price control – would be required as a bulwark against the prices of essential necessities spiralling out of hand. Price control is then an instrument used to protect citizens from the financial burden resulting from market volatility and from unfair practices like price gouging. It is used as a policy tool in cases where the government wants to curb inflationary or deflationary tendencies, and it ensures access to essential goods.

The negative impact of price control, however, includes reduced investment and innovation in the industries where the price controls are imposed, increase in shortage of goods and services, enabling black markets, and hoarding and arbitrage trade. Any one of these can cause significant distortion in the functioning of markets. Orthodox economics holds the position that virtually all price control measures are counterproductive and almost inevitably lead to shortages. Several think tanks including the American Institute for Economic Research opine that government intervention in a market economy through price controls is more harmful than productive as it is bound to not only create scarcity but also lead to a decline in market participation for producers and suppliers.

Price control in Nigeria was first introduced by the military government in the 1970s but, with the liberalisation of the economy over the subsequent decades, it became largely otiose. The enabling law, the Price Control Act is, however, subsisting as it has not been repealed. The 1977 law by its Section 4 legally permits the use of price controls on controlled commodities (listed in a schedule in the Act) in the country. The Act creates the Price Control Board as well as a Price Control Committee for each state in the country. The Board is empowered by notice published in the Federal Gazette to fix a basic price for any controlled commodity and any permitted variation for the commodity in respect of any state in the country. It is mandated to ensure that basic price should represent the cost of production of the commodity plus the manufacturer’s profit in the case of goods produced in the country, or the duty-paid landed cost in Nigeria plus the importer’s profit in the case of imported goods. In the permitted variation in any state in the country, transportation and other costs plus the distributor’s profit are added considerations in setting the controlled price.

The nine controlled commodities in the First Schedule to the Act are: bicycles and spare parts, flour, matches, milk, motorcycles and spare parts, motor vehicles and spare parts, petroleum products, salt, and sugar. However, the Board may add or delete any of the goods constituting the controlled commodities. The Act criminalises sale of goods above the controlled price and hoarding, and imposes civil liabilities for violations.

The judgment obtained by Mr. Falana and the orders compelling the government to fix prices has the undertones of judicial interference in economic policy. The powers of the government to control price, in view of the subsistence of the Price Control Act, is not in question. The government’s decision to exercise those powers in line with its economic policies and general fiscal and economic direction should, therefore, be unfettered. The courts do not typically interfere in the exercise of executive powers where the element of discretion is involved. A writ of mandamus, typically used by courts to mandate the performance of public duty, is more often used to control abuse of discretionary power or where such decision was guided by irrelevant consideration. The court will not normally issue an order of mandamus on how to exercise the power where element of discretion is involved.

The courts explained the use of the order of mandamus in the case of Dododo v. E.F.C.C. (2013) 1 NWLR (Part 1336) 468, thus: “Mandamus is a high prerogative writ which lies to secure the performance of a public duty, in the performance of which the applicant has a sufficient legal interest. It gives a command that a duty or function of a public nature, which normally, though not necessarily, is imposed by statute but is neglected or refused to be done after due demand, be done. If there is a discretion in the performance of the duty, the court has the power to examine whether the discretion to refuse to act has been properly exercised. In the exercise of that power, the court will not lightly overrule the discretion just because it considers it desirable that the duty be performed. Even if it is found that the discretion was not properly exercised or that there was in fact no discretion at all in the matter, the court may still exercise its own discretion not to order mandamus on the general ground that the court would make no order in vain which could no longer be carried out; or on the other ground of expediency that it would serve no useful purpose even if the order were implemented. In those instances, the exercise of the court’s discretion will need also the pass the usual test.”

In the popular case of Fawehinmi v. IGP [2022] 7 NWLR (Part 767) 606, where the late human rights activist had filed an action to mandate the Inspector General of Police to investigate specific crimes, the Supreme Court had stated: “Although the Police are answerable to the law, there are many fields in which they have a discretion with which the law will not interfere. Thus, even though the public duty of the Police to take due measures for the purpose of enforcing the law is potentially enforceable by mandamus, a substantial margin of discretion will be conceded to the Police as to the appropriate method of enforcement. The Police therefore retain very considerable freedom to formulate and implement general policies and to decide what to do in a particular case without incurring the risk of judicial interpretation. Other bodies with statutory responsibilities would appear to be in the same position.”

On the exercise of discretion by executive organs of government, the Supreme Court said; “The need to exercise a discretion in such a matter may arise from a variety of reasons or circumstances, particularly having regard to the nature of the offence, the resources available, the time and trouble involved and the ultimate end result. It may well be balancing options as well as weighing what is really in the public interest. The discretion is not limited to the method of enforcement of police powers. Thus, it is inconceivable that such wide powers and duties of the Police must be exercised and performed without any discretion left to responsible Police operatives. Therefore, when so exercised, it is only in very obvious and exceptional circumstances that the court may interfere with the discretion.”

I interpret the use of price control under the Price Control Act in the same light. While the powers may exist, it is in the discretion of the executive to use or dispel with it pursuant to its economic programme and agenda. I do not believe the exercise of the powers can be compelled by the court.

The regulatory intervention by the Minister of Works and Minister of Trade, Industry and Investment in the rising costs of cement would not fall under price control under the Price Control Act. There is some measure of difficulty in interpreting the intervention especially considering the subtle threat credited to the Minister of Works of opening up the borders for importation of cement.  

The Federal Competition and Consumer Protection Act (FCCPA) prohibits restrictive agreements including price fixing and minimum resale price maintenance. The intervention of the ministers is a bewildering mix of price control and an attempt to impose price fixing on the manufacturers.

Price fixing may be authorised by the Federal Competition and Consumer Protection Commission (FCCPC) where it is satisfied that the agreement “contributes to the improvement of production or distribution of goods, services or the promotion of technical or economic progress, while allowing consumers a fair share of the resulting benefit”; such restrictions are indispensable to the attainment of this objective, and does not afford the possibility of eliminating competition in respect of a substantial part of the goods or services concerned.

While interventions are undeniably required to stem the effect of inflation and prevent abuse of dominant positions in the markets, the FCCPC is an essential body in all such interventions. It is important always to act within the ambit of the law.

Funmilayo Odude is Partner at Commercial and Energy Law Practice (CANDELP).