The fuel subsidy debate continues to draw different responses from a cross-section of Nigerians, but with the recent comment by the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed , that the June date for subsidy removal will begin in April, this year, it’s clear that more is yet to come; writes BENJAMIN UMUTEME.
In what has been described as volte face by Nigerians by the federal government on the vexed issue of fuel subsidy. In an interview with ARISE NEWS TV on the sidelines of the World Economic Forum in Davos, Switzerland, Mrs. Ahmed said the federal government might begin the gradual removal of petrol subsidy from April 2023.
“In the 2023 Appropriation Act, the federal government will stop the fuel subsidy regime by June. The federal government plans to spend N3.35 trillion on petrol subsidies from January till June 2023,” she was quoted to have said.
She added that President Muhammadu Buhari “does not want to take measures that would further worsen the economic hardship in Nigeria.”
“What will be safer is for the current administration to, maybe at the beginning of the second quarter, start removing the fuel subsidy, because it’s more expedient if you remove it gradually than to wait and move it all in one big swoop.
“Where there is not enough revenue for the government to buy the refined petroleum products, we have had to borrow to buy the petroleum products. So, if we take that out, that is about N3.25 trillion. That is a significant relief, that we do not incur any more than that number that we projected for in 2023,” she had said further.
$10bn spent on petrol subsidy in 2022
The latest data from the Nigeria National Petroleum Company Limited (NNPCL) has revealed that it spent N4.39 trillion ($9.7 billion) on a petrol subsidy in 2022.
Since January 2022, NNPCL has not remitted funds to federal accounts last year, its data showed, leaving a hole in public finances at a time when the government has been warning that low revenues and large deficits left it unable to stimulate the economy.
Successive governments in the country have tried and failed to remove or cut the subsidy, a politically sensitive issue in the country of 200 million people. The country imports nearly all its refined fuels because local refineries have not been working due to years of neglect.
Negative impacts
Speaking with Blueprint Weekend, finance analyst, Agaba Wilson Agaba, said removing fuel subsidies could lead to an increase in the price of fuel, which could have a number of negative implications for the country’s population.
He said, “This increase in fuel prices could lead to an increase in the cost of transportation, which would make it more difficult for people to get to work and for goods to be transported around the country. This could in turn lead to higher prices for goods and services, which would be felt most acutely by those on low incomes.
“Additionally, removing fuel subsidies could lead to increased inflation, making it more difficult for people to afford basic necessities. It could also lead to a decrease in the standard of living and increase poverty rate.
“However, the removal of fuel subsidies could have several potential benefits for Nigeria. One of the main benefits is that it could help to reduce government spending and free up funds for other important areas, such as infrastructure and social programs. Additionally, removing fuel subsidies could help to reduce corruption and improve transparency in the fuel market.
“Another benefit is that it could help to encourage greater energy efficiency and the use of alternative energy sources, since removing subsidies would make fossil fuels more expensive. This could help to reduce Nigeria’s dependence on fossil fuels and decrease its carbon footprint.”
Agaba said further that, “Subsidies removal also leads to an increase in foreign investment as investors are attracted by the fact that the government is taking steps to reduce its deficit and create a more business-friendly environment.
“Moreover, removing fuel subsidies could also make the Nigerian economy more competitive, as it would make domestic goods and services less expensive for foreign buyers. This would make Nigerian firms more competitive in the global market, which could help to create jobs and boost economic growth.
“All of the above potential benefits hinge on the government’s ability to mitigate the negative impacts. Therefore, it is worth mentioning that the government should have a proper plan in place to mitigate the negative effects that may arise from removing subsidies, such as providing social safety nets for the most vulnerable groups and improving public transport systems before making any decisions.”
In his view, the managing director of SD&D Management Limited, Gabriel Idakolo, told this reporter that subsidy removal would create more hardships for the populace, adding that it would lead to increase in prices of goods and services.
“The federal government is trying to remove the burden of fuel subsidy removal from the in-coming government. Nigerians are already seeing the signs and the eventuality of subsidy removal even now in January and when it is removed in April will add more hardship to the people.
“There are long queues in Lagos and Abuja and some other cities due to the plan of petroleum marketers to increase the pump price. We should expect an increased pump price of petroleum products from April 2023 which will in turn raise the cost of other associated goods and services.
“It is expected that when subsidy is removed funds running into trillions of Naira earmarked for subsidy payments would be channeled into infrastructure developments, at least that is what Nigerians expect the government to do however this might not be the case as it might become another wind pipe of corruption,” he said.
For Adefolarin Olamilekan, a political economist, the subsidy removal will come with serious consequences for Nigerians.
“Regrettably, Nigerians are going to be impacted negatively, with serious economic consequences. Headline inflation will set in alongside surging of operational cost for businesses – small, medium and big.
“Another is that fuel subsidy removal will translate into increased logistics cost that would definitely be transferred on food items and farm commodities.
“Similarly also, is it transfer effect on agro equipment and farm tools. We cannot rule out the cumulative impact of our microeconomics and macroeconomics.
“The household we definitely find much more difficult and burdensome at this time chiefly as income is shrinking with no alternative to scale up,” he said.
Adefolarin is confident that money saved from subsidy removal would be channeled into building critical infrastructure.
According to him, “What is saved from subsidy removal should be put into a critical sector of the economy, of which infrastructure should be a top priority.”
Agaba noted that there might be an improvement in investments in infrastructure.
“Although fuel subsidies have helped to mitigate the high cost of living for the population, by making transport and other energy-dependent activities more affordable, there is no gainsaying it has a negative impact on infrastructure development in Nigeria.
“The subsidies, which keep fuel prices artificially low, can lead to overconsumption and increased demand for fuel. This has put a strain on the country’s infrastructure, as more resources are needed to produce and transport fuel.
“Additionally, the subsidies can also divert government funds away from other important infrastructure projects, such as roads, bridges, Hospitals, schools, and other essential public infrastructures.”
What should be done?
“The government must show commitment and stop the politicisation of fuel subsidies. We want the government to prioritise the welfare and wellbeing of Nigerians.
“Nigerians are not enjoying the dividend of democracy, especially as they continue to groan under the burdens of high cost of living. Lastly, the government investment in infrastructure is not negotiable, and this should be the watchword of out-going and the in-coming governments,” Agaba said.
