The two sides of subsidy


Subsidy is one thing that hurts and sooths at the same time depending on which side of the great divide one is.  It hurts the payer and sooths the consumer. One dictionary defines subsidy as “a special grant of public money in aid of some enterprise, industry… or to keep down the price of a commodity”.  That definition divides subsidy into two opposing camps. One subsidises production (enterprise or industry), while the other subsidises consumption (commodities).  
Subsidy at times hurts people outside the borders of the country that funds it.  It may inhibit the existence of a level playing field in an open market.  Sometime in 2008 Germany was in trouble with the European Union (EU) for hiding its farm subsidy budget figures.  
Other members of the EU felt that government subsidy was giving German farm products a measure of edge in the market. The German government was forced to announce its farm subsidy figures. Germany spends a minimum of 6.2 billion euros annually on farm subsidy. The subsidy goes mostly to small and medium size farmers.
The United States of America (USA) spends more than $20 billion annually on farm subsidies. About 39 per cent of America’s 1.2 million farms enjoy the subsidies.  Unlike in Germany where the subsidies are enjoyed mostly by small and medium size farmers, the lion’s share of America’s $20 billion farm subsidies go to the largest producers of corn, soybeans, wheat, cotton and rice. That probably explains why even with the huge devaluation of the naira in 2016 by the Central Bank of Nigeria (CBN), yellow corns imported from the U.S. for blending chicken feeds still land at the shores of Nigeria cheaper than locally produced corn.
Just about every country subsidises one thing or the other. America and other developed economies subsidise production. They encourage their farmers and manufacturers to enter the global competitive market with considerable product price edge.
Ironically, most developing countries subsidise consumption. They spend public funds to hold down the prices of commodities and services.
Nigeria belongs to that group of backward nations that flushes trillions of naira down the drain annually by subsidizing consumption. The World Bank, International Monetary Fund (IMF), the U.S., members of the EU and other donor nations are constantly on the neck of the rulers of Nigeria for subsidizing consumption.
Ironically, Nigeria remains a major recipient of foreign donations. For the 2019 Appropriation Bill alone, donors’ funds amount to N209 billion. That is enough to make the donors complain about Nigeria’s senseless spending on consumption subsidy as local farmers toil in a harsh environment and bear practically all the risk of farming with primitive implements.  
Three weeks ago, Rice Farmers Association of Nigeria (RIFAN) celebrated what was ignorantly tagged “compensation” from the CBN for their losses to last year’s flooding that washed away chunks of rice farms worth hundreds of billions of naira.
It turned out that the rice farmers were ignorantly celebrating a veiled rescheduling of the loans they obtained from the CBN. After the flooding, the CBN knew that the farmers made no sales and could not pay back the loans; so instead of paying back the loans in three installments within one year, the loans were rescheduled to be paid back in four years. That loan rescheduling was dubiously tagged compensation. 
Nigeria pays heavily to hold down prices of petrol and electricity in its endless and myopic subsidsing of consumption at the expense of production. 
The federal government has practically run out of ideas on how to manage the crushing burden of electricity and petrol subsidies.  
Nigeria’s only hope of attaining self-sufficiency in refined petroleum products is now anchored on the 650, 000 barrels per day refinery being built by the Dangote group in Lagos. The refinery is scheduled to come on stream in April 2020. 
 With Nigeria now rated the global headquarters of abject poverty, no one in the federal government would think of phasing out petrol subsidy.
The crushing burden of petrol and electricity subsidies is responsible for Nigeria’s inability to invest in its human resources. Subsidies consume what is needed to fund education and healthcare. At the current oil price and NNPC’s dubious consumption figure of 50 million litres per day, the 2019 cost of petrol subsidy could climb to N912.5 billion. 
The federal government allocation for education and health in the 2019 Appropriation Bill is a scant N777.8 billion.  
Nigeria’s official pump price of petrol at N145 per litre is one of the lowest in the world.
A litre of petrol sells for the equivalent of N538.325 in France. That includes fuel tax of N91.5 per litre. Nigeria also spends aimlessly on electricity subsidy. 
The electricity distribution companies (DisCos) complain that they buy electricity at N87 per kilowatt hour and sell to consumers at an average of N37. That leaves a deficit of N50 per kilowatt hour which is partially responsible for the crushing debt burden of N1 trillion on the neck of the impoverished DisCos.
At the current electricity tariff, a three-bedroom bungalow that consumes 500 kilowatt hours monthly would spend N11, 000 if there is regular power supply. A similar consumption in the Netherlands attracts the equivalent of N44, 000 at current exchange rate.
Nigerians would only enjoy regular power supply when they are willing to pay the market price.  

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