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Matters arising from fuel subsidy removal

Centre for Social Justice > Blog > Matters arising from fuel subsidy removal

Matters arising from fuel subsidy removal

  • Posted by: Center for Social Justice

National economies grow with the commitment, sacrifice and proper sharing of the benefits of contributions and innovations by all members of society.  The removal of fuel subsidy presents an opportunity for the negotiation of a new social compact founded on the principles of the democratisation of sacrifices to be made for the resuscitation of the national economy. It is also an opportunity to negotiate how the savings will benefit all members of the Nigerian society; not a select few in the corridors of power and their cronies. This discourse reflects on the opportunities and how this can facilitate the growth of the economy.

Beyond politics, it is imperative to state that there appears to be a national consensus that fuel subsidy must go. The three frontline political parties in the last general elections notably the All Progressives Congress, Peoples Democratic Party and the Labour Party all campaigned for the removal of the subsidy. This is hinged on the reality that beyond ideological positions, the Federal Government commits not less than 94 per cent of all its earnings to debt service. Thus, all salaries, overheads, capital expenditure and the proverbial subsidies are funded from new borrowing. This is not sustainable and can only continue if there is a consensus of accelerating to final economic perdition. The removal of the subsidy is rolling back from the brink of a cliff.

The Nigerian fiscal situation is so bad that the N3.65tn on savings from the removal of fuel subsidy cannot even plug the deficit of over N10tn in the 2023 federal budget. So, there is already a crater yawning to swallow whatever sum that will be saved. In this kind of scenario, the leadership of a highly indebted nation, which if it were an ordinary company would have been declared bankrupt, cannot proceed to implement decisions on the basis of some supposed superior knowledge. Such an attitude can only alienate rather than build support and consensus for critical reforms that will be needed in several sectors of the economy.

However, there are process and strategy issues involved in the removal. The removal will cause hardship and erosion of the purchasing power of the average Nigerian in a country where the majority have been affirmed to be multidimensionally poor. From the new petrol prices announced without consultation, it is clear that the minimum wage of N30, 000 cannot fill up the tank of most cars on Nigerian roads. Transport prices have doubled and this will affect food prices and the general knock effect will touch on the cost of all goods and services. The first port of call for the new administration should have been to build a national consensus around the savings and how it will be deployed. This will involve engagement and negotiations with organised labour, the private sector, professionals, etc on different approaches to alleviate the hardship accompanying the removal of subsidy. This engagement should have been done in this month of June before the budgetary provisions for subsidy run out by June ending.

The engagement would have provided clarity and transparency in the computation of the new fuel prices. This will involve information available in the public domain on a comprehensive breakdown of the cost components and the basis for the calculation of the new fuel price. The defunct Petroleum Products Pricing Regulatory Agency used to have a pricing template available to all Nigerians. For example, is the new PMS price calculated on the basis of imported products or local refining? If calculated on the basis of importation; what is the actual cost of refined petroleum, cost of freight and insurance, storage, transport across the federation and the allowable profit margin for traders. What is the value of the foreign exchange deployed in the calculation – a new unified exchange rate or the old Central Bank of Nigeria rate? This information is vital for the citizens to understand the rationale behind the price adjustment. Citizens can only support reforms and processes they understand.

In the past, Nigerians have been called upon on several occasions to make sacrifices for the survival of the economy. It has always involved a call by the leadership to ordinary Nigerians to tighten their belt; and ordinary Nigerians have not shied away from adjusting and contributing their quota to national development. But the missing link has been the contribution of leadership to nation building. If ordinary Nigerians are going to sacrifice so much, what is the leadership at all levels going to forgo?  Negotiations involved in subsidy removal should have looked into the bulging cost of governance and the corruption in the system. There are several contradictions in the system which can only lead to one conclusion – massive fraud, corruption and syndicated criminality.

For instance, the Federal Inland Revenue Service announced that it has increased the ratio of tax to Gross Domestic Product from less than six per cent before the Buhari years to 10.86 per cent at present. The same period witnessed astronomical borrowing leading to debt service taking up almost all retained revenue. How do you reconcile increased tax intake and increased borrowing at the same time?

Another issue which the negotiations should have dealt with is the fate of the four public refineries. Recall that in the last days of former President Olusegun Obasanjo’s administration in 2007, he sold two of the refineries to Dangote et al, and this led to a public outcry by some Nigerians. President Umaru Yar’adua reversed the sale and since then, billions of dollars have gone into their turnaround maintenance but they have hardly processed more than a few litres of fuel. Will the refineries become moribund and overtaken by the new Dangote refinery or how will Nigeria treat its investments? Assets to be allowed to waste or put to public use by privatisation or concession? No matter how romantic we feel about running state-owned enterprises, we have made our choice in the selection of leadership and the persons we elected did not promise to keep public enterprises up and running. Thus, privatisation is the only way forward for those refineries. We do not have disciplined political class and leaders to run these refineries.

Can prices of goods and services skyrocket without a new minimum wage and organised labour is required to watch and fold its arms? The threat of a nationwide strike is looming at an early part of the Tinubu administration. This strike is avoidable and can still be avoided if and only if the administration reaches out to stakeholders. Governing a heavily indebted cash-strapped economy requires consensus and the support of all major stakeholders. This will lead to success for the leadership and the led. Otherwise, we will be wasting energy which would have been focused on problem solving.

Author: Center for Social Justice

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