By Amanesi Shielu Khadijhat
Fuel subsidy removal in Nigeria could cause inflation and reduce economic wellbeing. Its effect might hurt economic growth and reduce house income growth, make firms fold up, result in retrenchment, high cost of transportation for food, goods, services and general survival amenities for the venerable Nigerians.
Apart from social unrest and protest, people may percieve the Government as lacking sensitivity towards public needs. There is also a risk that could lead to a rise in fuel price, smuggling and other illegal activities.
It is a fact that fuel subsidy takes enormous in Nigeria’s budget. NNPC reveals that at least, more than 400 billion Naira monthly, is used to subsidize fuel. That is nearly, half of the money spent on total annual budget.
Subsidy existed because the government fixed the price of petroleum products for consumers below the international price and pays for the difference. This whole idea was first introduced in Nigeria in the year 1970 during the 1983 ‘oil price shock’. However, despite numerous attempts to reforms, Nigeria has never successfully or completely removed it due to the strong popular opposition from the National Labour Congress (NLC).
Funding this subsidy to encourage greater population of Nigerians is at great economic cost. The result is lower spending on other developmental objectives in the distribution of State resources.
Government expended about Three trillion naira on this subsidy in 2022. Finance Minister, Zainab Ahmed said recently, averred that it will be better and appropriate to begin the implementation of its subsidy removal policy in the Q2 of the year.
According to Emmanuel Addah, Nigeria’s spending on subsidy is controversial; fuel subsidy regimes has gobbled up about 21.1 trillion in the last 18 and half years. This (NEITI) Nigeria Extractive Industries Transparency Initiative review figures between 2005 and first half of 2021 indicates that 13.7 trillion Naira was spent on subsidy.
However, quoting study results provided by the National Bureau of Statistics (NBS) and NEITI, expenditure on petroleum products consumed by the five income groups in Nigeria indicate that the richest 20 percent citizens of Nigeria consume 75% of petroleum products while the poorest 20 percent consumed just 1% .
Further breakdown indicates that from 2005, the base year for this research, 351 billion naira was spent on petrol subsidy while in 2006, 2007 and 2008, 257 billion, 272 billion, and 631 billion naira were spent respectively, same purpose. Also, 2009 and 2010 the subsidy gulped 469 billion and 667 billion naira while in 2011, Nigerian expended an unexpected amount of 21.1 trillion naira on moderating the price of fuel.
Extending the analysis to cover more income groups the initiative said that the NBS data also, confirmed that the richest 40% of citizens consume 90% of fuel while the poorest 40% consume 4% of fuel subsidy spending,
In 2012, Nigeria spent 1.36 trillion, 1.32 trillion in 2013, 1.2 trillion naira in 2014. The expenditure reduced from 2015, 2016 and 2017. Again, in 2018, 2019, 2020 and 2021 fuel subsidy gulped up to 1.1Trilion Naira 508 billion, 864 billion and 11.43 trillion naira respectively.
Further analysis showed that in 2022, 4.4 trillion was spent while between January to June 2023, subsidies consumed 3.6 trillion rounding off the amount at 21.7 trillion for the years under review. Research also showed that the lower amount of subsidy expenditure seen in some of the years under review was due to the price modulation system put in place by the government during the period.
Subsidy Introduce over 50 years ago was a temporary intervention to reduce the impact of the sharp rise in global price. Today, subsidy disbursement in Nigeria is controversial as it is opaque. For over two years, the Nigeria National Petroleum Company Limited (NNPC) has not remitted funds to federal account, a development partly to blame on fuel under-recovery payment.
A few Weeks ago, the National Economic Council (NEC) agreed that the subsidy should not be removed as it was planned for June 2023. According to Zainab Ahmed Minister of Finance Budget and National Planning, disclosed that the council agreed that the timing for the removal of fuel should not be now. They noted that preparation and work needs to be carried out first, including consultations with the State and other key Stakeholders by the incoming administration.
Although many Nigerians believe that the removal of subsidy is long overdue while others believe it will throw many into untold hardship. Irrespective of the fact that section: 14 of the constitution provides that priority security and welfare, should been given to the citizens by the Government, Femi Falana (SAN) reacted and argued against complete subsidy removal. According to him the policy will provide more poverty in the country. The Government must take care of the people and ensure that providing subsidies for the needy does not translate into enriching the criminals as it is now.
A Petroleum Engineer, Martin Onovo, also recently explained that the Nigerian Government had embarked on fuel subsidy removal at least 20 times in 40 years before now that the idea yielded no economic benefit to the country. He said that subsidy removal will further shoot up inflation leading to Naira devaluation and that the point to consider is that Nigeria must stop the importation of fuel products by renovating its Local refinery to boost its refining capacity.
As at the time of this feature, none of the refineries was fixed to commerce production, it was only at the latter hours of past administration that former President Muhammad Buhari commissioned the Dangote refinery, yet to commence production.
Irrespective of the warnings on the aftermath effect of the subsidy removal, on Monday May 29th 2023 in the inaugural speech of President Bola Ahmed Tinubu, he announced that Nigeria fuel subsidy is gone and that there would be no longer petroleum subsidy regime as the current 2023 budget does not capture it.
He however said that the country would save trillions of naira yearly by scraping the subsidy and that the money would be used to implement reforms that would help boost the economy. Ending the decade long subsidy, it has more than doubled the price of petrol and raised prices for food and other essentials.
NLC membership on Wednesday the 2nd of August, occupied the National Assembly Complex to protest the hard ship inflicted on Nigerians because of the removal of subsidy on petrol. The protest was led by the National Chairman of the NLC, Comrade Joe Ajaero and Festus Osifo of the Trade Union Congress (TUC).
Both the TUC and NLC had declared a strike in the wake of the announcement of the major policy shift but later dropped the plan at the last minute after a marathon of meetings with the Federal Government. While negotiations with the labor leaders were ongoing, the Federal Government approached the national industrial court in Abuja and on 5th June obtained a court order to stop the strike. The Labour leader dropped the strike plan in succumbing to the court order and the promise by the government to implement a number of palliative measures.
A few days later, the NNPC announced a new price of fuel from #537 to #600 per liter of petrol as if that was not enough. On Tuesday the NNPC further pushed the price to #617 per liter saying market forces inflate it. At this, the prices of goods and services, including food and transportation fares witness a skyrocket immediately in response to the hike in pump prices across the country.
Adding to the economic woes of millions of Nigerians struggling to meet their basic needs, many have resorted to trekking long distance to reduce the cost of transportation. Many cars with high consumption spirit engines have been parked by owners. The gravity of this effect has led to sudden disappearance of high traffic jams, and decades old business outfits in major cities like Lagos and Abuja the federal capital territory.
On this, NLC has threatened to embark on another Nationwide protest and strike proposed to commence on the 2nd of August 2023, if the demands of the Labor Union are not met. However, it was pertinent to alert the member of the NLC and public of the pending suit No. NICN/ABS/158/2023 federal government and another before the National industrial court, where his lordship Anuwe J. of 5th June 2023, granted an order injunction restraining Nigeria Labour Congress and Trade Union Congress and from embracing a planned strike of any nature.
HOW TO SURVIVE IN NIGERIA
What is happening in Nigeria government today is all about making the right decision. Now, there is no doubt that this decision is going to make things tougher, but if we are able to weather the storm there is going to be at ease at the end of the day. With reference to previous attempt of removing subsidy, I believe we have all accepted that the previous move of the government of President Goodluck Jonathan’s removal of fuel subsidy by adjusting the pump price of petrol from #65 per liter to # 141, would have made fuel subsidy be a thing of the past. As at then there was a similar move that sparked mass protests across all the major cities of the country. After a week the price crashed to #97 further to #87 in 2015.
Also, the former Emir of Kano Sanusi Lamido. in a TV show, said Nigerians made a huge mistake by protesting subsidy removal despite all effort to explain its negative impact on the quality of lives of the people. In his words he described Nigerian fuel subsidy as a scam, while expressing the regrets over the nationwide protest that halted the former President Jonathan plan to remove of the subsidy. It was obvious that a few people controlling the levers of power were making millions and billions of Dollars from the scam that is called fuel subsidy. Ngozi Okonjo-Iweala did not relent on this because she also said that they were all crying.
Then, this APC government and many people were against it but today many other people are fighting that subsidy is a fraud that must go. So, anyone against the subsidy removal seems not being realistic. The challenge now is what can be put in place before removal. These need to be discussed fast. Also necessary is a projected period for every policy. That is, a policy may take up to two years before the benefit will begin to manifest. The prices for products and services will increase until all the licensed distributors start bringing in fuel.
We should also take note we do not have any production refinery as at now. Everyone needs to understand that the majority of those things we spend money on are not needed. Therefore, we need to re-strategize, reprogram and re-plan our spending pattern and save money for this struggle.