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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

Strictly Personal

Help! There’s a dangerous, secret plot to save the EAC from imminent death, By Charles Onyango-Obbo

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In an interview with NTV Keny, at the start of the week, Rwanda’s President Paul Kagame painted a rather bleak picture of the East African Community (EAC).

 

He suggested the saga of the East African Regional Force (EACRF) to the troubled eastern Democratic Republic of Congo, which was kicked out ignominiously by a disgruntled government in Kinshasa, was a low point. He said to date, no one has even bothered to formally brief the EAC heads of state on what happened.

 

This debacle, coming on the back of numerous ugly trade and diplomatic spats, despite the latest expansion to include Somalia as the eighth member of the bloc, does not inspire a lot of confidence about the EAC’s future. In Kampala, Uganda President Yoweri Museveni, once the choir leader of the EAC, no longer gets so excited about it.

 

Good East Africans are looking on with alarm. A dyed-in-the-wool pan-East-African Ugandan lawyer wrote to say he has conceived of a plan that will get regional leaders to fall into each other’s arms and turbo charge unification.

 

He plans to arouse patriotic East Africans to establish a radical revolutionary front called the East African Liberation and Unification Front (Ealuf) to work regionally to pressure the governments in Nairobi, Dodoma, Kampala, Kigali, Kinshasa, Juba, Gitega (the newish Burundi political capital), and Mogadishu with an alternative political structure. Ealuf will look to create an East African Peoples Republic.

 

It will have an agenda to abolish all restrictions on travel across borders, have zero tax rates for regional trade, create a regional digital currency, and create a roaring common market, among other things.

 

He believes the leaders will come together at 6G speed, and work hand in hand to stop the ideas espoused by Ealuf from gaining political traction, with its grand vision of a truly meaningful borderless East Africa. In the process, they will move forward with integration to Ealuf.

 

It is likely too, that they will not come together to collectively save their jobs. They might form an East African Emergency Unity Summit (EAEUS), to fight back. President Museveni might want to chair it as the region’s “elder statesman”, having been in power for nearly 40 years.

 

However, some leaders would oppose him, saying he has eaten for long at the top, and should let a younger leader, “new blood”, like Burundi President Évariste Ndayishimiye, or Kenya’s William Ruto, lead it. They will accuse him of scheming to install himself as the East African supreme leader, and clinging on to power until one of his grandchildren was ready to take over from him.

 

Museveni will push back, citing their inexperience. Some will demand that South Sudan President Salva Kiir pay all the arrears his country owes the EAC before it gets full rights in EAEUS. DRC President Felix Tshisekedi will push to exclude President Kagame from taking a seat until Rwanda stops its support for M23 rebels. President Kagame will tell him to go and swim with crocodiles in the Congo River.

 

Somalia President Hassan Sheikh Mohamud will complain that the other leaders are disrespecting him because he is an EAC newbie, and until they change their attitude, he is staying in Mogadishu.

 

As they squabble, some groups might see an opportunity. Al Shabaab might reform, disavow violence, elect new moderate leaders and seek to ally with the regional integration activists as Ealuf-Horn of Africa.

 

In M23 allies with some of the 120 rebel groups and form Ealuf-Congo Basin. A bid by externally based Ugandan groups like a rump Lord’s Resistance Army emerging from the forests of the Central African Republic, and the Allied Democratic Forces in the eastern DRC is rejected, because they have failed to demonstrate good faith credentials.

 

Meanwhile, Ealuf is spreading like wildfire. Large numbers of Ealuf are reported to have hired boats near Entebbe in Uganda, and Mwanza in Tanzania sailing fast on Lake Victoria and converging on Kisumu, where local integrationist forces have mobilised and turned the city into a hotbed of East African unification. In DRC, bands are composing new songs praising the new people’s unification efforts. Young people are organising to link their hands along the half of the 770-kilometre Kenya-Tanzania.

 

All over East Africa, there are reports of high school boys and girls disappearing in large numbers to join Ealuf cadre training camps.

 

Traders are staging solidarity rallies and vowing to divert the taxes they pay to states to Ealuf, and stories of market women all over the region raising money and sending food to the heroic mobilisers are spreading far and wide.

 

International comrades from the Caribbean, Latin America, and Asia are arriving in large numbers in East Africa and joining. Word leaks that some of the EAC presidents are sending out feelers, seeking to meet with Ealuf to cut deals. There are rumours that they are paying some Ealuf leaders big money to defect. The hardliners in Ealuf reject the olive branches, and there is some division in the ranks and a witch hunt for the “traitors,” who are eating money from the presidents.

 

Ealuf recovers and marches on. EAEUS reaches out with an official offer to sit down and dialogue with Ealuf about the formation of an East African Amalgamation. Whether they stick together or get divided, the leaders lose. But Ealuf has only won the first round. This is not over by any means.

 

Charles Onyango-Obbo is a journalist, writer, and curator of the “Wall of Great Africans”. Twitter@cobbo3

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Is Nigeria’s security challenge intractable? By Jide Ojo

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Section 14(2)(b) of the 1999 Constitution says the security and welfare of citizens shall be the primary purpose of the government. Quite unfortunately, successive administrations have failed to meet these requirements, and the current Bola Tinubu administration is equally failing. Right now, instead of people’s standard of living improving, it is depreciating and everybody is worried about the intolerable level of insecurity in this country.

This newspaper, in its editorial of Monday, March 11, 2024, chronicled the spate of mass abductions that have recently taken place in the country. It stated, “Within the past week, Boko Haram insurgents and bandits have successfully abducted over 404 Nigerians across three North-East and North-West states. This is unparalleled and ominous for the rest of the fragile country. For the President, it calls for a swift re-evaluation of the subsisting national security strategies, which appear ineffective against the hordes from hell perpetrating this criminality.”

It went further, “Indeed, it is the familiar Salafist modus operandi all over again: The predation on women, pupils, and other soft targets. Fifteen pupils of an Islamiya school in Sokoto State were kidnapped in the early hours of Saturday. This is less than 72 hours after 287 schoolchildren were abducted from the LEA Primary School in Kuriga, in the Chikun Local Government Area of Kaduna State. A few days before the Kaduna incident, over 200 female internally displaced persons were forcefully taken away by terrorists in three IDP camps in Borno State. The women were kidnapped in Ngala, the headquarters of Gamboru Ngala, while fetching firewood in the bush to sell.” The PUNCH submitted that, “Data indicates that about 1,548 schoolchildren have been abducted in 11 separate incidents of mass abduction by terrorists and bandits in northern Nigeria between April 2014 and June 2021.”

What are the implications of insecurity in Nigeria? First, it hampers economic growth and development. Many businesses have shut down due to these ceaseless kidnappings, banditry and insurgencies. Many of those internally displaced have lost their means of livelihood and have become economically dependent on the government and charity organisations. Thus, rather than contributing to economic growth, they become liabilities. There is now low investor’ confidence in Nigeria, as no foreign investor will want to come and set up business in a volatile country like ours unless they are into the sales and marketing of security gadgets and bulletproof vehicles.

Insecurity is also one of the drivers of the ‘japa’ phenomenon, as many Nigerians besiege embassies of foreign countries to flee their fatherland. Many don’t even bother to go to embassies; they simply embark on a hazardous journey of being trafficked through the desert and the Mediterranean Sea, hoping to irregularly migrate to Europe for safety and a better life.

I saw a journalist friend of mine sometime in January after a long while. As we chatted, I asked how he was coping with the astronomic rise in the cost of living. He sighed and said it had not been easy. I then complimented him on living in his own house in Abuja when I, who had been in Abuja for over 20 years, still lived in a rented apartment.  He corrected me and said he had fled his house in the Bwari area of Abuja due to the incessant raids of kidnappers in his community and is now living in a rented apartment like me. That’s how insecurity has also impacted family life. Imagine the pain of having to relocate from your home, not because of any natural disaster like an earthquake or flood but due to the activities of bandits.

Food inflation, which has risen above 35 percent, is also a result of food production shortages linked to the activities of bandits who not only demand access and harvest fees from farmers but routinely raid farm settlements to abduct, maim and kill the farmers who are feeding the nation.  Health-wise, many Nigerians are suffering from panic attacks, paranoia, schizophrenia and trauma as a result of the scary news of abductions and acts of terrorism being daily reported in the media. Many of us could no longer sleep with our eyes closed. In many communities, people now live in fortresses and under self-imposed curfews. As described by the renowned English philosopher, Thomas Hobbes in his 1651 book titled Leviathan “No arts; no letters; no society; and which is worst of all, continual fear and danger of violent death; and the life of man, solitary, poor, nasty, brutish, and short.”

It is not as if the federal and state governments have been standing akimbo, watching helplessly. Funding for security and defence has increased exponentially. According to the earlier referenced editorial of this newspaper published on Monday, “The Federal Government, as part of efforts to keep the country secure, disbursed N231.27 billion to procure arms and ammunition for security agencies and officers between 2020 and 2024. This is beside the yearly budgets of the Ministry of Defence and eight other forces between 2020 and 2022, put at N11.72 billion, N10.78 billion, and N9.64 billion, respectively. More recently, in the fourth quarter of 2023, the government procured N5 trillion worth of tanks and armoured fighting vehicles for the security forces, per the NBS report ‘Foreign Trade in Goods Statistics.’ This is in addition to other security hardware.”

The Muhammadu Buhari administration established the Police Equipment Trust Fund just as a handful of states have similarly done. Many states have established vigilantes or state-owned security agencies, with the latest being Zamfara State, which early in the year established Community Protection Guards. Recall that the six south-west states of Lagos, Ogun, Oyo, Ekiti, Ondo and Osun, on January 9, 2020, established Amotekun to fight insecurity. Consideration has been given to the establishment of state police, with a committee set up to come up with a framework.

With all these aforementioned initiatives, why is Nigeria still largely insecure? The answer to this can be found in the hardware solutions without a significant component of the software solutions. I daresay that even the hardware efforts have been largely ineffective due to a lack of sufficient well-trained and motivated security personnel. We have not also adopted technology-driven security solutions. There are several modern tech gadgets such as satellite orbiters, drones, CCTV, scanners, jammers, communication gadgets and forensic laboratories, that Nigerian security forces do not have or have in insufficient quantities.

On the software side, unless and until we frontally tackle the challenges of unemployment, poverty and hunger, whatever hardware equipment we acquire will not resolve our security challenge. These variables drive crimes and criminality. People will not blink an eyelid to commit crimes if they are starving. The popular adage is also that an idle hand is the devil’s workshop. If people are not gainfully employed and are poor, they will constitute a nuisance and danger to the rest of society.

I think the time has come for the Nigerian president to seek international assistance to bring the security challenge effectively under control. We should also mobilise our able-bodied retired security personnel to help combat the increasing insecurity. There is also a need to do something about our porous borders, where small arms and light weapons are indiscriminately smuggled into the country and used by bandits to terrorise innocent Nigerians.

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