This is a very challenging topic to discuss in the Nigerian context. Could a case be made for the removal of fuel subsidy in Nigeria? In this post, I hope to start a conversation on the pros of fuel subsidy removal. This opinion piece is open for healthy challenge from readers and analysts.
To begin, a subsidy is defined as any measure that keeps prices for a good or product below market level for consumers or producers. Subsidies can take different forms like grants, tax reduction or exemption, price control, etc[1]. Bakare[2] noted that to subsidize is to sell a product below the cost of production. Thus, when we talk of fuel subsidy within the Nigerian context it means to sell premium motor spirit below the cost of importation.
Opinions have differed sharply in Nigeria on the continued existence of fuel subsidy, as to what to choose between a system that allows market forces to determine the prices of petroleum products and another system where the government regulates the retail prices of petroleum products, While the former system ensures that the prices of products could rise, fall or remain unchanged, depending on the market dynamics in sync with a free market system, the latter gags producers of goods and services in such a way that uncertainty pervades the market.
(Image from herald.ng)
As a major oil producing country, a situation where some non-oil producing countries import crude oil from Nigeria, refine and sale same to Nigeria is an indication that something is fundamentally wrong with the political leadership in the country. The four refineries in the country are at different levels of disrepair, therefore cannot meet local demands. It is not accidental that the four refineries in the country are not in good shape or are made to be so[3]. It appears the oil cabal makes more money through importation and distribution of oil than its production. The economy and political institutions which have become woven around this system, would take quite an effort to extricate them from it. A distributive economy based on a weak ideological framework cannot engender development in a polity.
In the wake of the global financial crisis and increasing sovereign debt risk, financing for development is drying up and developing countries must now look inward to finance their growth and development needs[4].Nigeria must channel the money being spent on subsidies to the development of primary healthcare and basic infrastructure to secure the future of Nigeria, Nigeria is on track to spend N3 trillion on petrol subsidy at the end of the year 2021, which is more than it spends on health[5]. While it favours the federal and state governments to remove subsidies as this will make more funds available for development, pressure groups will only accede to subsidy removal if there are functional refineries in the country. Otherwise, they believe the removal of subsidies will be catastrophic for the citizenry.[6], Nigeria must end the subsidy regime to have funds for development. A rancor-free way to implement this decisive reform is by having functional refineries in the country. And Nigerians must be well-sensitized before, during, and after the subsidy removal must have been implemented.
References
[1] Alozie, E. (October 26, 2009). The lies about deregulation. Nigerian Newswatch,3, P.15.
[2] Bakare, T. (January 17, 2012). Much ado about fuel subsidy. Vanguard. Retrieved from http://www.vanguardngr.com/2012/01/much-ado-about-fuel-subsidy/
[3] IGBOKWE-IBETO, C.J, EWUIM, N.C & AGBODIKE, F.C 2015 NIGERIAN GOVERNMENT AND OIL SUBSIDY REGIME: A HORN OF DILEMMA
[4] Nelipher Moyo and Vera Songwe 2012 Removal of Fuel Subsidies in Nigeria: An Economic Necessity and a Political Dilemma Removal of Fuel Subsidies in Nigeria: An Economic Necessity and a Political Dilemma (brookings.edu)
[5] Bunmi Bailey and Mercy Ayodele 2021 End subsidy, spend more on education, health – experts End subsidy, spend more on education, health - experts - Businessday NG
[6] The Editorial Board, 2021 Petroleum subsidy and Nigeria’s dilemma Petroleum subsidy and Nigeria’s dilemma - Businessday NG
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