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You are here:Home>>Strategic Research & Analysis>> Nigeria’s Removal of fuel subsidies: Be Gradual, Considerate and deliberately slow
Thursday, 13 October 2011 16:09

Nigeria’s Removal of fuel subsidies: Be Gradual, Considerate and deliberately slow

Written by Emeka Chiakwelu

"A nation's greatness is measured by how it treats its weakest members."     ~ Mahatma Ghandi

Economists, policy makers and economic observers know that fuel subsidies as being implemented in Nigeria since 1970s is not sustainable. But one thing that policy makers and stake holders including the executive and legislative arms of the government together with the bureaucrats and technocrats must comprehend is that the weaning out from the milk and honey of fuel subsidies must not come to abrupt termination without comprehensive strategy. There must be confidence building steps the government must initiate and implement, thereby preparing the poor masses before the removal of the fuel subsidies.

Reuters  reported that, “Nigeria plans to end costly fuel subsidies in the 2012 fiscal year to release funds for infrastructure projects and to create jobs, while overall spending next year is likely to rise, according to plans sent for lawmakers approval. Subsidising the cost of fuel, mainly diesel, petrol and kerosene, costs the government 1.2 trillion naira in lost revenues but removing the support will be unpopular with many Nigerians who see it as the only benefit they gain from living in an oil-rich country. “

Without doubt the monetary cost of the fuel subsidies are enormous and no fiscally responsible government can allow that to continue. But if we can be honest to our selves, Nigeria is a special case. The level of poverty and deprivation are humongous in Nigeria and this quantifiable abject poverty with shameful numeric indices can be a threat to democracy and nation building.

Seventy percent of Nigerians survived with less than one to two dollars daily according to World Bank statistics and two third of Nigerians cannot boast of three square and balanced meals daily. Under this climate of penury and massive poverty; citizenry economic inadequacy culminated by drastic depravity of day-to-day resources for survival must be put into consideration. Therefore the quick and immediate withdrawal of a social net that the poor found solace will be a big blow.

Nigeria has been described as a nation rich in oil and natural resources but the majority of the compatriots have never really drink from golden cup of the black gold –oil. Many things that many countries take for granted are lacking and missing in Nigeria. There is constant darkness in the country due to paucity of electricity, there is no sufficient supply of drinking water and boreholes together with ‘pure water’ sachets have replaced the normal and expected tap water.

Afterward the ‘pure water’ sachets are littered every nooks and corners of the country.  There is no adequate housing especially in the urban areas.  The poor transportation facilities with visible pot holes that populated the few drivable roads are health hazards and brought about the unnecessary road accidents. The health facilities are not accessible to the poor masses and diseases that can be easily treated are killing children and senior citizens.

The only thing that most Nigerians can point as a show of the country’s oil wealth is affordable fuel including petrol and kerosene. The price of kerosene is affordable to mothers due to the subsidies. Now can the government in all its wisdom go ahead and interrupt such a program without first make another provision to the suffering masses?

In democratic nation the power reside with people and the masses voted the politicians into power and authority. The government elites and leaders should seek the ear of the people and listen to their voice before making any consequential decision. The policy makers and political leaders cannot afford to speak to one another and turn around and make this drastic decision for the stake is too high. The voices of the people are not in synchronizing to the removal of fuel subsidies.

Although the Federal Government of Nigeria pledges to increase the budget by 7 percent to off set the ramification of the removal. According to Nigerian government the removal “will free up about 1.2 trillion naira in savings, part of which can be deployed into providing safety nets for poor segments of society to ameliorate the effects of the subsidy removal." But an average Nigerian probably will not believe that his government could re-investment in the people without obstruction by the roaring corruption.

It is the truth that Nigeria must rein in spending by having a sensible budget that must be prudently implemented. The monetary policy cannot do the trick of holding down inflation and promoting sound economic management with the presence of incoherent fiscal policy. Nigeria must do the right thing for the economy but at same time the government will not become fiscally sound by balancing the budget on the back of the poor people. The people are desperately poor and without social nets for their welfare, wellbeing and safety nets the polity may drastically deteriorated to uncertainty.

The only fuel subsidy that allow poor women and mothers to buy kerosene at affordable price for their families cannot be taken away without acknowledging that the poor masses have nothing else to do or turn to. That will be a great injustice and the weakening of the social contract with the populace. The softening of the social fabric of the country can be stopped from further hemorrhage when people’s welfare becomes the utmost quest and highest ideal in the polity. Nothing is amiss with economic reforms and oil liberalization but it must come with human face and dignity to the poor.

The masses too have the responsibility of recognizing that the fuel subsidies cannot last for ever and they must begin to see that the privilege is not a right, and subsidy is not a sacred cow that is untouchable.   Even the subsidized Kerosene for a while has been so scarce that citizens have to line up in a long line for a litre of kerosene.  Kerosene continued to be rationed in some parts of the country.

End subsidy diligently by incremental procedure

At a point in time fuel subsidy will be definitely removed but the immediate removal will have untold suffering to the poor masses. Nigerian policy makers should construct a comprehensive framework pathway in order to justify the removal of the fuel subsidies. First and foremost a responsible timetable should be established stipulating the incremental frequency and steps to accomplish the targeted goal. Take for instance, five years maybe timetable allotted for the final removal of the fuel subsidies. In the first year 20 percent of the subsidy may be removed and that will proceed incrementally until the whole subsidies are completely removed. By this methodology the government will diminish and escape the ‘shock and awe’ operation associated with the immediate removal.

Another aspect of the comprehensive procedure for the removal of subsidy is the needed ‘cause and effect’ operation. By this the money extracted from the incremental removal will be invested variably on the much needed social and health infrastructures that people desperately needed. The money from the subsidies will be invested in building maternity clinics to cut down on infant mortality, deaths associated with childbirths and provision of drinkable water to eradicate deadly water borne diseases.

The government may gradually remove subsidy progressively - one year after another.   The government may particularly remove petrol subsidy but allow kerosene subsidy to stay put. Why? The removal of kerosene subsidy will affect almost all Nigerian poor including women and children.

There is sociological-economic implication of removal of fuel subsidies that must be taken into consideration. More or less inflation is the bane of economic growth in Nigeria, despite its recent slowing down with the aggressive application of the tightening of the monetary policy.  The removal of subsidy without doubt will spike inflation higher in the short run except when a deliberate and comprehensive framework is set in motion to rein in inflationary trends. The transportation industry will be adversely affected with higher price of petrol. They will pass down the burden and cost to the consumers. The prices of food and consumer items will go high and so is inflation.

The scenario of the government pledging to increase its budget by 7 percent may not be effective. This will not do any good to anybody for the spending increase will not trickle down to the poor. Nigeria has never really gone after its way to stimulate the disposal income of its poor and do not have the infrastructures do that even if she wants to. The increase in the budget becomes a threat to the integrity of the economy by triggering inflation. That will not be good news to Central Bank of Nigeria (CBN) that has been lately enjoying some success in keeping inflation below 10 percent.

The déjà vu of 1980s of IMF structural adjustment is gradually creeping into the present polity, as government technocrats and bureaucrats are prescribing the neo-liberal policies including monetary tightening policy and cutting of social programs targeted to the poor. They are talking about the budget restrictions, the removal of fuel subsidies and even the devaluation of naira when oil price falls.

Nigerians recognized that over spending, over borrowing and wastefulness must be restrained, controlled and restricted. But we must also acknowledge that inspite of all the economic theories of sound management; Nigeria has a sizeable majority of her people that live in poverty and massive depravity. These people must be attended to; therefore the mopping of liquidity and removal of fuel subsidies must not have preference over human suffering.

Emeka Chiakwelu is the Principal Policy Strategist at Afripol Organization. Africa Political and Economic Strategic Center (Afripol) is foremost a public policy center whose fundamental objective is to broaden the parameters of public policy debates in Africa. To advocate, promote and encourage free enterprise, democracy, sustainable green environment, human rights, conflict resolutions, transparency and probity in Africa. http://afripol.org/     This e-mail address is being protected from spambots. You need JavaScript enabled to view it



Last modified on Friday, 14 October 2011 21:27

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