In the complexity of Nigeria’s economic policies, the fuel subsidy is still a big issue, seemingly refusing to let go.
Despite President Tinubu’s announcement on May 29, 2023, that the fuel subsidy would be removed, the FG spent N3.6 trillion on fuel subsidies in 2023. A draft copy of the Accelerated Stabilization and Advancement Plan (ASAP) presented by the Finance Minister, Wale Edun, showed a projection of N5.4 trillion in subsidy expenditure for 2024.
Leading to talks that a partial subsidy remains despite claims of its removal, this continuation of subsidy spending raises several pressing questions. Firstly, how and why has the subsidy persisted despite the government’s removal? How sustainable is this approach given the already strained national budget? And most importantly, who really benefits from these subsidies, and at what cost to the broader economy?
Fuel subsidy in Nigeria was initially introduced to make fuel affordable for the average Nigerian, instead, it has now been portrayed as a factor eating up the nation’s finances.
In 2023, the government’s N3.6 trillion expenditure on subsidies represented a moderate portion of the national budget. To put this in perspective, the total federal budget for 2023 was approximately N21 trillion, meaning nearly 17% was allocated to subsidizing fuel.
The projected N5.4 trillion for 2024 leaves us wondering as it points to the escalating cost of maintaining subsidies in the face of global oil price fluctuations and a growing population still facing the brunt of the subsidy removal announced last year. Where did it go?
The discussion surrounding fuel subsidies is not new in Nigeria. Historically, attempts to remove or reduce subsidies have been met with public outcry and protests, often forcing the government to backtrack. The subsidies are seen by many as an essential lifeline in a country where the cost of living is high and many citizens live below the poverty line.
The N5.4 trillion subsidy projection for 2024 brings forth a deep-seated issue within Nigeria’s economic framework, with the difficulty of balancing populist policies with fiscal responsibility. This increase, nearly 50% more than the previous year’s expenditure, points to a factual rise in the financial burden on the government’s budget during a period of high inflation rates and an explosive exchange rate.
The persistence of the fuel subsidy despite announcements of its removal shows a complex interplay of political, economic, and social factors. Many Nigerians view the subsidy as a necessary buffer against the high cost of living. However, it is not understood how fuel subsidy remained a part of government expenditure following its removal from last year till now.
The Minister of Finance, Wale Edun, mentioned that the fuel subsidy removal is an ongoing process and that the government is focusing more on Compressed Natural Gas (CNG) to power the country’s energy needs.
On the other hand, the Nigerian National Petroleum Corporation (NNPC) has insisted that no subsidy is paid to its account from the FG, stating that the company is only recovering the cost of imports.
Conflicting reports about the provision for fuel subsidy in 2024 add to the confusion, with some sources claiming that the FG has not allocated N5.4 trillion for subsidies. This discrepancy raises worries about transparency.
The government is caught in a bind: removing subsidies has led to pain and political backlash, but maintaining them could perpetuate economic inefficiencies and drain public resources.
So that it will not be in the End, what it was in the beginning!!!!!
In his classic, “Coffin For Head of State” released in 1980, in stanza 27 specifically, the late Afro legend, Fela Anikulapokuti, re-echoed “them no want take am (but them take am), them no want take take am (but them take am), Who go want take coffin? (but them take am), he rounded off that stanza saying, them must take am (but them take am).
We compare the back and front argument on the fuel subsidy removal scenario and its attendant hullabaloo revolving around it, in which the masses seem to have been confused and the leadership of the country gives justifiable explanations.
But just like the good book, rightly noted, “No test or temptation that comes your way is beyond the course of what others have had to face”. As such, ours (Nigeria) is not a close case as a nation, the prevailing challenges notwithstanding.
America, which we all envy today as the zenith of democracy and a role model of development, became the world’s leading industrial power in the 20th century, of course through the instrumentation of entrepreneurship, and industrialization among other conscious steps it had to take.
Again, it took Leek Kwan Yew 25 committed years to transform the country from a tiny colonial outpost into a thriving, global economic centre, specifically from a Per capita GNP of $920 in 1965 to $23,300 in 2000. However and succinctly put, we must quickly and honestly get to serious work to get the good result we desire as a people.
The above optimism and positivism, viz-a-viz an x-ray of the real situation we are enmeshed in, will form the crux of the following discussion.
- Removing Subsidy is not bad in and of itself.
The only place to start, and start well, is the beginning. That is an overview of the pros/cons of the subject matter of the removal of fuel subsidy. From the positive dimension, the fuel subsidy removal, if properly implemented, would free up financial resources for other sectors of the economy, incentive domestic refineries to produce more petroleum products, reduce Nigeria’s dependence on imported fuel, increase employment, channel funds for the development of critical infrastructure, reduce Nigeria’s dependence on imported fuel, reduce the budget deficit and generate a budget surplus shortly.
Again, its “twin brother policy,” the floating of the Naira will also among others; improve Foreign exchange reserves, increase investors’ Confidence, facilitate a better balance of trade, reduce dependence on oil revenue, promote economic stability, decrease foreign investment and decrease Government revenue.
These two policies, introduced almost immediately or simultaneously are at best, in the interest of the larger society and targeted at revamping the economy.
However, there seems to be a vacuum in the implementation of the policies and it seems to be that putting two-edged swords in at the same time really hit hard on the masses, of which the society is yet to recover from its effects.
For instance, there are several countries which have instituted these types of reforms with some appreciable level of success. However, such countries often base their decision on strong research/social and political analysis; cash or in-kind transfers to cushion the impact on the poor; policy coherence, a phased approach; attention to public trust; public campaigns; and persistence and adaptability that keeps in mind the key objectives.
Majorly independent research is conducted early on, which can quantify the level of subsidy, and assess distribution of its costs and benefits-in-kind processes.
Of the above-mentioned, only cash transfers can be said to have been observed and seen in Nigerian society, other practical steps seem to be evading, or not have been observed, the effects of which have not been kind to the masses.
Thus, we recommend that the government goes back to the drawing board if possible for a “policy damage control” so that society can enjoy the benefits of what the policy intends to achieve.
- The Government Should Invest in a Knowledge Economy.
Also cardinal to our subject of discussion is the need for the government to look beyond the traditional way of generating revenue and invest in the Knowledge Economy.
Anytime the subject matter of removal of fuel subsidy suffices, the question that readily comes to mind is, is petroleum the only route to earn foreign currencies? What is the contribution of this sector to the economy? It will amaze you to know that the Oil sector contributed 6.63% to the total real GDP in Q1 2022, down from the figures recorded in the corresponding period of 2021 and up compared to the preceding quarter, where it contributed 9.25% and 5.19% respectively.
According to Statista, in the second quarter of 2023, the contribution of the oil sector to the country’s GDP reached 5.34 percent. Meanwhile, the Nigerian Bureau of Statistics (NBSS), note that the top ten sectors contributing massively to Nigeria’s GDP are: Agriculture, 21.07% Information and communication, 17.89%, Trade and Manufacturing 15.7%, Finance and insurance 6.8%, Mining and Quarrying, 6.4%, Oil sector 6.385, Real Estate 5.20%, Construction 4.22%, Professional 3.195 and other services 2.51%. The above data speak for itself, as challenging as the Agricultural sector is, it’s leading and providing ample source of finance for the country.
However, and beyond the above, the government must look towards investment in the knowledge economy and it must do so with zeal, zest, and all seriousness. The Knowledge economy, or knowledge-based economy, is an economic system in which the production of goods and services is based principally on knowledge-intensive activities that contribute to advancement in technical and scientific innovation.
In the knowledge economy, products, and services that are based on intellectual expertise advance technical and scientific fields, and innovation.
According to the World Bank, knowledge economies are premised on four pillars which are; Institutional structures that provide incentives for entrepreneurship and the use of knowledge, Availability of skilled labour and a good education system.
Others are; access to information and communication technology infrastructures and a vibrant innovation landscape that includes academia, the private sector, and civil society. The worldwide examples of the developing knowledge economy include information technology in Silicon Valley, United States; aerospace and automotive engineering in Munich, Germany; biotechnology in Hyderabad, India; electronic and digital media in Seoul, South Korea; petrochemical and energy industry in Brazil among others.
Amazingly, the richest people in the world today hardly deal in the oil sector. Oil and gas is vast, becoming a curse to us rather than a blessing. Resource course theory was propounded by Richard Auty in 1993, where he used the term resource course to describe how countries rich in mineral resources were unable to use that wealth to boost their economies and how, counter intuitively, these countries had lower economic growth than countries without an abundance.
For records, Elon Musk, with networth of $203 billion, owns App X formerly Twitter, and Tesla among others, Jeff Bezos deals majorly deals in Amazon and was said to have worth $199 billion, while, Mark Zuckerberg, with the networth of $166 billion, chairs the Meta platform. What more? Apple Incorporation is not an Oil and Gas firm but is economically stronger than any country on the African continent, which should give us a clue that the knowledge-driven economy is worth giving attention to as a nation. Lets implore!
- Consistency in Government Policies.
To drive home the importance of consistency, the ancient wisdom of the late Dr. Martin Luther King Jr. suffices, according to him, “If you can’t fly, then run, if you can’t run, then walk, if you can’t walk, then crawl, but whatever you do, you have to keep moving.”
What does this imply? The government has to be consistent with its policies and must be sure that such policy(ies) resonate with the situation of the people. The four phases of policymaking are clear, however for emphasis, it involves but is not limited to: problem identification, policy formulation, decision-making and evaluation.
While we are convinced that this government is blessed with “think thanks”, who can think with and arrive at a laudable solution on its behalf, the attendant results of the policies churned out over time seem to be out to test run and not have come to stay.
Thus we recommend extensive consultations with the masses, professional bodies that would give the true picture of what the policies or policy could achieve and why preempting what could go wrong.
For a nation of over 60 years of age, we should not be found doing ‘test and error” as a nation, by now we should be clear-cut and lucidly clear about what we intend to achieve and go ahead to take practical, well-thought-out steps to make it happen.
