- Fed. Govt’s attempt to remove fuel subsidy will be counterproductive
With oil prices in cautious but steady recovery mode, the Federal Government has, again, been rehashing the same old but worn position that the continuing regulation of the pump price of Premium Motor Spirit (petrol) is not only causing stagnation and impoverishment of the citizen, but that it is mainly benefiting the rich at the expense of the poor. It was, yet again, another instance when Nigerians would be urged to swallow that patently dubious reasoning by the Petroleum Products Pricing Regulatory Agency, PPPRA, that “Apart from Lagos, Abuja and Port Harcourt, people rarely buy petroleum products at official prices.”
Government’s dilemma and indeed apprehension is understandable. Fuel prices have remained steady since early December when the government set the current price. Then, crude prices averaged $50 per barrel. Today, they have exceeded the $70 mark, hence the pressure on the government to adjust the domestic fuel price. Currently, the Nigerian National Petroleum Corporation, NNPC puts the subsidy for petrol alone at between N100 billion-N120 billion monthly. And all of this at a time of contraction in global demand for oil in the aftermath of the COVID-19 pandemic. In March, for instance, the nation’s output was 1.429 million barrels per day as against Budget 2021’s projected output of 1.86 million barrels. The economy is in dire straits. Most states in the federation are practically broke.
We agree that the subsidy burden is a needless drain on the economy. It is even more so now that the federation account’s distributable revenue has shrunk considerably.
Unfortunately, much as we are one with the Federal Government on the need to lay the ghost of the subsidy to rest, we are unable to find justification for its removal at this point in time. Clearly, it is hard not to see the current frenzy as anything but stemming from the same flawed premises which, while claiming justification in the promotion in the public good, denies the grim socio-economic realities of high unemployment, inflation and mass poverty and, by extension, their correlates. It is certainly not so much as the economic arguments being canvassed by the Federal Government which seem pretty straightforward and valid; it is whether the government is able or even prepared to consider such other indices that would render such a proposition foolhardy at this time.
To begin with, the matter of subsidy is certainly far from the typically one-sided narrative about crude prices being the sole determinant. For, while the government is ever too eager to play up the price factor, it pretends to be oblivious of the exchange rate factor, which, aside being an inescapable component of the fuel price template – is also an important element in the cost equation. Clearly, had oil prices remained at the December 2020 levels, the government would still have had to press the case for subsidy from exchange rate differentials – in the aftermath of naira’s devaluation.
More than the aforesaid, it is also about whether the citizens already done in by inflation can be made to bear further burden at this time. For instance, only in May, the National Bureau of Statistics had put inflation rate at 17.93 per cent. Whereas that rate might seem a modest improvement on the preceding month of 18.12%, overall, the indications are that food prices have been rising across the board. This trend has since been confirmed by no less a body than the World Bank whose latest development update singled out the factor of surging food prices, as being responsible for pushing an estimated seven million Nigerians below the poverty line in the past year alone. In other words, just as Nigerians’ real incomes have been falling, millions more are being driven into extreme poverty by a combination of factors! And all of this at a time of record unemployment – the latest indication being the quantum jump from 27.1% in the second quarter of 2020 to 33.3% in the fourth quarter. Another important point the government always conveniently avoids making reference to in its quest for subsidy removal is its failure to address why a major crude producer like Nigeria should be importing fuel for several decades. Agreed, the present government is not solely responsible for this situation, it could have done something in the last six years it has been in power to remedy the situation however it deemed fit.
All said, away from the perennial fixation with subsidy, a government which claims to have its eyes set on lifting 100 million out of poverty should rather concern itself with stemming the rate of inflation, reducing the rate of poverty and pushing policies to strengthen the naira while engendering productivity in manufacturing and agriculture. The last thing on its mind should be to exacerbate an already dire situation. As for the states, cutting down on corruption and wastes in their bureaucracy while improving on their internally generated revenue would seem the way to go at this time.