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Fuel subsidy: Economic abracadabra

By Ray Ekpu
07 December 2021   |   3:40 am
The Federal Government has decided that from February next year Nigerians will have to pay about N340 per litre of petrol. From the current pump price of N162 per litre the more than 100% increase is the equivalent of a high jump.


The Federal Government has decided that from February next year Nigerians will have to pay about N340 per litre of petrol. From the current pump price of N162 per litre the more than 100% increase is the equivalent of a high jump. To cushion the effect of this steep increase in price the government plans to pay N5, 000 to each of 40 million “poorest of the poor” Nigerians. This will come to N2.4 trillion. And after that, subsidy on petrol will go. This policy seems to be the very definition of economic abracadabra.

The figures simply do not add up. For starters, the government has been saying that it wants to take 100 million people out of poverty. That means that the government knows, by whatever means, that there are 100 million poor people in Nigeria who need to be taken out of their suffering zone. So if the government intends to take care of only 40 million people in its N5, 000 awoof business, what will happen to the remaining 60 million poor people? Who will feed them or buy petrol for them? Secondly, how did the government arrive at the magic figure of 40 million? Even though the Nigerian government is often disdainful of figures especially when they are unfavourable, it is obvious by any form of calculation that Nigeria has more than 40 million poor people.

According to Wikipedia 43% of Nigerians, that is 89 million, live below the poverty line while another 25%, that is 53 million, are vulnerable. According to a 2018 report by the World Bank, almost half the population of Nigeria is living below the international poverty line of $2 per day, which is above N1, 000 by Nigeria’s exchange rate today. So how do we stand with these figures in a post-COVID-19 era where millions of jobs were taken away by the pandemic? Without any attempt to question the wisdom in giving cash to poor people instead of creating an economy that provides jobs for them, giving them fish instead of teaching them how to fish, I am convinced that there is abundant corruption that is embedded in all these sorts of disbursements.

We have had Social Investment Programme, Conditional Cash Transfer and School feeding programme. All these schemes have been mired in controversy. The controversy revolves around four issues (a) how was the list of beneficiaries compiled? (b) Did the monies get to the actual beneficiaries? (c) How many people in how many villages actually got the funds? (d) Was there partisan politics and or corruption in the management of these programmes? These questions have not been satisfactorily answered in each of these cases. Infact, the huge joke about these disbursements was when we learnt that school children were being fed during the lockdown when schools were under lock and key. The explanation must be that they went to the residence of the parents to give the kids food as COVID-19 palliatives. It is obvious that we have an endless propensity for converting governance into a joke.

There are several issues that have been thrown up by the government’s plan to increase the price of petrol. Since every worker will not fall within the whimsical 40 million bracket, will the government review wages upwards? Not likely. But the truth is that prices of goods and services will skyrocket beyond the 100% increase of petrol price once it is implemented. Secondly, the issue of subsidy is based largely on the fact that petroleum products are imported and the importation is paid for in foreign currency. And as the naira has depreciated miserably we, as a largely import dependant country, are in deep trouble. This country has four refineries, the oldest of which was built in Port Harcourt, Rivers State in 1965. It has a capacity of 60, 000 barrels per day. The second Port Harcourt refinery with a capacity of 150, 000 barrels per day was built in 1989. Subsequently we built the Kaduna Refinery with a refining capacity of 110, 000 barrels per day and the Warri Refinery capable of producing 125, 000 barrels per day. The total capacity of the four refineries is only 445, 000 barrels per day if operated optimally. But today all the four refineries produce only about 5% of their combined capacity. This is an indication of leadership failure in Nigeria, not only the failure of the Buhari government but the failure of past governments to do their duty to Nigeria as other governments elsewhere have done to their countries. One of the oil producing countries in Africa, Algeria has a refining capacity of 650, 000 barrels per day. It refines 628, 000, consumes 418, 000 and exports 210, 000 barrels of refined products per day. Kuwait, with a population of just four million people has a refining capacity of 936, 000 barrels per day. It consumes 345, 000 bpd and exports the rest.

So what happened that since Nigeria built its first refinery in 1965 it never thought of increasing its capacity significantly to cover domestic consumption and exports? Failure of leadership. How did it happen that in the last six years our ruling elite didn’t consider it worthwhile to fix our four refineries and or build a new one to meet the growing demand for petroleum products in Nigeria and neighbouring countries? Leadership failure. Pure and simple. One of the reasons often offered for the increase of petrol price in Nigeria is that because fuel is cheaper in Nigeria, smugglers often take it across the borders for sale. Even though our borders are said to be porous nobody can take a large quantity of fuel through footpaths for sale.

So why is petrol smuggled to other countries massively when there are people paid to check smuggling? It is not the responsibility of citizens to deal with smugglers but that of the government. Why should the citizens be punished with high prices for the government’s failure to check smuggling? Sometimes government officials seek to justify petrol price increase in Nigeria by comparing the price here with other oil producing countries on an across-the-board basis without relating those prices to other variables such as wage structure, per capita income, standard of living, benefits offered to the populace on education, health and social welfare. In any case, why should Nigerians not benefit from relatively lower prices of petroleum products through subsidy?

Every civilised government offers subsidy to its citizens in one form or another. The American government substantially subsidises wheat production and other farm products. Even recently, the Joe Biden government directed that in view of the rising price of petrol some quantity of fuel should be released from the national reserves into the system so that the pump price does not go up. That is a form of subsidy by a government that cares for the welfare of its citizens. We are aware that the governors have been pressing for the removal of the so called subsidy which is so embedded with wuru wuru and mago mago that no one can attest to the true figures being bandied about by officials. This means that the governors approve of the hefty increase in petrol price proposed by the Federal Government. The Governor of Kaduna State, Mr Nasir El-Rufai is quoted as saying that if the increase is not made, 35 of the 36 state governments will not be able to pay salaries next year. The only exception is Lagos, which is the leader in internally generated revenue. I sympathise with the governors on this matter but it is their fault that they have not pressed vigorously for the exploitation of our vast resources other than oil. Solid minerals, for example.

I have said before and it bears repetition. This country is too rich to be poor. It is too rich to be in the kind of mess in which we now are, going all over the place with our borrowing bowls and piling up debts for our children and grandchildren. What did solid minerals do to us that we do not want to exploit them that we have left them largely for illegal miners to exploit? All of the 36 states, all of the 774 local governments have solid minerals which lie under our feet unexploited and which could, if exploited, substantially change our fortune. But we have a fixation on oil, nothing else.

In this country we have gold in 14 states; we have marble and granite and limestone and asbestos, and zinc and uranium and iron ore and coal etc. We have the second largest deposit of bitumen in four states yet our roads are awful. We have a large quantity of coal in Enugu that is largely unexploited. China’s coal meets 60% of its energy needs while Australia utilises 40% of coal in its energy mix. So it is our laziness, our lack of creativity, our failure to be forward looking, our fixation on oil and gas and our dysfunctional federalism that has kept us where we are, gnashing our teeth and scratching our heads when we have enormous wealth sitting under our feet unexploited, untapped and unutilised.

Again, this is the failure of leadership. Even though solid minerals is under the Exclusive List which belongs to the Federal Government, an arrangement could be worked out in a formula for joint exploitation of these minerals by the federal, state and local governments for the benefit of everybody. This would have brought massive employment for the masses and reduced the volume of crime and the headache that comes with it. It will reduce the friction with labour over the increase of petroleum product prices and the clamour for increased wages. But these ideas are for governments that are willing to think outside the box. It is not rocket science. But are our ruling elite willing to think outside the box or they are simply interested in taking the path of least resistance and going every month to Abuja asking for handouts to be put in their plates? If we are not ready to do some thinking outside of oil and gas we will continue to be stuck in the mud and turn ourselves into cry-cry babies when faced with inclement economic weather whereas we have had every opportunity to make inclement weather clement for us.