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Fuel subsidies: APC’s Achilles heel

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When the Goodluck Jonathan-led federal government announced by the end of 2011 that Nigeria was going to do away with petrol subsidy the following year, little did they know that this move would contribute immensely to their party’s defeat in the general elections.

Petrol subsidies or fuel subsidies (as it is often called in Nigeria), have existed since the mid-70s, when a former Nigerian Military Head of State, General Olusegun Obasanjo introduced the price control act, which legally empowered the Nigerian federal government to set price ceilings for certain products/commodities.

Indeed, the maiden introduction of fuel subsidies by the federal military government must have been borne out of genuine efforts to assist struggling Nigerians who were grappling with the soaring price of petroleum products, which plagued the 70s. But today, fuel subsidies have become the proverbial mosquito, calmly resting on the scrotum of the APC-led federal government. This is obvious, considering Nigeria’s current revenue crisis. Government earning is dwindling at a rate never before imagined, as subsidies leach on the nation’s fortune ferociously, while the federal government watches helplessly (probably till it runs out of time).

The subsidy dilemma

Why is it so hard for the government to remove petrol subsidies in Nigeria?

I like to believe Nigeria is a theoretical quasi-socialist state where subsidy is hush money that successive governments must pay to the masses, so we turn a blind eye to government corruption and inefficiency. Think of it as a mono-product economy, where crude oil is the major commodity and the federal government; the major producer and regulator. It is also noteworthy to state that at 9M’ 2021, fuel subsidy payment gulped a whopping 31% of the federal government’s entire revenue.

While the government spends a substantial percentage of its revenue subsidizing a basic product for citizens, it borrows heavily to fund its nevertheless increasing budget deficits. These realities draw a parallel with the Socialist hallmark that consolidates production towards needs satisfaction. So, in other words, the quasi-socialist juxtaposition of the Nigerian state is not illogical in this instance.

In November 2021, the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mele Kyari, revealed in a statement, that if or when petrol subsidies are removed, Nigerians should expect a 100% increase in the pump price of petrol. But let us note that Nigeria’s domestic economy relies heavily on petrol.

From commuters trying to get to work every day to powering generators that fill in for Nigeria’s underperforming power sector, premium motor spirit is the blood that keeps the nation’s economic veins pulsating. Hence, a significant increase of such nature would adversely affect the price of goods and services (of course with increased transport and production cost), and this would strengthen widespread disaffection and decrease government popularity.

But despite dwindling oil revenue, to properly grasp the reason for the federal government’s tough stance on subsidy removal; we need to first compare the price of petrol (gasoline) around neighboring African countries and middle income/emerging economies like Nigeria.

As of the 6th of December 2021, data from Global Petrol Prices, an international website, which publishes the most wide-ranging, reliable and up-to-date information on retail energy prices around the world, show that Nigeria’s petrol price is the 7th cheapest in the world. Coming before Venezuela, Iran, Syria, Angola, Algeria and Kuwait in that order (all oil-producing countries). Petrol price in Nigeria hovers at around US$0.4, which is more than two times less the price of petrol in the United States.

It is common knowledge that the United States is a larger producer of petroleum than Nigeria, but it’s a highly developed country, so let’s assume the price of petrol reflects the purchasing power of its consumers.

Then what about Benin Republic and Cameroon which directly borders Nigeria and are both likely less developed. As of December 2021, the price of petrol in Cameroon and Benin held steady between $0.8 and $1, which is still at least 2 times more than Nigeria’s petrol price. With the current petrol pump price in Nigeria and the actual landing cost, the essential product is being subsidized by nearly 50% sometimes.

But remember that Nigerians have lived with petrol subsidies for decades and if history is something to go by, we have shown more than once that subsidy is the average citizen’s share of Nigeria’s oil proceeds. A five minutes chat with a yellow bus driver in Lagos or with a kiosk/road-side trader would convince you that average Nigerians are aware of how corrupt or inefficient many government officials have been over the years, but generally, they’ll always turn a blind eye to government corruption (at least most of the time). This docility towards government failure and widespread corruption always vanishes whenever the riot act is read to free-riders.

So long as we free ride, pay half the price for an essential commodity like petrol or avoid tax as easy as possible, we can live peacefully with government corruption. But in the face of dwindling oil revenues, if the government believes it can sacrifice the people’s freebies to save itself, the latter’s reaction might be rudely shocking.

In 2012, Nigerians shocked the PDP-led federal government when it tried to put an abrupt end to fuel subsidy payment, with even the nation’s political opposition at the time (now the ruling party) taking sides with the masses. Although the opposition’s decision at the time to stay on the side of the masses might not have been genuine and was most likely an attempt to be politically correct; right now, the federal government is faced with a severe revenue crisis and the removal of petrol subsidies might be the only way to keep the government running in 2022.

Very recently, the Nigerian Labour Congress and the National Association of Nigerian Students have separately advised the federal government to jettison the idea of fuel subsidy removal in 2022 until indeed the country is self-sufficient in petrol production but all indications prove that the federal government is marching on with the suspension.

The widespread disaffection that is expected to follow the government’s decision might bode badly for the ruling party, especially as this is coming less than a year before the general elections.

Is this the straw that breaks the camel’s back? Only time will tell.

Kadiri can be contacted via cephaskeys@gmail.com

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Cephas Kadiri
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