Deregulation is the right step, which will lead to the ultimate goal of socio-economic development if the government could muster the political will to move a step further.
Subsidy removal would have made more economic sense when crude oil price was high to save the trillions of naira wasted on payment of subsidy.
But when former President Goodluck Jonathan attempted to remove subsidy on January 1, 2012, the then opposition All Progressives Congress (APC) used the organised labour and other civil society groups to ambush and frustrate him, forcing the former administration to reverse the decision.
Even though the disadvantages of subsidies such as shortage of supply of goods, low prices can lead to a sudden rise in demand that many producers may find it very hard to meet. Ultimately, it can lead to very high demand that causes an increase in prices.
However, dispite the numerous disadvantages of subsidy removal it still has some advantages. Apart from the trillions of naira spent over the years in the payment of subsidy and its attendant corruption, perennial crisis in the downstream sector of the petroleum industry occasioned by government’s interference in the market through the management of subsidy regime has also fueled the need for deregulation, be it full or partial.
New pricing regime will no doubt resolve the recurrent fuel scarcity crisis by ensuring availability of products as marketers will now import product to their full capacity without government’s restriction in the form of import approval. It will also reduce hoarding, smuggling and diversion substantially and stabilise price at the actual product price.
The new regime will also ensure market stability and improve product supply situation through private sector participation. Most, importantly, it will create labour market stability, potentially creating new jobs through new investments in private organisations and at the same time prevent potential loss of jobs in existing investments, which were threatened in recent years.
With the new price regime, marketers will source their foreign exchange independent of the Central Bank of Nigeria (CBN) and ensure adequate product supply in all locations of the country while catering for full cost recovery and averaging of prices across the nation.
With the trillions of naira subsidy claims becoming unsustainable, the continuation of subsidies in any form limits the ability of government to deliver its statutory functions such as power generation, security, education, health, among others. The new price regime will enable government focus on these critical sectors and free up our scarce foreign exchange via CBN to be used in other sectors.
In debating the merits of Nigeria’s fuel subsidy it is important to understand who benefits the most from the system. Contrary to popular belief, it is the rich not the poor who disproportionally benefit from Nigeria’s fuel subsidy. With the government subsidising the market to keep domestic fuel prices artificially low, it is those who consume the most that have a greater benefit from the subsidy.
Nigeria’s poor rely primarily on public transportation as such their per capita fuel consumption is significantly less than the country’s rich, who generally use private vehicles. Neighbouring countries also benefit significantly from Nigeria’s fuel subsidy through smuggling.
The Minister of Finance, Budget and National Planning, Zainab Ahmed, said the federal government will remove fuel subsidy and replace it with a monthly N5000 transport grant to poor Nigerians. The minister said the transport grant will target about 30 to 40 million Nigerians who make up the poorest population of the country.
The Nigerian government spends trillions of naira yearly on payment of subsidy on petroleum products. It has repeatedly tried to cut off the payment in favour of market-determined prices. It argues that the huge amount would be used to fund critical projects, a position backed by the International Monetary Fund (IMF). But many Nigerians want the government to keep fuel cost low as it is the only benefit they receive from the country’s oil wealth.
The minister said, “The subsidy regime in the oil sector remains unsustainable and economically disingenuous. Ahead of the target date of mid-2022 for the complete elimination of fuel subsidies, we are working with our partners on measures to cushion potential negative impact of the removal of the subsidies on the most vulnerable at the bottom 40% of the population”.
The national leader of the ruling All Progressives Congress (APC), Asiwaju Ahmed Bola Tinubu, echoed this sentiment. He said that the action would enable President Muhammadu Buhari to reallocate funds once earmarked for the fuel subsidy and commit those funds to other more socially productive services and undertakings. Tinubu acknowledged that politically, it would have been easy for the oresident to sit back and let the subsidy remain in place.
He said that the subsidy regime had been distorted to where it no longer functioned for the benefit of the masses but for the undue enrichment of a small club of businessmen – some legitimate in their work, some not.“Instead of remaining a positive aspect of the social contract, the subsidy was transformed into an opaque haven of intrigue and malfeasance. It was turned into a shadowy process from which the unscrupulous extracted large sums of money without providing the services and products duly paid for. Fake businessmen became true billionaires over night as if by supernatural force,” he added.
Mele Kyari, Group Managing Director and Chief Executive Officer of Nigerian National Petroleum Company Limited, said that fuel subsidy removal would definitely be achieved in 2022 as it was now fully backed by law, adding that the price of the product may range from N320 to N340 per litre.
Dangana writes from the Department of Mass Communication, Abubakar Tatari Ali Polytechnic, Bauchi, Bauchi state via [email protected]
