Subsidy Removal: A Tough, But Necessary Choice

The removal of subsidy has become inevitable in the prevailing economy

After months of prevarications, the federal government last week finally announced the end to the corrupt-ridden regime of subsidy on Premium Motor Spirit (PMS), otherwise known as petrol, with the official price now pegged at N145 per litre. Even when we think the decision could have been better-managed, it is a policy choice we wholeheartedly endorse. We, however, hope that the authorities will be prepared to deal with the consequences of this difficult but necessary choice in a constructive and civil manner.

Already, the Nigeria Labour Congress (NLC) and the Trade Union Congress (TUC) have already served notice of their intention to resist the decision. But Vice- President Yemi Osinbajo has already explained that the federal government was left with no choice in the face of foreign exchange earnings that had dwindled to $550 million a month.

To be sure, there are compelling arguments to make removal of subsidy at this point very tricky. Those opposed to the idea usually cite its potentially inflationary impact and the multiplier effects that place a disproportionate burden on the poor. This is a legitimate concern especially in an economy with high incidence of poverty, erratic power supply and inadequate public transport system.

As we have argued on this page several times, subsidies can make political and social sense when they allow a government to pursue strategic objectives beyond the remit of the market and are well targeted. However, the fuel subsidy regime in Nigeria has been largely captured by an importation cartel and is simply unsustainable. Besides, spending a substantial slice of the national budget to service the consumption of one single item is detrimental to the development of any nation.

Even if all the sharp practices associated with it are discounted, the fact remains that Nigeria does not have the capacity to sustain petroleum products subsidy. For an economy that is getting weaker and weaker due to exogenous factors beyond the control of the country, the “luxury” of sustaining a warped subsidy regime is not only deceptive, it is tantamount to merely postponing the evil day while wasting scarce resources.

We are well aware that this decision is not cost-free. But Nigerians should be objective in assessing the policy against the reality on ground. For several weeks now, motorists across the country have been queuing desperately at petrol stations to fuel their vehicles. At the black market where the product is readily available, the cost is prohibitive as many pay between N150 and N300 per litre. To worsen matters, most of the access roads in major towns are blocked as a result of long vehicular queues at fuel stations.

In several instances, law and order have broken down as Nigerians struggled to fill their tanks, power generating sets and other fuel consuming machines. That is why we believe that with proper structure and incentives for the private sector, local refining of petroleum products is the only way out of this perennial crisis.

Now that subsidy has been removed, we expect private investors in the sector to build more refineries such that Nigeria could even begin to export refined products and bring to an end the shameful practice of petroleum products’ importation which hurts the economy. But the federal government will have to be deft in managing the fall-out of this decision even as we appeal to labour and the civil society to understand the rationale behind it.

The arcane argument that subsidy removal will impoverish the poor workers is not supported by any evidence. In actual fact, it is the elite and super businessmen who benefit most from subsidy. To therefore insist on protecting a false “I-feel-alright” feeling and refuse to take the bitter pill could spell danger to an ailing man. We therefore commend both NUPENG and PENGASSAN for their understanding of the issues involved and for backing the decision.

All factors considered, we believe that the removal of petroleum subsidy makes strong economic sense and given the dwindling price of crude oil in the international market, there could be no better time to do it than now.

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Spending a substantial slice of the national budget to service the consumption of one single item is detrimental to the development of any nation