Rising prices

Predictably, prices are shooting through the roof in the wake of the inevitable removal of fuel subsidy. Prices of goods and services such as transport fares have risen dramatically and without notice. You get to a petrol filling station from where the previous day you bought fuel for N210 a litre and today from the same station the price has shot up to N550.

Subsidy is a mechanism to retool some ailing areas of a nation’s economy or indeed to promote certain economic activities such as agriculture. According to the USDA, Economic Research Service, (an official website of the U.S. Government), the United States Government subsidizes agriculture, focusing on production of grains, oilseeds, cotton, sugar and dairy products.

This is because agriculture and related industries provide 10.5 per cent of employment in the country. What the related industries consist can be obvious to anyone. They are a chain—food and beverage manufacturing and resultant stores; food services; eateries/drinking places; textiles; leather products; and forestry and fishing. Farming thus contributes $164.7 billion of the U.S. Gross Domestic Product (GDP) which is 0.7 per cent, excluding the contribution of the related industries.

USDA says in 2021, “21.1 million full and part-time jobs were related to agricultural and food sectors. Direct on-farm employment accounted for about 2.6 million of these jobs or 1.3 per cent of U.S. employment. Employment in agriculture and food-related industries supported another 18.5 million jobs. Of this, food services accounted for the largest share –11.8 million—and food/beverage stores supported 3.3 million.

The remaining agriculture-related industries together added another 3.4 million.” According to Prof. Daniel A. Summer of the Department of Agricultural and Resource Economics at the University of California states that the average rate of ‘producer support estimate’ for the heavily supported commodities in the U.S. ranges from 55 per cent of the value of production for sugar to about 22 per cent for oilseeds. For the less supported commodities the rate is typically five per cent.’ He is drawing his figures from the Organisation of Economic Cooperation and Development (OECD). He goes on to state that among the OECD members (a group of high-income countries), “producer support estimate rates average about 31 per cent of total revenue for the main grain, oilseed, sugar and livestock products.”

I have gone to this length to show that providing subsidy in itself where it is called for is not a sin. But in our own case, Nigerians are Nigerians! We drag Nigerian factor into all our activities. As Chief Obafemi Awolowo once said, for Nigerians, “nothing principled, nothing clean and nothing pure.” The brazenness in doing evil is unbelievable.

Consider this: The Nigerian Extractive Industry Transparency Initiative has said the government has spent N16 trillion on petrol subsidies in the past 16 years. It is alleged that in certain instances, claims were filed for payment of subsidies for fuel not supplied. The scandal of abolition of fuel subsidies thus became a subject of discussion and disdain in international institutions.

The World Bank and the International Monetary Fund have stated that the removal of fuel subsidies “is one of the fiscal reforms urgently needed to lift Nigeria’s development outcomes, which are severely constrained by the inefficient use of resources.” Speaking in the same vein, former World Bank President David Malpass, said: “Nigeria’s government urgently needs to strengthen fiscal management, create a unified, stable market-based exchange rate, phase out its costly, regressive fuel subsidy and rationalise preferential trade restrictions.”

The issue of subsidy has been a cause for concern to different administrations in this country, indeed from 1973. It has driven every administration to its wit’s end. It was such that on May 11, 2016, Muhammadu Buhari announced that the Federal Government would no longer be paying subsidy on oil.

The price quickly rose from N87 to N145 per litre following the pronouncement. But then he did not walk his talk; subsidy continued, even though his discomfort on it did not ease, going by the statement of the erstwhile Finance Minister, Budget and National Planning, Mrs Zainab Ahmed. She spoke at a television interview at the World Economic Forum in Davos, Switzerland. She said, fortunately, all the frontline presidential candidates took the position that should they win the election, subsidy would be scrapped. Buhari wanted the subsidy to go.

Ahmed said the cost of N3.25 trillion on subsidy must be exited.”Consequently, the complete stop to the expenditure head, initially scheduled for April 2023 may now be moved up to July, 2023. She said out of fear of possible social dislocation, the Administration considered it hot potato and suggested that the gradual removal may commence in the second quarter of this year.

She went on: “So, the decision was to extend the period from June 2022 by 18 months, beginning from January 2022. So in June 2023, we should be able to exit. The good thing is that we hear a consistent message that everybody is saying this thing needs to go and that it is not serving the majority of Nigerians.” Even though the Buhari Administration saw the necessity to remove subsidy, it still considered it hot charcoal, considering the possible social backlash that may arise therefrom.

Ahmed said at the encounter with the television that what had been considered safer “is for the current administration to maybe at the beginning of the second quarter, start removing the fuel subsidy because it’s more expedient if you remove it gradually than wait and move it all in one big swoop.” That approach is not acceptable to the new sheriff in town, Bola Ahmed Tinubu, in view of the experiences of Nigerians with the consequences of piecemeal approach.

How did the issue of subsidy all start? It began under President Ibrahim Babangida when the price of PMS was raised from 15.3 kobo to 20 kobo. His Administration raised it again on March 31, 1986 from 20 kobo to 39.5 kobo. On April 10 of, same year, the price increased from that to 42 kobo. According to DAWN Commission in Ibadan, on December 19, 1989, the price of fuel went from 42 kobo to 60 kobo, and on March 6, 1991 from 60 kobo to 70 kobo. Interim Head of State, Ernest Shonekan jerked it up from 70 kobo to N5.

That was on November 8, 1993. Shortly, Abacha drove his menacing tank through the corridors to seize power. To endear himself to the citizenry, on November 22, he reduced the price to N3.25. But barely a year later, on October 2, 1994, he shot it up to N15 from N3.25. After massive street protests, he brought it down to N11 by an announcement made on October 4, 1994. General Abdulsalami Abubakar, who took over from Abacha, increased it from N11 to N25 a litre in one go on December 20, 1998. Following unrelenting protests in major towns and cities, he brought it down to N20.

When the subsidy first came to national consciousness in 1973, authorities said the subsidy was to cushion Nigerians against the oil shock of that year. So when Olusegun Obasanjo assumed office as President in May 1999, he made subsidy the bedrock of his economic policy. No sooner he settled in than he increased the pump price per litre from N20 he inherited from Abdulsalami Abubakar to N30 on June 1, 2 000.

This was promptly rejected by the people. There were also massive protests which got him to reconsider his position; he reduced the price to N25 on June 8 and further down to N22 on June 13, 2000. The instability in pricing went on still. The price went from N22 to N26 to welcome Nigerians to a New Year on January 1, 2002, then to N40 by June 23, 2003.

By the time he was leaving in May 2007, the price had climbed up to N70. When Umar Musa Yar’Adua came in that year he reduced it to N65 a litre, predictably after demonstrations on the street. Obasanjo had tried strenuously to convince the nation on the constraints of subsidy to economic development. His oil chief, Kupolokun went around media houses to convince editors on why subsidies must be thrown out of the window.

In 2012, President Goodluck Jonathan kicked up the price from Yar’Adua’s N65 to N141. He was forced to bring it down to N97 after days of protests particularly at Ojota in Lagos. The price was subsequently reduced to N87 as a result of fall in crude oil prices in the international market. This was the price he passed on to President Buhari. On May 11, 2016, nearly a year of his assumption of office, he announced that the Federal Government would no longer be paying subsidy on fuel. The price then went to N145 a litre.

Every time the price went up, the government functionaries would go into lecturing the citizens on the imperative of scrapping fuel subsidy, and that what would have gone into subsidy would be used to provide infrastructure. At a time commercial vehicles on which were boldly written: as ‘Federal Government Assisted’ plied the roads to make light the burden on the people. Indeed, General Abacha introduced price differentiation in fuel and marketers were to designate special pumps at oil filling stations for sale to commercial vehicles.

President Bola Tinubu in character took the bull by the horns and scrapped the subsidy once and for all. Whether the hour of inauguration was the right time is a different matter. I would have thought, though that the inauguration hour was an occasion for back-slapping, dancing and rejoicing in renewed hope for a brutalised citizenry.

It called for an address that would bring tears running down cheeks, soul-stirring speech; the occasion called for soothing words on the juices his ascendancy has in store and he was only to drop hints that hard times were ahead but that with joint and collaborative working, the nation would overcome. He could then have elected some other day, even if it was the third day to drop his bombshell.

He would still have proven that he meant business. It is noteworthy, however, that he made up for this in subsequent address in which he assured his fellow citizens that he shared in their pains. That was moving. It was as it should be. Other steps he has taken after the inauguration are certainly welcoming and well-received. Leadership is a sacred responsibility for which we must be thankful for the privilege to serve and to rescue our people from fear, agony and hopelessness.

Between 2006 and 2013, N10 trillion had been spent on subsidy, three times the budget allocation for health and two times budget allocation for education in 2014 fiscal year. The four refineries in the country with a combined production capacity of 445, 000 barrels a day have not been working for years; attempts to fix them have been unavailing even after gulping trillions of naira. Given our nature, the Nigerian character, we have proven incapable of managing subsidy. It has been abused long enough. It has kept investors away; it has to go and that is what Tinubu has done with it—kicked it out of the way.

All said, productivity over consumerism is the answer. Pricing is a question of demand and supply. It is in supply of goods and services which flow from productivity that will stem rising prices. If paper income goes up, everyone else will adjust his prices to meet his costs. It is a vicious circle. This is a subject for another day, for at the root of an economic downturn is the breach of the Law of Balance. Whenever and wherever imbalance manifests, be it in man, be it in a system there must be disharmony or even collapse.