Strictly Personal
In defence of fuel subsidy in Nigeria, By Chidi Chinedu
Published
4 months agoon

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
As African leaders give excuses, peers reach for the skies, By Tee Ngugi
Published
1 day agoon
September 23, 2023
Many Africans might have missed an event that should have been at the centre of the news. On August 23, 2023, India landed a spacecraft on the moon, making history as the fourth country to do so.
India is in exalted company. The other countries in that rarefied club are Russia, the US and China. India did not just land a spacecraft on the moon, it landed the craft near the south pole of the moon — the only country to achieve such a feat.
The reporting on this in the African press missed the significance of India’s achievement. Most media reported it as if it was another routine space mission by another power. First, any landing on the moon or any missions into space by any country are not routine.
They demonstrate the most advanced science and technology and their economic might. They showcase meticulous organisation, steely political will to achieve national ambitions, and an extraordinary sense of patriotism among citizens to make their country great.
Read: India becomes first nation to land spacecraft near Moon’s south pole
There is another reason why this news should have dominated our airwaves and discourse. India was colonised for more years than most African countries. India, like African countries, is multiethnic and multireligious. India, like Africa, has suffered from social strife. India, like many African countries, has gone to war with neighbouring countries. India, just like us, has to deal with disabling outdated traditional customs and beliefs.
And yet it did not use any of these characteristics as an excuse not to reach, quite literally, for the skies.
Further, India suffers from Monsoons and volcanic activity from which, for the most part, we are spared. It has a huge population, which many African countries do not. Yet it did not use these as excuses not to compete with, and sometimes beat, the best.
Perhaps we let this event pass without much commentary because we felt ashamed. Ghana became independent in 1957, 10 years after India.
Decades later, India had expanded its railway network to become the largest in the world. Ghana just expanded the railway left by the British the other day. As Ghana’s economy collapsed, India’s rose steadily. As Ghana’s education system stagnated, India advanced in science and technology, enabling it to explode a nuclear device in 1974, 27 years after Independence.
As Ghana’s heath system collapsed, India advanced theirs. Today, India has very advanced medical science and health system. Our leaders, after collapsing our health systems, seek treatment in India. India has expanded its GDP to become the fifth largest in the world. Ghana’s GDP is $80 billion, below that of Luxembourg, a tiny country of less than a million people.
Ghana is, of course, representative of the African post-independence experience of mismanagement, thievery and collapse. Will India’s example wean us from our “Pathological Excuse Syndrome” (PES)? Unlikely.
The Kenya Kwanza regime has churned out more excuses in one year than all previous regimes combined.
Tee Ngugi is a Nairobi-based political commentator.
Strictly Personal
What a beautiful summit! Now to vague promises by rich North, Joachim Buwembo
Published
3 days agoon
September 21, 2023
In an average lifetime, an African is expected to get involved in and attend many weddings (and funerals). First, you attend those of your elders, which leaves you hoping that yours too will not only come one day but that it will also be more glamorous.
Then there were those weddings (and funerals) of your contemporaries for which you have to pay the ‘African tax’, partly out of fear and hope that when your turn comes, people will contribute generously since you will have been known to be a generous contributor yourself.
Finally, you have to attend weddings of the younger generations, including virtual ones like the ones that were held during the Covid-19 lockdown, or those being staged in different countries where the wedding couples live.
In my idealistic opinion, one shortcoming of many wedding formats and texts is the vague and often immeasurable nature of the promises made.
Fine, the specifics and details could darken the joyful, colourful ceremony and even bog it down, but in a separate, written and signed agreement, things should be spelt out. This would probably even make divorce proceedings less messy.
How for instance is love measured? What does providing for and protecting include? And comfort? At least “until death do us part” is fair for it specifies an event and so no one can compel a surviving spouse to be buried with a dead partner (and you know how many relatives would love to do that and then take over the house and other valuables). But one can argue their way out of the other wedding promises.
The climax of wedding injustices comes from the preachers who urge the partners to always forgive the other party for whatever crimes they commit. If courts operated in the same spirit, all murderers and robbers would walk free to continue murdering and robbing more victims while counting on systemic forgiveness.
The text of the declaration at the end of the big Nairobi climate summit for Africa brought to mind a glittering wedding, whose success is measured first on its having been held at all, the number of guests, the size of the cake and the courses of the meal. Africans should hope that future climate summits are not measured the way a bride measures a wedding (including how less beautiful her lady friends looked), but in tangible, countable outcomes.
At the Nairobi climate summit, we Africans demanded specifics from the rich countries with which we are justifiably angry. We were accurate on what they owe and should pay in Nationally Determined Contributions (NDCs). Then we also made our ‘commitments’ but were careful enough to remain non-committal. We promised policy formulations, the right investments and job creation.
Somehow, we did not say how many jobs and by when. This was a climate summit, for God’s sake, and the heads of state who have armies of researchers at their disposal should have specified, or at least estimated, the number of jobs to be created in the provision and application of clean energy.
Was there any commitment to investing in the conversion of the continent’s ‘abundant rare’ earth minerals into mobility batteries that reduce pollution rather than “exporting jobs” to already rich countries for a pittance? Was there a commitment to how many megawatts of hydroelectric power will be committed to the electrification of railways by which year?
We remained silent on acres or square kilometres in reforestation. We mentioned the carbon sinks of the Congo and the savannah but did not specify how we shall protect them. In short, we did not put any figures or timelines on our ‘commitments’.
The Africa Climate Summit was thus like a wedding which the bride sees as an achievement in itself, that she has been taken down the aisle (even if the guy turns out to be a wife beater and drunkard).
For Kenya, again staging the inaugural summit in itself was a success, for beating the other potential brides on the continent – Morocco, South Africa, Egypt and lately Rwanda – from a tourism promotion point of view.
All the same, we rejoice for the very good effort by Kenya and do hope that subsequent such summits will have explicit deliverables and timelines on which the Africans can hold their leaders to account.
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