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You are here:Home>>Strategic Research & Analysis>>Emeka Chiakwelu>>Removal of fuel subsidy: Poor Timing and strategizing
Monday, 09 January 2012 19:42

Removal of fuel subsidy: Poor Timing and strategizing

Written by Emeka Chiakwelu
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President Jonathan President Jonathan

The whole world is watching as Nigeria descended into chaos and uncertainty due to the removal of fuel subsidy.

The social fabric of the society appears to be shifting and things are no longer at ease as protesters gathered steam and momentum. The brinkmanship between the presidency and labour is something to be given the deserving attention. Was the subsidy removal justified or ill-timed compounded with poor strategizing? It depends on who was answering the question, the government and the poor masses have different perspectives and justifications.


Financial Times of London reported that, “Goodluck Jonathan, Nigeria’s president, faces a growing backlash to his sudden removal of a fuel subsidy programme, seen as one of the few contributions the government of Africa’s biggest oil and gas producer makes to its people’s wellbeing. Amid a chorus of criticism from opposition leaders, thousands of protesters staged a second day of demonstrations across Africa’s most populous nation after petrol prices more than doubled overnight."


No matter how wonderful things the removal of fuel subsidy will bring to the people as President Jonathan and his economic team promised, Nigerians are not buying it.   People are protesting and refuse to settle for the subsidy removal. The Nigerian leadership we can see by now did not sell it well to the people nor convince them of the incoming goodies that will supposedly follow through. It will not take a rocket scientist to figure out why the people do not accept the fuel subsidy removal but rejected the offer of empty appeasement.


First and foremost, it is difficult to hold an abiding conversation and agreement with a hungry person. The reality is that seventy percent of Nigerians live in poverty and etched a miserable living with less than $2 a day. With hyper unemployment and ravaging poverty, the nominal benefit that Nigerians can point to coming from the huge petroleum deposit as an oil producing country is the fuel subsidy.


"In a New Year's Day announcement, Nigeria's government said it would scrap a 38-year-old subsidy that had kept motor fuel priced at just 65 naira a liter, or $1.55 a gallon. Gas prices more than doubled throughout the country on Monday and continued to inch up to about 140 naira a liter in Lagos, the commercial capital, on Wednesday. Economists warn that the jump in fuel prices is almost certain to push up prices for food and household items in the country of 167 million people, 70% of whom live on $2 a day or less. Inflation has topped 10% in all but two of the past 40 months," Wall Street Journal reported.


From any angle one chooses to look at it, most Nigerians do not trust their government. Their lack of trust and disappointment with Nigerian government was not developed on a hallow ground. Prior to this many Nigerian governments have disappointed their citizens for a long time. Therefore it will be difficult for any administration no matter how honest or sincere it maybe to convince Nigerians otherwise. President Jonathan and his economic team did not lay down the necessary steps to carry their people with them. To tell Nigerian people the importance of the removal of fuel subsidy will not compel them to accept the short-time suffering and discomfort that will come from the subsidy removal.


The economic wellbeing of the country at the moment is neither encouraging nor warrant such a new hike in petrol price. The majority of the people in the country is relatively poor and desperately relies on the affordable petrol and kerosene. The moderately decent transport fare for survival is going up tremendously. When the people survived with less than $2 daily and a gallon of petrol stood at $4 and rising; how is it possible for the poor to survive together with higher food prices and transportation?


Poor strategizing was a major problem to Jonathan Administration and his economic team. The was paucity of strategic planning without soft cushion for the public. There was no trust between the people and the ruling class, for the administration foremost pre-subsidy removal goal would be to establish a comfort level and rapport with the Nigeria people. The government could not actualize a quantifiable trust that it can count on before it the desired action.


Nigeria may need to remove fuel subsidies inorder to deregulate upstream drilling. By so doing  will result in the attraction of deep-pocket investors into upstream drilling and that will subsequently lower the price of petroleum products including petrol and kerosene. The problem is that it will take a reasonable long time for all these undertakings and Nigerian public may not have the stomach to wait for such an extended time.  Nigerians do not buy into the process that they promised that the outcome will be favourable to them due to lack of confidence they have for the government. The government does not have a good track on keeping its promise; therefore there is nothing for the people to build upon. The house of Nigeria has fallen and the people are not ready to pickup the rabbles.


The timing for the government’s action maybe its greatest vulnerability; while the government is already battling the major headache coming from Boko Haram, now it will compound the challenges coming from the country's Labour Union and other restless organizations together with the hyper-energetic youths. That is too much load to be carried by this administration that has not strengthen its feet on the ground.

Speaking to CNN, Feyi Fawehinmi, an accountant and analyst, said "When you have so much poverty, a lot of business and lives have been built on petrol being at N65, which is not exactly cheap, even at subsidized rates. People are just not moving out of poverty quickly in Nigeria. There is an economic case but this is not something that can be quantified economically, the government cannot tell how many businesses will be ruined or even how many people will die," Fawehinmi continued. "The impact will be so wide-ranging. There should have been a plan to remove this in a sensible way, not in this crude manner."


Wall Street Journal stated that "President Goodluck Jonathan is unlikely to yield. Nigeria had been spending about 1.2 trillion naira ($7.5 billion) a year to maintain the price—money that came directly from its oil earnings, never entered the federal budget and could have been better used, his aides have argued, for infrastructure improvements on roads and power plants."


That is not good news for although the subsidy has been expensive but at same time the people needs the subsidies to make their lives little less depressing. There is no way out of this one for it looks like the administration is not going to back down nor is the people willing to let go.


Nigeria needs peace and stability to continue with its economic growth and implementation of other less troubling economic reforms including restricting of the surging inflation and provision of infrastructures. But when everything comes to a halt because of fuel subsidy removal everybody will be a loser. The economic growth will stop, inflation will soar and investors will recall their capitals.  There is still time to find solution in the light before it turns to corpulent darkness.




Last modified on Monday, 16 January 2012 15:23


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