Subsidy regime: Curse or blessing to Nigeria?

When nations, countries, states, local governments and communities fail to take right decisions for fear of resistance from the governed, their future is bleak. They become vulnerable to a collapse in security, thereby losing the foundations on which their prosperity is built. They also risk being subjugated to tyranny and prejudice. And, after a few years of recession and backwardness, they lose a lot of benefits, prestige and respect they might have acquired over several decades of development. 
Understanding the concept of subsidy in Nigeria has been quite difficult a task to Nigerians.

This is so because government continues to spend trillions of naira on subsidising the price of Premium Motor Spirit (PMS) or petrol. There is need for those in government to ensure the end to fuel subsidy regime iin Nigeria in the overall interest of the downtrodden, who pay higher, not just for this commodity but also for the multiplier effect of this policy. 

By the way, a subsidy is an incentive given by government to individuals or businesses in the form of cash, grants, or tax breaks that improves the supply of certain goods and services. With subsidies, consumers are able to access cheaper products and commodities.

Markets that have positive externalities, which are extra benefits to society, tend to be favoured in policy to provide a greater supply of goods and services. Many Nigerians believe that subsidy on PMS remains one, if not the only Nigerian policy, that Nigerians benefit from directly. 

As President Muhammadu Buhari announced the plan of the federal government to put an end to the long-existing fraud in the oil industry called fuel subsidy come 2022, Nigerians are expected to brace up for tougher times ahead as the federal government is determined to remove the controversial subsidy on petrol. The most important and only option before every Nigerian is to look at this issue holistically beyond partisan, religious and regional lines which are the dominant features of our political space. Meanwhile, it is crucial we borrow into the annals of subsidy payment in Nigeria for us to know whether it is a curse or a blessing to Nigerians.

An attempt to remove fuel subsidy by former President Goodluck Jonathan in 2012 was resisted by the current ruling All Progressive Congress. It will go down in history that Nigerians came out en masse to protest against the subsidy removal, the development which made the price of fuel increased from N65 to N86.The current price of PMS is at N163 per litre and, by 2022 when subsidy comes to an end, Nigerians, who largely depend on fuel to generate electricity and power their cars, will buy petrol for as high as N340 per litre.

This time around, the federal government seems to be on the verge of removing subsidy, as the major players in the oil industry have added their voices in support of this move. Recently, the Independent Petroleum Marketers Association of Nigeria (IPMAN) said that its support for the federal government planned removal of petrol subsidy stems from the fact that the Petroleum Industry Act (PIA), signed into law by President Buhari on August 16, makes no provision for subsidy.

However, the National Association of Nigerian Students (NANS) threatened to shut down the country should the federal government go ahead with the fuel subsidy removal. NANS President, Comrade Sunday Asefon, considering the current hardship, said the union would mobilise its 41 million members across the country to protest what he branded “a strange proposal”.
The 14th Emir of Kano and former Governor of the CBN, HRH Sanusi Lamido Sanusi, once said that “It is not sustainable at the time when the Nigerian government continues to subsidide consumption instead of production which, in turn, adds value to the nation’s economy. In developed climes like the US, UK, Canada and France, government pays subsidies on production, export and employment in order to grow their economies, unlike in Nigeria where subsidy on consumption continues to take greater percentage of our annual budgets. In India, subsidy is paid on petroleum, fertiliser, food and interest.

Subsidy removal, without spending the associated savings, would increase the national poverty level. This is owing to the consequent rise in the cost of inputs relative to the selling prices of products sold by most firms and farms. The key commodities which experience nominal output increases are refined petroleum products, the production of which provides income for an extremely small number of households. According to and World Bank indices, Nigeria is ranked 6th among the cheapest fuel consuming nations and 99th in terms of GDP out of 167 countries

The government’s fiscal policy stance, following subsidy removal, will be important in determining poverty effects. For example, the inflation resulting from subsidy removal can be considerably reduced with a conservative fiscal policy response. In this case, inflation comes from two sources: the initial increase in general prices due to the higher cost of fuel and more spending by the government as funds are freed up. A highly expansionary policy of spending all savings from subsidy removal would favour rural households while increasing urban poverty

This is because urban households earn most of their incomes from input-intensive sectors while rural households tend to produce inputs. An expansionary policy also fuels inflation, further decreasing urban income. Shehu Omar Tilde (Katuka) suggested that the only time an average Nigerian will welcome the idea of subsidy removal is when government ensures that increase in the cost of transportation and food items is regulated. Anything short of this will definitely throw an average Nigerian into abject poverty.

Given the apparent opportunities in this industry with more than 600,000-bpd local demand for refined petroleum products (RPPs), it would be logical to expect the performance of Nigeria’s refining industry to be at its best. Unfortunately, the sub-optimal performance of these state-owned refineries and the inability of the Nigerian government to revitalise the industry for over two decades have continued to confound researchers. And this ugly development has forced Nigeria to finally end subsidy regime. Now, we have to pay for the unborn generations to have free subsidy nation that has engulfed trillions of naira meant for infrastructure development.

Danaudi, National President of Arewa Youths Advocate for Peace and Unity Initiative, writes from Bauchi, via [email protected]