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Subsidy will kill Nigeria

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Nigeria facing existential threat - World Bank
  • Removal is not about the why, but when!

 By UCHE CHRIS

There are few issues in the country that divide Nigerians as much as removal of petroleum subsidy. It is one issue that no government, even under the military, before now has found the courage and commitment to do. Every government usually laments the evil or economic burden of subsidy, often vowing to redress it, but failed in equal measure. It is, therefore, something of a paradox that a government and leadership that came to power on the ‘Change’ mandate and populism, is now saddle with the task.

Obviously, opposition to the action has been fast and furious as expected, but it will be unnecessary and actually deceptive. Labour unions may have its reasons to reject the removal but it does not represent the interest of the generality of Nigerians, who are really bearing the brunt of the economic mismanagement of this government. When they asked for new minimum wage were Nigerians included? Did they know there is always a cost or price to pay for every economic or financial decision or privilege? They cannot eat their cake and have it; government has to get the money to pay them from somewhere.

Subsidy is one of the consequences of the resource curse or Dutch disease, where a resource based country indulges the people with the proceeds of the commodity, often as a pay-off for the mismanagement, and corruption that often attends the resource wealth. It imposes huge cost and waste on the economy, but the challenge is that once introduced, removal or ending it is frequently politicized, difficult and controversial. It is simply giving subsidy for people to enjoy the consumption of cheap fuel.

Most economies give subsidies in one form or the other, but such are usually given for production to encourage export, which will earn foreign exchange and diversify the economy. This was the basis of Japan’s export drive in the 197s and 1980s, as well as the Asian Tigers; and now China is overwhelming the world, because it undercuts competition; thus creating the basis for the present trade war with the U.S. It is really foolish of any economy to subsidise con-    sumption, as we have done in the past 50 years because of the opportunity cost involved. It is simply eating your future today.

Subsidy is also prone to abuse in the use of the commodity. In our case it is so evident that the product is thoroughly wasted and abused by Nigerians because of its cheap price that now plagues the economy creating the huge corruption culture that is killing the country. Oil is the source of corruption in the country and it is not likely to solve corruption without unbundling and deregulating the sector. Corruption is the major reason Nigeria is poor today and the root is the management of oil, particularly subsidy.

Former president Obasanjo once lamented that when he took office in 1999, fuel subsidy was less than N200 billion per annum; by the time he was leaving office eight years later the amount had jumped to over N400 billion. By December 2019, the country was spending N1.2 trillion. Just in the first half of 2020, minister of state for Petroleum, Timipre Silva said recently that the country had saved N1.1 trillion from subsidy. From simple extrapolation, Nigeria would have spent over N2 trillion on subsidy by December 2020.

It is inconceivable that any reasonable person would continue to defend subsidy given its deleterious effect on the economy and the development of the country. This amount is almost the equivalent of the total capital budget for the year, which is being borrowed; in addition to the N1.7 trillion debt servicing as well as over $6 billion new borrowing to fund the budget. No reason whatever can justify subsidy in an economy that is not only bankrupt, but in urgent need of infrastructure development.

Nigeria is not getting the investment it desires and deserves because there are some outstanding and lacking policy reforms to attract investors. Since 2000 licences for the establishment of refineries were granted but until today only two – Dangote and Orient – are     in place. Obasanjo had commissioned the refineries in 2007 before leaving office but it was reversed by his successor, late Yar’Adua. Recently, the minister said that government spent N64 billion in maintaining the moribund refineries and their redundant staff. Only a foolish country does that, when we are import all the fuel for domestic use.

Apart from the unsustainable cost of the subsidy regime, which by all indicators the country can no longer be able to bear there is also the emergent situation of the involvement of private refineries. It is surprising – really shocking – that most people had not expected this to happen. How on earth would it have been possible for a Dangote refinery to come on stream in a regulated market? It was bound to happen because he is a business man who put down his money to make profit. Covid 19 and low oil price provided government the exit strategy. It has to be sooner than later.

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Fuel subsidy is a major reason naira value has collapsed. Nigeria imports all its fuel for domestic use and this keeps the pressure on naira exchange rate. Fuel is not being sold at commercial rate, giving rise to under-recovery, which is a parlance for subsidy, because you cannot sell a product at below the cost price; there will be a loss. That is what subsidy means and that is what we have been doing. In spite of the border closure domestic consumption is still at a high of 54 million litres per day. With potential N2 trillion saved from subsidy in 2020, we can sufficiently service our debt and utilise the allocation for debt service for development.

As an unapologetic critic of this government – before and after coming to power – I see this policy as patriotic and positive. Those opposed to it are the real enemy of the country and its people. Have Nigerians not been suffering in spite of the subsidy? Suffering can never end and there is no good time to start. This is beyond politics and human rights; it is about the future of the country and the next generation. What price are we paying for the future of the country; most parents are planning for their children to live in which country? It doesn’t make sense at all. It is not until the country becomes like Zimbabwe and Venezuela before we come to our senses.

I have heard opponents of the action talk about corruption and the lifestyle of government people; that may be true but unrelated. Let us deal with one problem at a time. If we succeed in doing this, then we can decide on the others at their appropriate time; we should not mix them up. The real issue about subsidy removal is not why it is necessary, because it was inevitable; the real issue is why now, when the country is devastated by Covid 19 and everybody is searching for the next meal.

Well, we have ourselves to blame for it by waiting till a time like this; if we had done it in 2012 we won’t be in this mess. But the Save Nigeria Group went to Ojota. It would be interesting to see their reaction. It is an action whose time has come and there can be no better time. Let’s swallow the bitter pill and get over with it. There is still life, and once there is life, there is hope.

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Deregulation will worsen poverty, living standards —Experts

By OKEY ONYENWEAKU

Nigerians may be sliding into tougher times with the recent decision of the Federal Government to deregulate the price of Premium Motor Spirit (PMS).

While government has hinged its action on the present economic conditions, which are indeed most unpalatable, the prediction of market experts is that the increase in the price of fuel will, in fact, push Nigerians to much worse conditions than ever before.

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In the recent move, the price of PMS was increased by over 14 percent, up from N142 per litre to N162 a litre, on account of the government’s inability to continue to subsidise the price of the heavily demanded product.

The government had earlier through the Petroleum Products Marketing Company, a subsidiary of the Nigerian National Petroleum Corporation, NNPC, previously hiked the price, ex depot, from N138.62 per litre to N151.56 per litre.

This action of the government many believe is not only ill timed but would compound the already excruciating problems of the masses who are already suffering from the harsh effects of the weak economy and the spiraling Covid-19 pandemic  which has caused the death of millions of people in the world.

Equally excruciating is the fact that the PMS price increase is coming on the heels of other price hikes which include the Nigerian Electricity Regulatory Commission (NERC) which also recently authorized an increase in electricity tariffs by over 100 per cent and the previous PMS price hike by the Petroleum Products Marketing Company, a subsidiary of the Nigerian National Petroleum Corporation, NNPC, that had seen a spike in the ex depot price from N138.62 per litre to N151.56 per litre.

Already, the numbers of Nigerians that are statistically considered poor have been estimated to be as much as 82.9 million. This was revealed in the latest Poverty and Inequality Report released by the National Bureau of Statistics, though observers say, even that number may be an undercount. Actually, some other pollsters, including the World Poverty Clock, have higher numbers.

According to the Nigerian Living Standards Survey (NLSS) report released by the NBS covering the year 2019, 40.1% of Nigerians are classified as poor by national standard. The summary report also shows that 52.1% of rural dwellers in Nigeria are poor, while only 18.04% of urban dwellers are classified as poor. According to NBS, on average, 4 out of 10 individuals in Nigeria have real per capita expenditures below N137,430 per year, which translates to N376.5 per day.

The above harsh conditions had been there before the outbreak of the Covid-19 pandemic which heaped more challenges on the people given the almost five months of relative lockdown which disrupted productive activities and supply chains among other challenges that have increased lack in the land.

In the midst of this condition, the most recent official inflation numbers came in with the release of the Consumer Price Index, CPI report by the Nigerian Bureau of statistics (NBS) for June.

It rose by 12.8 per cent year on year in June, 0.16 per cent points higher than the rate recorded in May (12.4 per cent) on the back of surging food prices.

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The report revealed that the composite food index rose to 15.18 per cent compared to 15.04 per cent recorded in May 2020 while core inflation, which excludes the prices of volatile agricultural produce that now stood at 10.13 per cent in June 2020 compared to the 10.12 per cent recorded in May 2020.

GDP figures, which analysts insist is not adequate for measuring living standard in Nigeria, came in at minus-6.1 per cent in the second quarter of 2020, the NBS report said.

Gross Domestic product decreased by -6.10 per cent (year on year) in real terms in the second quarter of 2020, ending the three –year trend of low but positive real growth rates recorded since the 2016/17 recession.

The contraction, though not as bad on paper, compared to what obtains in countries that imposed similar lock downs, bears grave consequences for an economy already battling the headwinds long before Covid-19 surfaced with growth at barely 2 per cent after a biting recession appears inevitable.

Analysts say the contraction is expected to tell on households’ disposable incomes amidst falling purchasing power of the naira.

In fact, many agree that there has been a further increase in the prices of food, transportation, medical bills among other household items as a result of the fuel price hike caused by PMS deregulation.

Analysts agree that there will be more misery, adversity and torture as a result of increasing the price of PMS, a product that affects the lives of everybody in the country.  Increasing the price of PMS will in fact, they also said could have ripple effects on every aspect of human life in terms of cost of living.

Prices of all other goods will take a cue from the price of PMS. However, some market observers have explained that the pains will be short lived and normalcy will return when competition is rekindled in the production and supply of PMS.

Commenting on the issue, Chief Executive officer of Heritage Capital Markets limited, Mr. Chidi Ajaegbu told Business Hallmark that the deregulation of PMS which has caused a hike in its price was only going to be a cause of discomfort for a short while.

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The former President Institute of Chartered Accountants of Nigeria (ICAN), who explained that the initial impact from the deregulation exercise would be negative on the people, said it was however the way to go as market efficiency will set in after some time and bring down prices.

Another economist, Dr. Richard Mayungbe who shares Ajaegbu’s views explained that it was an unpopular decision that many will not like now because of the short time discomfort.

Mayungbe also agreed that despite the short lived hardship it will bring, people will enjoy it much later as prices will come down and the money saved from it will be deployed to build infrastructure.

For the Chief Executive Officer, BIC Consultancy, Dr Boniface Chizea, he says that though he supports deregulation, he is advising the government to do it once and for all instead of introducing half measures in the arrangement.

‘’It is also not in order to retain some of the regulatory agencies with their mandate which clearly serves a different fuel price regime and still claim to have deregulated the market for petroleum products. What are the Petroleum Equalization Fund and even the Petroleum Products Marketing Company still doing in a deregulated environment? As has been proposed, any regulation that will remain following deregulation should be confined to quality assurance and the need to keep a keen eye to ensure that the oil marketers do not exploit their monopoly to fleece the consuming public by guiding against profiteering’’, said Dr. Chizea in an article he published in an online publication.

Reportedly, the Bishop of Lagos Diocese, (Anglican Communion), Church of Nigeria, Rt. Rev. Humphrey Olumakaiye, has expressed dismay over the recent increase in electricity tariff and price of petrol, calling on the authorities to find a way of making life better for Nigerians.

The Bishop who expressed this view at Our Saviour’s Church, Tafawa Balewa Square TBS, Lagos during the second session of the 34th Synod of the Diocese of Lagos, themed ‘Pray, Serve and Grow’, Olumakaiye  recounted the excruciating pains most Nigerians are going through as a result of the various increases in prices of commodities.

‘‘ It is heart-rending that all these are coming up at a time when we are just trying to get over the hassle brought upon us as individuals and collectively by the much dreaded coronavirus’’. He said.

Minister of State for Petroleum Resources, Chief Timipre Sylva, had on Friday September 4, 2020 disclosed that the Federal Government is not currently in a position, financially, to pay subsidy, as the COVID-19 pandemic had impacted negatively on the country’s finances.

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Sylva said the deregulation of the downstream petroleum sector and the removal of subsidy was not a political decision, but had become necessary, especially with the effect of the COVID-19 pandemic, the low crude oil prices and curtailing of Nigeria’s production output by OPEC, which had constrained government’s revenue.

 The price increase is coming on the heels of other price hikes which include Nigerian Electricity Regulatory Commission (NERC) which increased Electricity tariff by over 100 per cent and the previous hike by the Petroleum Products Marketing Company, a subsidiary of Nigerian National Petroleum Corporation, NNPC, in ex depot from N138.62 per litre to N151.56 per litre.

Nigerians who were already weary from the harsh economic condition aggravated by the corrosive effect of the Coronavirus pandemic has eroded the means of livelihood of many. Before the ravaging effect of Covid-19, Nigeria had staunchly taken over from India as the poverty capital of the world.

The government also stated that the Federal Government had concluded plans to merge the Petroleum Products Pricing Regulatory Agency, PPPRA, and the Petroleum Equalisation Fund, PEF, into one agency called ‘The Authority’.

Despite all the assurances being given and the accompanying troubleshooting being undertaken by the authorities, anxiety, fear and hopelessness are fast becoming the lot of Nigerians as they face gloomier prospects and increasing hardship every other day.