Nigeria’s sluggish economy in web of subsidy conundrum
The nation’s economy, no doubt, has become a classical case of abused entity, literally going through the pains of maladministration, mismanagement of its resources, secret and underhand dealings, but mostly plundered and exploited. Unfortunately, it is still hostage to the old political game and subsidy conundrum. Nigeria, according to the Minister of State for Petroleum, Dr. Ibe Kachikwu, spends about N1.4 trillion yearly on fuel subsidy. This means that in four years, Nigeria would have spent N5.6 trillion, which is in excess of the cost of $13 billion Dangote’s refinery under construction.
But the economic effect of the non-tinkered direction has been drain from the pockets of hard working Nigerians and facilitation of the extreme poverty in the country, now ravaging nearly 90 million people. Top government officials have been bold to say that fuel subsidy has “no clear cut alternative”. This means there is no end in sight.
The economy has not been at its best in the last four years, with the peak of the challenge in 2016, resulting to recession. Since then, the recovery has been sluggish, failing to record a two per cent growth against estimated three per cent population growth. In 2019, the projection is still below desirable.The International Monetary Fund, which opened the lid to the renewed worries over subsidy regime, said the funds expended on subsidy could be invested in palliatives, following withdrawal.
The IMF Managing Director, Christine Lagarde, speaking on the sidelines of the concluded IMF/World Bank Group meetings in Washington DC, said Nigeria only needs to take care of its infrastructure reforms and other social services.Specifically, she wants Nigeria to use the funds for subsidy to improve education, health system, water and infrastructure for the majority of the poor.
“Nigeria has among the lowest tax to GDP ratio, which signifies low revenue mobilisation for the government and the only way to fill in the gap is to remove subsidy,” she said.The Head of Research at FSDH Merchant Bank Limited, Ayodele Akinwunmi, said government should remove the subsidy and channel the money to fund better education, healthcare, build appropriate transport network across the country and help in the provision of affordable housing units for low income earners.
This also aligns with the economic point of view of the majority, but what about the political will and the capacity to drive the plan on the part of government?This is not a bad advice. The only problem is that the country’s peculiarity includes its ability to rig viable solutions for private gains and lack of transparency in managing public fund. That is why the advice did not go well with many.
A middle aged Patmon Omoni, said Nigerians have nothing tangible to gain from any government than stable fuel price and when it is destabilised, a new cycle of hardship begins and everything changes for the worse.“I can swear with my life that if they remove fuel subsidy, the money realised will be embezzled. I have not seen any character to trust in Nigeria’s leadership over the last 20 years,” he said.
Nigerians have learned severally from experiences. It is only cost and inflation, without palliative, that have been recorded in the past and no government has been transparent about them. So, it is a case of confidence and trust, with sustained hardship for the masses.A fiscal governance campaigner, Eze Onyekpere, lamented that for a government that rode to power by denying the existence of fuel subsidy, it is a shame it still continued the denial after assuming power and finding out the truth.
The continued denial is anchored on the fact that they renamed it “under-recovery”, which has been constituted into “an engine of fraud by increasing the quantum of fuel on which subsidy is claimed by an additional 21million litres.”According to him, under President Goodluck Jonathan’s administration, the 35 million litres subsidy claim was described as over-projected by most Nigerians.
But now, with the economy yet to fully recover from recession considering sustained jobs losses and factory closures, the subsidy claim is much more.“Yet, someone in the petroleum ministry and the NNPC have the effrontery and the temerity of barefaced stealing to claim extra 21 million litres under a regime that fights corruption. This is the shame of the century,” Onyekpere said.
However, he admitted that fuel subsidy is a consumption subsidy, which grossly hurts the economy, ensures export of jobs to the lands where the fuel is refined, as well as taxes due to government from the profits of those companies. “If we must subsidise, it should be a subsidy of production, which keeps jobs in the economy and guarantees economic growth. Petroleum subsidy has no place in any modern economy, especially a poor economy that relies on the sale of crude oil for its revenue and foreign exchange earnings,” he added.
An economist, Dr. Olalekan Obademi, said the subsidy discussions have become controversial and confusing, particularly with numbers of litres involved and costs to the economy.“There is no transparency. However, from a strictly economic point of view, government should not subsidise fuel in a market-driven economy. But in a market-driven economy where there is good governance and there are functional public service, checks will be put in place to prevent collusion that result in extortion of the populace.
“The peculiarities of Nigeria with the high grinding poverty, ineffective transportation system and the income inequality without provision of buffers/safety nets for the average Nigerian makes subsidy removal at this stage of our national life unthinkable,” he said.The Head of Research at Augusto & Co., Jimi Ogbobine, said Nigeria is currently in a dire fiscal strait with a budget deficit of close to N3trillion, with one of the major drivers being fuel subsidy regime.
He said the fuel subsidy affects Nigeria in significant ways, as about N800 billion to N1.2 trillion is spent yearly, which only widens the fiscal deficit.“There is an opportunity cost as the funds being disbursed on the subsidy could go into other germane social services, such as education and skill acquisition and health care, while also increasing the revenue distributable to the state governments.
“The current fuel subsidy is also at the root of the multiple exchange rate regime, as aligning the CBN official rate with others will possibly trigger a rise in PMS prices. This multiple exchange rate regime has also cost the Nigerian economy quite a number of steep losses,” he said.
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