Petrol Subsidy – Nigeria’s Albatross! By Nick Agule

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Petrol subsidies gulp N150 billion every month in Nigeria! This startling and perturbing revelation was recently made by Zainab Ahmed the Minister of Finance, Budget and National Planning at a public consultative forum on the draft 2022-2024 medium-term expenditure framework/ fiscal strategy paper (MTEF/FSP).

According to the Minister, petrol subsidy does not benefit the average Nigerian but marketers who buy subsidised fuel from Nigeria and sell it in neighbouring countries at a higher price. And that the money used for the subsidies could be better applied to fund education, health, infrastructure, reduce borrowing and solve the crisis that states are having of not being able to pay salaries. The Minister further stated that it’s the car owners some with multiple cars that enjoy the subsidy as the common man would go with public transport that use diesel that has long had subsidy removed. The minister further disclosed that discussions are ongoing with President Muhammadu Buhari on measures to cushion the effects on Nigerians when petrol subsidy is finally removed. Despite this, the Ministry has still projected the fuel subsidy cost of at least N900 billion in 2022 Federal Government (FG) budget.

In this week’s column, we lend our full support to the policy direction of the FG on removal of petrol subsidies as it is the most sensible thing to do in the current realities of Nigeria’s economy.

Scaremongering by Beneficiaries of the petrol subsidy scam!

Anytime the FG attempts to remove subsidies on petrol, there is an orchestrated scaremongering campaign by beneficiaries of the scam led chiefly by the petrol marketers who find the labour unions and other civil society organisations as willing partners to protest the removal. The usual reasons adduced by the protesters of the subsidy removal are premised on inflation which will lead to weakening of purchasing power and consequently increase poverty especially of the already poor! But a scrutiny will expose these reasons as shallow, and a sham meant to hoodwink the uninformed into backing the protests. Let us examine some of the factors:

1. Food is more essential to life than petrol – There are products that are more essential to life than petrol such as food and drugs, yet these products don’t enjoy subsidies leaving their prices to be determined by market forces. Yet the poor who consume these goods have not experienced an armageddon as the scaremongers suggest.

2. The poor don’t own cars – a walk through any posh estate or neighbourhood in Nigeria will find multiple cars sometimes up to 10 garaged in front of each home. These are the people that petrol subsidy benefits. The poor people that the scaremongers say will experience calamity if petrol subsidy is removed don’t even own cars that use petrol!

3. The fuel used by the poor does not enjoy subsidy – poor people largely use public transportation to move about and the buses and trucks that convey them use diesel which has long had subsidies removed. Also, the poor people use kerosene for cooking and lighting which again has had subsidies long removed. So, the people the scaremongers say will be adversely affected by the removal of subsidies don’t even use the petrol!

4. Petrol price does not affect food inflation – Farm equipment used in the production of food use diesel and not petrol. Same with food processing plants. Food stuffs and finished products are also transported by trucks which use diesel and not petrol. Since subsidy has already been removed on diesel, it means current food prices already have the negative impact of the removal inbuilt and a removal of subsidy on petrol will not cause any significant increases in the prices of food.

5. Imported goods don’t use petrol – Nigeria is a heavy import dependent economy and an increase in the pump prices of petrol will have little effect on the prices of imported goods consumed by the poor. Rather the collapse in the exchange rate is the cause of the inflationary pressures on food prices imported into the country.

6. Government does not set prices for all other goods and services – All other goods and services consumed by the poor in Nigeria are paid for at market determined prices which the Government does not bother about. It is therefore strange that the FG has taken interest in a particular product – petrol – and insists that it must be sold at a fixed price to which a whole agency of government – the Petroleum Products Pricing Regulatory Agency (PPPRA) is in place to fix this price. It is even stranger for the FG to insist that once fixed, the pump price of petrol must be sold at the same rate in all the geographic space called Nigeria to which another agency of government – Petroleum Equalisation Fund (PEF) – is tasked with this responsibility. But the same FG sees a cow sold for N50,000 in Katsina and the same cow sold for N300,000 in Lagos without a bother about the poor who consume beef! the same FG sees a tuber of yam sold for N50 in Benue and same tuber sold for N1,000 in Port Harcourt without coming to the aid of the poor who will not survive without food! So, what is special about petrol that it is the ONLY product in Nigeria which the FG insists on fixing the price leading to trillions paid in subsidies yearly and 2 huge agencies of the FG setup to fix and ensure uniformity of the prices across the nation?

7. Neighbouring countries are paying market prices for petrol – All the neighbouring countries to Nigeria whose economies are smaller and weaker than Nigeria’s are paying market determined prices for petrol and yet they have not collapsed. This reality exposes the lies in the scaremongers’ story that Nigeria’s economy will be adversely affected if petrol is sold at market determined prices. Nigeria’s inflation rate is higher than most of her neighbours which is a clear testament to the fact that petrol prices are not a significant causative factor of inflationary pressures.

8. Petrol subsidies is robbing the poor to pay the rich – Over 90% of cars in Nigeria are owned by the middle to the upper class! The FG paying trillions of Naira in petrol subsidies amounts to taking money that should be used in providing welfare to the poor and paying it to the rich. This is contrary to the practice in all the developed world where the governments tax the rich to fund the poor. In the UK for instance, the government levies a duty of about 40% on every litre of petrol sold and the money is used to fund public transportation for the poor! If Nigeria must develop and take her place in the comity of nations, we must implement economic policies that are working for the nations we aspire to join their ranks.

9. Petrol subsidies is a cesspool of corruption – Data exists of cases of humongous corrupt practices in the petrol subsidy scheme including criminal convictions and many more cases in courts. Removal of subsidies on petrol will be the final nail in the coffin of corruption in the petrol subsidy scheme.

10. Nigeria is subsidising petrol for the West African sub-region – Given the porous nature of Nigeria’s borders, a subsidy scheme that makes petrol prices cheaper in Nigeria in comparison to the neighbouring countries is an incentive for cross-border ferrying of subsidised petrol from Nigeria to other countries. Nigeria is therefore effectively subsidising petrol across the entire breath of the West African sub-region. Removal of subsidies will make smuggling unattractive, and the menace will die a natural death.

Conclusion

Nigeria’s FG must show courage to take the bulls by the horns and remove subsidies on petrol once and for all. The initial price shocks will not take long before they will stabilise, and petrol will sell at market determined prices. When subsidies on diesel and kerosene were removed, the economy has since adjusted to the new prices and life is going on. If Nigeria’s neighbours can pay market prices for petrol, there is no justification for the continued haemorrhage of trillions of Naira that should be used in funding infrastructure and welfare schemes for the poor to be used to corruptly enrich those who benefit from the petrol subsidy scam!

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