Friday, 1st December 2023

How subsidy removal may collapse the economy

By Luke Onyekakeyah
20 July 2023   |   4:23 am
Ordinarily, the removal of subsidy on energy sources – petrol, kerosene, diesel and electricity would free up billions of naira for government to plow into other social and economic needs such as infrastructural development, give incentive for domestic refineries ...

Subsidy removal

Ordinarily, the removal of subsidy on energy sources – petrol, kerosene, diesel and electricity would free up billions of naira for government to plow into other social and economic needs such as infrastructural development, give incentive for domestic refineries to produce more petroleum products, reduce the country’s over dependence on imported fuel, boost the economy and create jobs. Some of these are very contentious in the Nigerian context.

This line of thinking may be possible for stable economies and not one that is deep in crisis like Nigeria. Truth is that the removal of subsidy is an ill wind that could collapse the beleaguered and fragile economy of Nigeria.

Nigeria’s battered economy is struggling to remain afloat under the heavy weight of abrasive corruption caused by miss-governance. There is endemic epileptic power supply situation, dilapidated roads infrastructure, insecurity, etc. There is no functional economy anywhere in the world where energy is not subsidized to boost production and social wellbeing of the citizenry.

Energy availability is the backbone of a vibrant productive economy. One cannot expect investors to set up manufacturing firms and at the same time produce the energy needed to power the industries. That would be wrong headed.

The immediate and long term negative effects of subsidy removal include increase in the prices of goods and services, increase in transport fares, high inflation and reduced purchasing power for the masses, social unrest and protests, rise in fuel smuggling and other illegal activities. It was thought that subsidy removal would halt the booming smuggling of Nigeria’s petrol across the borders but that is not the case as the diehard criminals have not ceased from operating their illegal trade because there is increase in the price of petrol both in Nigeria and across the border.

The problem we have is not subsidy per se because all over the world governments subsidise several social and economic services in order to lessen the burden on the citizenry. Our problem is unbridled corruption surrounding the subsidy regime. The onus is on the government to deal with corruption for subsidy to function and serve its purpose. When they failed to deal with corruption, they decided to remove subsidy altogether on the pretext that the rich are the ones benefiting from subsidy.

In the United Kingdom (UK), government subsidises health insurance, technology, housing, education, electric vehicles and sustainable solutions to provide financial help via loans, grants, and tax credits, among others. The minimum financial assistance threshold in the UK is 35,000 pounds for individual over a three financial year period.

In the United States of America, the Environment and Energy Study Institute found that the US government alone spends $20 billion every year on direct fossil fuel subsidies. Of that around $16 billion goes towards oil and gas while the remaining $4 benefits the coal industry.

The five common subsidies that countries take up for their citizens include export subsidies, agriculture, oil subsidies, housing and healthcare subsidies. There are also transport subsidies, especially, for senior citizens and education. It is pertinent to ask which of these does Nigeria subsidise for her citizens.

Since petrol subsidy was removed on May 29, 2023 during the inauguration speech of President Bola Ahmed Tinubu, the entire economy has been thrown into crisis. The situation is like removing the life wire of a sick person on life support.

Usually, oxygen mask serves as the last resort in a last ditch effort to save a dying man. Once it is removed, the person gives up.  In Nigeria, petrol, diesel, kerosene serves the same purpose in sustaining the economy. A lot of businesses in Nigeria are barely struggling to remain afloat. The mass unemployment is due to the fact that there is near zero production. Majority of industries that flourished in the 60s,70s, 80s and 90s have all closed shop due to harsh economic environment, particularly, the absence of regular power supply. Petrol subsidy has remained the last the last thread of life support. Now that it has been removed, the economy is on a downward spiral with nothing to hold it anymore.

Since the subsidy was removed, the unemployment has worsened. Thousands of tricycle and bike operators have parked up due to their inability to buy petrol at N540 per litre. The cost of transportation has quadrupled. Traders, market women, farmers, etc have given up on their trade. Artisans like vulcanizes, hairdressers, tailors, technicians of various descriptions are unable to operate because of the high cost of petrol.    The government is planning to give palliatives to citizens to cushion the effect of subsidy removal. Reports say President Tinubu is proposing to pay N8,000 to a section of the population per household. But there is mass discontent over the amount which can hardly buy anything in the market given the skyrocketing price of goods and services in the market. A 50kg bag of rice is costing N40,000 and a paint of garri (the commonest food for the people) is sold for N1800.

There are also reports that government is implementing a 40 per cent salary increase for civil servants. The question of what use is the salary increase that is to be wiped out be high inflation. And what is the percentage of the employed compared to the unemployed.

Truth is that with mass poverty, millions of poor people can’t eat one meal a day. Many who are sick in our malaria endemic environment can’t afford to buy the commonest anti-malaria drugs. There is high mortality rate in the population arising from hardship. Criminality is on the rise as that appears to be the only way out.

It is absolutely wrong for Nigeria to join nations that have stable and more productive and better managed economies to remove subsidy. There is nothing that the citizenry enjoy as benefit for being Nigerian. As an oil producing nation, Nigerians are supposed to enjoy subsidy on oil. There is fear that with the absence of stable power, added with the removal of petrol subsidy, the economy cannot be expected to make any headway on the path of the much needed productivity.


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