Time To Let Go This Fuel Subsidy …… LEADERSHIP

tam

The whole issue of fuel subsidy has come to be perceived as one huge scam the government is not coming clean on. The skewed policy moved the country to near fiscal collapse between 2011 and 2012. Between 2008 and 2010, the federal government paid a total sum of N1.2trillion, an equivalent of $8billion on subsidy at the 2011 exchange rate. The fact of the matter is that subsidy creates soft money for some smart persons and the privileged in the society. The result is the creation of billionaires that have negligible impact on the economy, because they do not have the capacity to create jobs or employment or add value to production. While they make humongous wealth from subsidy, the rest of society suffers from infrastructural and institutional decay, especially in the social sectors. Subsidy withdrawal is a far-reaching economic restructuring strategy that requires tough political will and an even greater measure of toughness to ensure that the savings from its removal are judiciously utilised to meet the needs of the people. It is not enough to announce its removal, government must engage in a communication strategy that can convince all stakeholders.

The need to do away with subsidy must be obvious to all by now; presently the cost varies with location, going as high as N140 per litre in the southeast and far north. Though there are challenges associated with it, its greatest handicap lies in the lack of trust for the government by the people. So long as government insists on running a closed shop on the issue, so long will there be perpetual suspicion of its policies, no matter how well intended. The supposed subsidy on fuel is a rip-off. Given the state of our poverty-ridden economy where more than half of the population lives below the poverty line, 38 per cent of the women have no education and less than 10 per cent attended school beyond secondary level, it is important to muster the political will necessary to pronounce and execute such delicate policy thrust.

We tout the fact that Nigeria is the largest economy in Africa now. It is also the 10th largest oil producer, even though much of it is lost to oil theft and bunkering, which is to say that this giant has not done well for itself. We have lived with economic recklessness and excesses for too long; there is the need for a rethink of the nation’s economic situation. This is the task before the outgoing and incoming ministers of finance and other economic advisers. The reality of our economic situation is far from rosy and this must be properly communicated and addressed. This fuel subsidy only benefits a negligible percentage of the populace while impoverishing the majority. This is the predicament we are faced with and which the incoming administration must address head on.

2 Comments

  1. Good article !

    The issue, as you state, is do we have the political will to carry out a subsidy removal.

    Along with this fact the government needs to provide certain basics before the price of fuel is left to the forces of supply and demand.

    What does the average Nigerian have other than “relatively” cheap fuel ? No power, no schools, no healthcare system, no roads….absolutely nothing other than the realtively cheap fuel. After all it is the same fuel that most of us use to run our households due to the complete ineptitude of the same government that supposedly looks after our collective interests.

    The rail system is comatose….all the efforts to revive it are a simple drop in an ocean. I have almost no alternative to my car…most buses are moving tetanus devices and the BRT, though good doesn’t access the inner city!

    Let the government devise a master plan that aligns all these issues with subsidy removal and then execute it without the usual desire to embezzle the funds allocated to it !

    Cheers

  2. Before anyone screams no to the sentiment expressed above, I think it would be appropriate to add a few points for consideration.

    What effect would removing N1.2 trillion from FG demand for credit to fund the subsidy have on domestic interest rates?

    Secondly, I recall reading somewhere that Nigeria imports for domestic consumption more PMS (petrol) than South Africa – a country which that report stated has about 3 times as many registered vehicles.

    The question this raises is, what effect would even a 10% reduction PMS demand in Nigeria have on the amount of foreign currency purchased and by implication the exchange rate for the Naira? But if this reduced the cross-border trade in subsidised Nigerian petrol the exchange rate effect would be even higher even after accounting for petrol driven generators.

    Yes removing the subsidy will be challenging but the longer it is put off, the more painful the medicine.

Comments are closed.