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In defence of fuel subsidy in Nigeria, By Chidi Chinedu

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This argument is for the people.

There is now a near-unanimous rejection of the petrol subsidy regime in Nigeria. This is now the popular position. I fear that with the deification of this position, some valid arguments in favour of petrol subsidy within Nigeria’s unique socio-economic context are being denied oxygen, with grave, even existential, threat to the people. To surrender the argument to a government uninterested in ending its imperial status— with all its attendant costs— and an egotistic liberal economic elite buoyed by affirmations within its intellectual bubble, and determined to test the furthest free market theories on the already pulverized masses, is a position I cannot accept.

There has been a growing socio-economic inattentional blindness among Nigeria’s ruling and liberal economic intellectual elite regarding the petrol subsidy issue. They have almost entirely embraced the Bretton Woods position on the petrol subsidy expenditure which isolates it as a drain on national resources, costing the country multiple other development opportunities. This position is flawed, I reckon. In Nigeria, isolating fuel subsidy as a purely wasteful consumption spend is an error. Within the context of Nigeria’s energy crisis, inflation surge, purchasing power squeeze, and general cost of production challenges, petrol subsidy cannot be so rightly isolated.

Caution and contemplation are key in this debate. Scholarly tentativeness and intellectual humility are paramount. One ideological strand in economics cannot be gospel. It cannot be unchallengeable. It cannot be treated as an absolute truth. Our pro-subsidy removal economists (who also champion free float of the currency and other free market reforms) must be realistic enough to recognize that economics is not an exact science. An economic proposal, more often than not, cannot solely determine its own destiny; it depends on some other variables. It is only this realization that will allow for expanded thinking and pragmatic, as against ideological, propositions. I reckon that what has become the subsidy conundrum has a hybrid solution, not an entirely free market solution, given the peculiarities of Context Nigeria.

The fuel subsidy regime does not exist in isolation. In Nigeria, it is simplistic, even inaccurate, to suggest that petrol subsidy is merely subsidizing consumption (not that it is entirely indefensible to argue for subsidy on consumption); it is subsidizing production as well. The Nigerian subsidy story is different. The Nigerian context strips some of the general oft-repeated theoretical principles against subsidy, like “don’t subsidize consumption”, “it is the rich that are being subsidized” and “government needs the money to drive development” of their force of truth; I will explain.

“In Nigeria, petrol subsidy is a purchasing power argument. It is a production argument. It is a local economy energizer argument. It is not merely a consumption argument”. 

Regarding production and energizing of local economies, petrol subsidy within the context of Nigeria’s energy crisis provides useful insights. According to the World Bank, 85 million Nigerians (43% of the population) do not have access to grid electricity, representing the largest energy access deficit globally.

To survive the grid energy exclusion, individuals, households and businesses resort to reliance on generators. According to the National Bureau of Statistics (NBS), generators powered by petrol, diesel and gas provide 48.6 percent of the electricity consumed by power users across the country. Of this figure, petrol-powered generators account for the bulk of the share, at 22.6 percent.

Overall, an estimated 60 million people use generators to provide electricity for their homes and businesses. According to the International Renewable Energy Agency’s (IRENA), 84% of urban households use backup power supply systems such as fossil diesel/ gasoline generators, while 86% of the companies in Nigeria own or share a generator, making Nigeria the highest importer of Premium Motor Spirit (PMS) and diesel generators in Africa as of 2022.

“Nigerian households and businesses spend an estimated $22 billion annually to fuel generators powering their homes and business”. 

The June 2022 report by Stears and Sterling, titled, “Nigeria’s State of Power: Electrifying the Nation’s Economy,” provides some useful insights. It reveals that:

“Over 40 per cent of Nigerian households own generators, and bear the associated costs. First, the cost of purchasing generators – an estimated $500m between 2015 and 2019, higher than the proposed capital expenditure in Nigeria’s 2022 budget.

“There is also the cost of powering these generators. Sources and estimates vary widely, but the African Development Bank estimated that Nigerians spend $14bn fuelling petrol or diesel powered generators.

“While PMS (Premium Motor Spirit) or petrol prices have been kept artificially low for the consumers through subsidies, variations in AGO (Automotive Gas Oil) or diesel prices can have a severe impact on households and businesses as Nigerians are currently experiencing.”

There is telling data from the report on how the largely stable price of petrol due to the subsidy regime helps small businesses survive. “These prices make the small petrol generators more attractive to households and MSMEs (micro, small and medium enterprises)”, the report stated.

“It is estimated that…In countries with low electricity reliability, the proportion of SMEs using a generator is higher, reaching 86 per cent in Nigeria.”

I have taken pains to show how inextricably linked access to electricity is to petrol subsidy because this point is hardly stated by anti-subsidy advocates. Only recently, the NNPC boss, Mele Kyari, in defending the removal of subsidy, said the country was mostly subsidizing the rich. He, like others, uses car-ownership status as one key measure of ‘the rich’. I’ve always found this argument puzzling. The number of small commercial vehicles relying on petrol belongs to the rich too? Millions of Nigerians relying on petrol-powered commercial vehicles because of the absence of public transportation are enjoying some subsidy luxury?

It is also curious that the argument about lack of capacity for local refining of petrol being largely responsible for the cost of subsidies is now being abandoned. The NNPC boss said the coming of Dangote refinery and eventual return of Nigeria’s refineries would not impact price of petrol significantly. So, what is being said is that the people will now be at the mercy of the markets, essentially having to deal with another heavy cost burden in the foreseeable future, within an already killing cost of living crisis. This is the new normal. An era of price hikes. The argument on how competition and market forces would swing price eventually to the consumer is a curious one too. Swing it to what range? If what has happened with the deregulated diesel and kerosene prices are anything to go by, the petrol price band will for the foreseeable future remain a menacing threat to the people’s standard of living.

The reliance of SMEs, especially, on petrol (as with owners and passengers of petrol-powered commercial vehicles) and petrol-powered generators is a counter to the argument that we are merely subsidizing consumption. SMEs within the formal and informal economies rely greatly on petrol. Removing the subsidy has just triggered an unprecedented price disruption with grave implications for these businesses and their consumers.

I have heard the argument about the unsustainability of petrol subsidy, given Nigeria’s revenue and debt crises. That’s a government argument, a convenient one. That’s not the fault of the people. If the government were serious about waste, prudence and efficiency, then a holistic reform proposal should be advanced. It must include, reining in the size of government, blocking leakages, cutting waste, fighting corruption, and ending subsidies for the actual rich.

“..the total waivers granted by the Nigerian government surpassed its total revenue by 71.3 per cent”

Speaking of subsidies for the actual rich, data from the nation’s Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) 2023-2025 show that Nigerian government granted waivers, incentives and exemptions worth N2.296 trillion in 2021 to different beneficiaries through the Nigeria Customs Service (NCS) while Customs’ total revenue collection in 2021 was only N1.34 trillion. This implies that the total waivers granted by the Nigerian government surpassed its total revenue by 71.3 per cent.

The Federal Government’s introduction of import Duty Exemption Certificate (IDEC) through the Ministry of Finance exempting critical players from payment of import duties and other statutory Customs charges has been alleged to have cost the country a whopping N16 trillion in fraudulent manipulation of the system. Some companies, individuals and other entities were alleged to have abused the system and shortchanged the Federal Government of revenue by hiding under the waiver policy to evade duty on imported goods that are dutiable.

“Senate Committee on Finance had frowned at the N6 trillion tax and import duty waivers proposed by the Nigerian government in the 2023 budget, while pushing for wastages and leakages in the nation’s public sector to be blocked”.

It helps to remember that the Senate Committee on Finance had frowned at the N6 trillion tax and import duty waivers proposed by the Nigerian government in the 2023 budget while pushing for wastages and leakages in the nation’s public sector to be blocked.

I have seen calls for interventions to cushion the impact of the subsidy removal on the people. Things like provision of public transportation and minimum wage increase have been proposed. I believe these proposals underestimate the multiplier force of petrol subsidy in Nigeria. With its removal, the price of virtually every commodity has gone up significantly. Yemi Kale, former NBS boss, estimates that the removal will take inflation to 30 percent. This is at a time the people have been battling high prices of commodities. How can limited provision of public transportation or marginal increase in minimum wage mostly for federal workers stem this system-wide disruption? There are structural issues, like electricity deficit and other cost of production issues, which put these interventions in their proper context— a dangling reed in a deserted island.

And if increase in minimum wage triggers further inflation, what value of the increase would be left? Won’t this just amount to a circular price movement— akin to taking us on a deluded journey to escape a cost of living crisis and arriving at the same point of departure ?

“how can the government which has failed to manage a subsidy regime that has inherent capacity for inclusive reach, design and manage a benefits system entirely dependent on its managerial capacity and integrity?”

Some have argued that the savings from the subsidy would be channelled to proper development priorities. This is the argument of the government as well. They seem to be arguing that the subsidy spending is a waste, a drain on national resources. While I can relate with the corruption part of the subsidy regime, I vehemently reject the dismissal of the petrol subsidy as a waste. They appear to be saying that unless we subject public expenditure to some government programme that plans the disbursement of funds and decides winners and losers, the spending is of inferior value. I reject this. This stems from unreasonable faith in the capacity of government; how can the government which has failed to manage a subsidy regime that has inherent capacity for inclusive reach, design and manage a benefits system entirely dependent on its managerial capacity and integrity?

“I believe petrol subsidy is the most direct, inclusive, impactful and far-reaching government benefits distribution system within the Nigerian context”

Contrary to this position, I believe the petrol subsidy is the most direct, inclusive, impactful and far-reaching government benefits distribution system within the Nigerian context. We have seen failed attempts at palliative distribution. The social welfare system of the Buhari administration continues to suffer credibility issues as many believe it has been neither widespread, verifiable, or inclusive.

Some have even pointed to how many hard infrastructure projects could have been executed with the monies used for subsidy payments. It is as if they are saying hard infrastructure takes precedence over human development. This is a flawed argument. There is a reason why HDI is deemed an essential measure of a country’s development. Both can, and should, be prioritized.

“In the long run, we’re all dead”.

Finally, to the economists who ask the longsuffering Nigerian masses to exercise further patience, to have faith that the government’s reforms would yield lasting fruits, and that the free market would resolve the issues in their favour in the long run, may I kindly remind them of John Maynard Keynes’ famous quote that “In the long run, we’re all dead”.

In fact, I reproduce it in full:

“But this long run is a misleading guide to current affairs. In the long run, we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us, that when the storm is long past, the ocean is flat again.”

Chinedu Chidi, public commentator, writes from Abuja, Nigeria and can be reached via chlobe24.cc@gmail.com

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Strictly Personal

This Sudan war is too senseless; time we ended it, By Tee Ngugi

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Why are the Sudanese Armed Forces (SAF) and the paramilitary Rapid Support Forces (RPF) engaged in a vicious struggle? It is not that they have ideological, religious or cultural differences.

Not that people should fight because of these kinds of differences, but we live in a world where social constructions often lead to war and genocide. It is not that either side is fighting to protect democracy. Both sides were instruments of the rapacious dictatorship of Omar el-Bashir, who was overthrown in 2019.

 

Both are linked to the massacres in Darfur during Bashir’s rule that led to his indictment by the International Criminal Court for crimes against humanity. They both stood by as ordinary, unarmed people took to the streets and forced the removal of the Bashir regime.

 

None of these entities now fighting to the last Sudanese citizen has any moral authority or constitutional legitimacy to claim power. They both should have been disbanded or fundamentally reformed after the ouster of Bashir.

 

The SAF and the RSF are fighting to take over power and resources and continue the repression and plunder of the regime they had supported for so long. And, as you can see from news broadcasts, they are both well-versed in violence and plunder.

 

Since the fighting began in 2023, both sides have been accused of massacres that have left more than 30,000 people dead. Their fighting has displaced close to 10 million people. Their scramble for power has created Sudan’s worst hunger crisis in decades. Millions of refugees have fled into Chad, Ethiopia and South Sudan.

 

The three countries are dubious places of refuge. Chad is a poor country because of misrule. It also experiences jihadist violence. Ethiopia is still simmering with tensions after a deadly inter-ethnic war.

 

And South Sudan has never recovered from a deadly ethnic competition for power and resources. African refugees fleeing to countries from which refugees recently fled or continue to flee sums up Africa’s unending crisis of governance.

 

Africa will continue to suffer these kinds of power struggles, state failure and breakdown of constitutional order until we take strengthening and depersonalising our institutions as a life and death issue. These institutions anchor constitutional order and democratic process.

 

Strong independent institutions would ensure the continuity of the constitutional order after the president leaves office. As it is, presidents systematically weaken institutions by putting sycophants and incompetent morons in charge. Thus when he leaves office by way of death, ouster or retirement, there is institutional collapse leading to chaos, power struggles and violence. The African Union pretends crises such as the one in Sudan are unfortunate abnormally. However, they are systemic and predictable. Corrupt dictatorships end in chaos and violence.

 

Tee Ngugi is a Nairobi-based political commentator.

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Air Peace, capitalism and national interest, By Dakuku Peterside

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Nigerian corporate influence and that of the West continue to collide. The rationale is straightforward: whereas corporate activity in Europe and America is part of their larger local and foreign policy engagement, privately owned enterprises in Nigeria or commercial interests are not part of Nigeria’s foreign policy ecosystem, neither is there a strong culture of government support for privately owned enterprises’ expansion locally and internationally.

The relationship between Nigerian businesses and foreign policy is important to the national interest. When backing domestic Nigerian companies to compete on a worldwide scale, the government should see it as a lever to drive foreign policy, and national strategic interest, promote trade, enhance national security considerations, and minimize distortion in the domestic market as the foreign airlines were doing, boost GDP, create employment opportunities, and optimize corporate returns for the firms.

Admitted nations do not always interfere directly in their companies’ business and commercial dealings, and there are always exceptions. I can cite two areas of exception: military sales by companies because of their strategic implications and are, therefore, part of foreign and diplomatic policy and processes. The second is where the products or routes of a company have implications for foreign policy. Air Peace falls into the second category in the Lagos – London route.

Two events demonstrate an emerging trend that, if not checked, will disincentivize Nigerian firms from competing in the global marketplace. There are other notable examples, but I am using these two examples because they are very recent and ongoing, and they are typological representations of the need for Nigerian government backing and support for local companies that are playing in a very competitive international market dominated by big foreign companies whose governments are using all forms of foreign policies and diplomacy to support and sustain.

The first is Air Peace. It is the only Nigerian-owned aviation company playing globally and checkmating the dominance of foreign airlines. The most recent advance is the commencement of flights on the Lagos – London route. In Nigeria, foreign airlines are well-established and accustomed to a lack of rivalry, yet a free-market economy depends on the existence of competition. Nigeria has significantly larger airline profits per passenger than other comparable African nations. Insufficient competition has resulted in high ticket costs and poor service quality. It is precisely this jinx that Air Peace is attempting to break.

On March 30, 2024, Air Peace reciprocated the lopsided Bilateral Air Service Agreement, BASA, between Nigeria and the United Kingdom when the local airline began direct flight operations from Lagos to Gatwick Airport in London. This elicited several reactions from foreign airlines backed by their various sovereigns because of their strategic interest. A critical response is the commencement of a price war. Before the Air Peace entry, the price of international flight tickets on the Lagos-London route had soared to as much as N3.5 million for the  economy ticket. However, after Air Peace introduced a return economy class ticket priced at N1.2 million, foreign carriers like British Airways, Virgin Atlantic, and Qatar Airways reduced their fares significantly to remain competitive.

In a price war, there is little the government can do. In an open-market competitive situation such as this, our government must not act in a manner that suggests it is antagonistic to foreign players and competitors. There must be an appearance of a level playing field. However, government owes Air Peace protection against foreign competitors backed by their home governments. This is in the overall interest of the Nigerian consumer of goods and services. Competition history in the airspace works where the Consumer Protection Authority in the host country is active. This is almost absent in Nigeria and it is a reason why foreign airlines have been arbitrary in pricing their tickets. Nigerian consumers are often at the mercy of these foreign firms who lack any vista of patriotism and are more inclined to protect the national interest of their governments and countries.

It would not be too much to expect Nigerian companies playing globally to benefit from the protection of the Nigerian government to limit influence peddling by foreign-owned companies. The success of Air Peace should enable a more competitive and sustainable market, allowing domestic players to grow their network and propel Nigeria to the forefront of international aviation.

The second is Proforce, a Nigerian-owned military hardware manufacturing firm active in Rwanda, Chad, Mali, Ghana, Niger, Burkina Faso, and South Sudan. Despite the growing capacity of Proforce in military hardware manufacturing, Nigeria entered two lopsided arrangements with two UAE firms to supply military equipment worth billions of dollars , respectively. Both deals are backed by the UAE government but executed by UAE firms.

These deals on a more extensive web are not unconnected with UAE’s national strategic interest. In pursuit of its strategic national interest, India is pushing Indian firms to supply military equipment to Nigeria. The Nigerian defence equipment market has seen weaker indigenous competitors driven out due to the combination of local manufacturers’ lack of competitive capacity and government patronage of Asian, European, and US firms in the defence equipment manufacturing sector. This is a misnomer and needs to be corrected.

Not only should our government be the primary customer of this firm if its products meet international standards, but it should also support and protect it from the harsh competitive realities of a challenging but strategic market directly linked to our national military procurement ecosystem. The ability to produce military hardware locally is significant to our defence strategy.

This firm and similar companies playing in this strategic defence area must be considered strategic and have a considerable place in Nigeria’s foreign policy calculations. Protecting Nigeria’s interests is the primary reason for our engagement in global diplomacy. The government must deliberately balance national interest with capacity and competence in military hardware purchases. It will not be too much to ask these foreign firms to partner with local companies so we can embed the technology transfer advantages.

Our government must create an environment that enables our local companies to compete globally and ply their trades in various countries. It should be part of the government’s overall economic, strategic growth agenda to identify areas or sectors in which Nigerian companies have a competitive advantage, especially in the sub-region and across Africa and support the companies in these sectors to advance and grow to dominate in  the African region with a view to competing globally. Government support in the form of incentives such as competitive grants ,tax credit for consumers ,low-interest capital, patronage, G2G business, operational support, and diplomatic lobbying, amongst others, will alter the competitive landscape. Governments  and key government agencies in the west retain the services of lobbying firms in pursuit of its strategic interest.

Nigerian firms’ competitiveness on a global scale can only be enhanced by the support of the Nigerian government. Foreign policy interests should be a key driver of Nigerian trade agreements. How does the Nigerian government support private companies to grow and compete globally? Is it intentionally mapping out growth areas and creating opportunities for Nigerian firms to maximize their potential? Is the government at the domestic level removing bottlenecks and impediments to private company growth, allowing a level playing field for these companies to compete with international companies?

Why is the government patronising foreign firms against local firms if their products are of similar value? Why are Nigerian consumers left to the hands of international companies in some sectors without the government actively supporting the growth of local firms to compete in those sectors? These questions merit honest answers. Nigerian national interest must be the driving factor for our foreign policies, which must cover the private sector, just as is the case with most developed countries. The new global capitalism is not a product of accident or chance; the government has choreographed and shaped it by using foreign policies to support and protect local firms competing globally. Nigeria must learn to do the same to build a strong economy with more jobs.

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