Challenges of policy-making failures: Impact of fuel subsidy removal – Part 2

Diversification of Energy Sources
To curtail the consumption of petrol and diesel, the government can promote the use of Compressed Natural Gas (CNG), which is a cleaner energy source such as the electric cars. The government can incentivise the use of CNG by reducing the prices of fuel and consumption of CNG.

They can provide the incentive of tax exemptions, offer subsidies on the cylinder, and invest significant capital on the CNG stations at the time of transportation.

Strengthening public transportation
Investments to enhance the public transport systems, like buses and trains, will reduce dependence on private vehicles and at the same time decrease fuel consumption in the long term. Overall, the described effects will reduce the impact of fuel pricing on the general public.

Enhancing transparency and accountability
This includes making subsidy management and spending transparent and accountable, and enacting alternative policies. That means making sure that potential beneficiaries understand policy decisions, that they are periodically monitored and evaluated, and that these transitions are overseen by independent experts that can instil public confidence. Transparency can help governments make sure that they deliver the advantages of policy shifts they intended.

Public awareness and engagement
They involve explaining to the citizenry why the subsidies are being removed (‘because we are taking out the policy to bring in the fossil fuels’) and what the advantages of the alternative policy programme are. Stakeholder engagement of key constituencies such as labour groups, the business community and civil society more generally, involves prize-givers rather than punishers. These are likely to be enthusiastic about the changes in policy.

Economic diversification
Finally, diversification diffuses economic dependence on oil revenues. If several economic sectors, such as agriculture, manufacturing and technology, can be harvested for domestic revenue and employment, the removal of fuel subsidies and the volatility of oil price will not be so crippling to the domestic economy. In turn, if the domestic economy has solid foundations, stabilising oil prices would bring significant and sustainable economic growth.

Potential challenges for each policy alternative
Gradual phasing out of subsidies

Challenges:
Public Resistance: Even if the subsidies go in slowly, there will be resistance as people are accustomed to the cheap fuel.

Inflation: Even if inflation is gradual, piecemeal repeal can still result in incremental inflation of the cost of living over time.
Political Will: keeping a stable policy with different administrations is difficult.

Targeted subsidies
Challenges:
Identification of beneficiaries: Accurately identifying and reaching the most vulnerable populations can be difficult.

Administrative cost: Tariff sticks involve large administrative systems for running and monitoring targeted subsidies, which are costly and complicated.

Leakages and corruption: Some of the targeted subsidies will be wasted through leakages and corruption.

Compensation mechanisms
Challenges:
Funding: Ensuring the availability of adequate funding to support compensation mechanisms is challenging in the context of a tight fiscal environment.

Implementation: Effective implementation requires efficient systems to ensure timely and accurate distribution of compensation.

Sustainability: It’s sometimes hard to make compensation mechanisms sustainable in the long term if economic conditions worsen.

Diversification of energy sources
Challenges:
Infrastructure development: Required infrastructure (for example, for CNG) is a capital investment and takes time.

Public acceptance: it is difficult to encourage the general public and business to switch to alternative energy technology.

A good regulatory framework will allow for the success of alternative energy, but will be difficult to put into place.

Strengthening public transportation
Challenges:
Investment: Significant investment is required to improve public transportation infrastructure.
Maintenance: Ensuring the maintenance and sustainability of public transportation systems can be challenging.

Behavioural change Stimulating citizens to move from the private motor vehicle to public transport means behavioural change is required.

Enhancing transparency and accountability
challenges:
Institutional Capacity: Building the institutional capacity to ensure transparency and accountability can be difficult.

Interests: People are afraid they won’t benefit from change.
Monitoring and evaluation: Establishing effective monitoring and evaluation mechanisms requires resources and commitment.

Public awareness and engagement
challenges:
Communication: Effectively communicating the reasons for policy changes and their benefits can be challenging.

Misinformation: Countering misinformation and building public trust requires consistent and transparent communication.

Engagement: Ensuring meaningful engagement with all stakeholders, including marginalised groups, can be difficult.

Economic diversification
Challenges:
Investment: Diversifying the economy requires significant investment in various sectors.
Human capital dcapital to drive new industries is often difficult to achieve.

Market access – If new industries and products click, making sure that they have access to your markets. This can be tricky.

Although these policy options might make distortions associated with fuel subsidy removal manageable, each has its own issues. In planning, implementation and evaluation, these policy options must be carefully considered if Nigerians are to experience sustainable growth and development outcomes caused by removing fuel subsidies.

Conclusion
Nigeria’s embattled decision to remove fuel subsidies and its dire economic, social and political consequences are, then, a potent reminder to policymakers that their deliberations involve staking out the trading spaces among very real (and bad) alternatives: they can go slow and carefully consider options and their consequences, engaging their domestic and exogenous stakeholders along the way and demonstrating the path they have taken; they can go slow and hope for a continental or international circumstance to bail them out of their predicament; they can go slow and boast that they are exploring a number of options to minimise the blow, but clamp down when things get uncomfortable; or they can go any one of these ways and pretend that they had choice in the matter in the first place. We can learn from these experiences to help nations and governments build a more secure tomorrow for their citizens.

Concluded.

Dr Oluwadele is an Author, Chartered Accountant and Public Policy Scholar based in Canada. He can be reached via: [email protected]