One of the major effects that will arise with the removal of fuel subsidy is inflation. Players in the downstream sector have indicated that fuel prices would rise as high as N750. The FG should adopt the following measures rather than distribute $800m.
The Nigerian state is currently embroiled in one debate or the other, with varying opinions from supporters and those against decisions mostly from the Federal Government. Expectedly, the decision by the FG to borrow $800m as a way to cushion the effect of the removal of fuel subsidy or help vulnerable Nigerians post-subsidy era has generated lots of controversies. On April 5, 2023, the Minister of Finance, Budget and National Planning, Zainab Ahmed, announced that the FG ha secured a loan of $800 from the World Bank to provide palliatives for poor and vulnerable Nigerians after the removal of fuel subsidy.
It should be recalled that fuel subsidy debate in the country is not a new thing. Over the years, individuals, economist, public analyst, and among others, have debated the effect the removal of fuel subsidy will bring to the average Nigerian and the country at large. President Muhammadu Buhari, in 2022 announced fuel subsidy will end in May 2023, ahead of his handing-over, citing that it’s no longer sustainable and with the country’s economic realities.
Matters Arising
The decision to borrow $800m to cushion the effect that will arise from the removal of fuel subsidy is one that has been seen as suspicious, ill-advised and raises lots of questions. First, it is important to take a look at some numbers. According to 2022 Multidimensional Poverty Index Survey from the NBS, 63% of individuals living within Nigeria are multidimensional poor, this means 133 million of Nigeria’s projected 213 million people are poor. According to the minister, the 50 million Nigerians would be identified through the National Social Register (NSR). This calls for questions on how the individuals would be identified? Also, with 133 million multidimensional poor individuals, how will the first 50 million be identified? When that happens to the 83 million that will be left? Also, Nigeria’s history with palliatives either through cash or other means have been sketchy, will little or no accountability on them.
Furthermore, Nigeria currently has a debt problem. According to report from the Debt Management Office, Nigeria’s total debt in 2022 was $103.11b or N46.25 trillion. With reference to a report from BusinessDay, with Nigeria’s population (earlier stated) each individual or debt per head stands at N217,136 or $484. According to a data released by TheCableng, the loan when distributed will see an individual earn $16 which could either be N7,360 (N460) at official rate or N11,840 (N740) at black market rate. With Nigeria’s rising inflation, most especially food inflation, the amount would not last more than 2 weeks for the average Nigerian family of 4. What happens after the funds gotten has been exhausted? This amount adds to Nigeria’s already growing debt.
In addition, the issue of subsidy would not have surfaced if the country had fixed the issue bedeviling its oil sector. Nigeria’s subsidy payment over the years have increased on a yearly basis and sometimes exceed the initial budgeted amount. The decision has been tagged by many has subsidizing consumption, instead of tackling the root cause. While the removal of fuel subsidy is set to set the country funds running into trillions yearly, the $800m is another form of subsidy which negates or contradicts the reason for the removal of fuel subsidy.
What’s Next?
One of the major effects that will arise with the removal of fuel subsidy is inflation. Players in the downstream sector have indicated that fuel prices would rise as high as N750. The FG should adopt the following measures rather than distribute $800m.
Revive Moribund Refineries
The moribund nature of Nigeria’s refineries is a worrisome, especially when you consider the amount they gulp on a yearly basis without refining a single drop of oil. Over the years, different amount has been spent on Nigeria’s refineries in Warri, Port-Harcourt and Kaduna; in 2021, the Federal Executive Council (FEC) approved $1.5b for the rehabilitation of Port-Harcourt refinery. According to SBM Intelligence, the NNPC incurred a loss of N473.3b between 2015-2021 on the moribund refineries. Reviving the refineries, will see Nigeria rely and import less refined oil. With this, any potential high price after the removal could be reduced and put pump price at reasonable amount in the country.
National Mass Transit
One of the sectors that will be affected with the removal of fuel sub subsidy will be the transportation sector. The sector is one that is directly affected with any changes to oil prices. The FG should (re) introduce a national mass transit which will see commuters move within a state or across the country without having to spend almost all their monthly income on transportation.
Curb Food Inflation
Nigeria is currently dealing with an unprecedented food inflation rate. also, one of the major reasons for high food prices in the country, especially in urban places and areas like Lagos is transportation. The cost of moving goods is currently on the high, and at such the cost is placed on food items in order for everyone involved in the chain to make profit. The FG should help farmers by providing a reduction in import duties. Also, the FG should create policies that will stimulate economic growth.
There are also concerns over the timing of this borrowing by the present administration, especially when one considers that there are weeks left to the end of this administration. Moreover, the end of fuel subsidy is in sight for the country.