Experts offer Tinubu elbow room to escape fuel subsidy policy risks

• Urge rethink amid macroeconomic upheavals
• Energy, economic experts on policy, governance
• Say economy, most vulnerable Nigerians hit hard
• Privatise refineries, address revenue leakages

ONOME AMUGE IN LAGOS, NIGERIA

President Bola Tinubu’s administration has come under mounting pressure from  economic and energy experts to revisit the fuel subsidy removal policy. As the current reforms continue to evolve, the experts insist that flexibility in policy implementation is crucial in ensuring the policy aligns with the realities on the ground, not only for the sake of the Nigerian economy but also to protect the most vulnerable segments of the population from the negative impacts of these changes.

The experts offered their insights and proposals to address fuel price instability and the controversial policy reforms implemented by the government during the third-quarter of the Policy and Governance Discussion Platform Roundtable, held over the weekend via Zoom and monitored by Business a.m.

The discussions, moderated by Uche Uwaleke, a professor of capital market and finance at the Nasarawa State University, addressed the theme “Nigeria and the Fuel Price Conundrum: Mitigating the Risks to Macroeconomic Stability.” 

The recommendations highlighted included, among others, improving the nation’s refining infrastructure and privatising existing refineries, in an effort to address the challenges of fuel price stability in the country.

Cognisant of the need to shake off Nigeria’s dependence on imported fuel and boost the country’s financial health, the experts proposed a two-pronged approach: privatisation of existing refineries and a dedicated effort to identify and address revenue leakages. This, they argued, would set the stage for a self-sufficient domestic fuel supply and improved fiscal liquidity in the country.

Setting the stage for the roundtable discussions, Babafemi Badejo, a political scientist and lawyer, who chaired the event, observed that Nigeria’s economy has long been heavily dependent on oil and gas, with fuel subsidies becoming a lightning rod issue that impacts all aspects of the country’s economic fabric, from inflation and the cost of living to government revenue, foreign exchange reserves, and the shaping of fiscal policy.

“The fuel price conundrum, especially since the epic Subsidy-is-gone pronouncement by President Bola Tinubu, has been a long standing issue that touches all facets of our socio economic fabric from inflation and cost of living to government revenue, foreign exchange reserves and fiscal policy formulation, and not to forget the impact of all these on our foreign exchange rate,” he said. 

Expounding on the multifaceted role of subsidies in modern economic policy, Badejo explained that around the world, governments have leveraged subsidies as a tool to shield their citizens from the vagaries of fluctuating prices in various sectors, be it agriculture or energy.

The political scientist further elaborated that the decision on which sector receives subsidies and to what extent is a delicate balance of power dynamics within society, where the interests of various stakeholders must be carefully weighed and calibrated

Badejo drew attention to the thorny issues surrounding Nigeria’s fuel subsidy regime, raising concerns about the systemic challenges it poses, including corruption, mismanagement, and a selfish mentality among a select few benefactors who exploit the nation’s finite yet precious energy resources at the expense of over 200 million people.

He stressed that while fuel subsidies have provided short-term relief to Nigerians, the issue is not inherently with the subsidy itself but with the manner in which it has been implemented and the vested interests that have abused it, causing significant turbulence in the country’s economy.

Muhammad Sagagi, an economist and development consultant, in his lead presentation, observed that President Bola Tinubu, at the helm of Nigeria’s leadership in 2023, faced a daunting economic challenge.

Sagagi highlighted that the country was in the midst of an unprecedented economic uncertainty and multiple underlying issues, such as low economic growth, a constrained job market, widespread poverty, and price disruptions caused by multiple exchange rates.

According to Sagagi, in the midst of these challenges, President Tinubu found himself tasked with the challenge of leading a struggling nation with a weak economy.

While acknowledging President Tinubu’s determination in tackling the economic conundrum, the economic expert nevertheless noted that the president’s approach to market-based reforms was fraught with challenges.

Sagagi observed that despite President Tinubu’s swift and bold initiatives, these were not part of a well-defined reform agenda that would have brought them together in a unified, cohesive manner. As a result, the president’s initiatives were not working harmoniously in a coordinated fashion, according to Sagagi’s assessment, leaving the overall reform effort in a state of disarray.

Sagagi pointed out a second critical shortcoming in President Tinubu’s market-based reforms: a narrow focus on widening the fiscal space to address the country’s fiscal uncertainty, at the expense of broader objectives that could have fuelled economic growth and stability.

In the economist’s view, by solely concentrating on the fiscal space, President Tinubu missed an opportunity to pursue additional noble objectives that could have balanced the short-term imperative of fiscal stability with the long-term need for robust growth and macroeconomic stability.

Sagagi enumerated yet another crucial flaw in the president’s reform efforts, highlighting the absence of thorough diagnostic assessment and adequate consultation in the process.

Furthermore, he identified the lack of adequate sequencing as a significant pitfall in the president’s reforms. 

According to the ecoonomist, unleashing market forces to determine prices for petroleum products, the currency, and electricity, without due consideration for their synergies and interdependencies, or their potential impact on fiscal and monetary policies, can negate the positive effects of individual policies.

“What we saw from this administration is a lot of excitement and unbounded optimism. The result of which we overestimated the efficiency of the reform measures and underestimated the deliverable challenges. We had insufficient accurate and timely information on the benefits and the risk,” he noted.

Adding to his analysis of President Tinubu’s reforms, Sagagi pointed out that the government’s strategy was a blend of orthodox policies that had inadvertently created new problems, and that the administration was struggling to maintain consistency in its messaging regarding price controls. 

The government’s approach, according to him, was often combative and forceful in dealing with opposition, while there was an alarming dearth of transparent and open communication with the public regarding the reforms and their implications.

Sagagi underscored the crucial role of politics in Nigeria’s subsidy regime, stating that those who reap benefits from the current system would fiercely resist any attempts to dismantle it.

Sagagi implored the government to revise its reforms in light of emerging realities, emphasising that flexibility and adaptability are vital leadership qualities.

While acknowledging the need for Nigerians to accept fuel subsidy removal as a necessary step towards a more sustainable future, he argued that the government’s first priority should be to develop a comprehensive and transparent fuel subsidy policy.

The economist also called for a shift away from the current system of haphazard palliative distribution “where money is being shared all over the place’’, and proposed a more comprehensive and sustainable approach to poverty reduction. He suggested that the government should prioritise human capital development, job creation, and infrastructure development in rural areas, with a focus on long-term solutions that go beyond short-term financial handouts.

In his presentation, Tope Fasua, special adviser on economic affairs to the president in the office of the vice president, identified the critical role of the private sector in the rejuvenation of Nigeria’s oil refining sector.

Fasua maintained that the private sector’s involvement in refining was instrumental in repositioning the sector, and he insisted that the impact of the fuel subsidy removal was already evident in the economy.

Fasua underscored the imperative of cushioning the impact of fuel subsidy removal on Nigerians. However, he cautioned against a blind reliance on direct cash transfers, advocating for a more strategic approach focused on investment in sectors with high potential for value addition, such as agriculture and other productive industries.

In Fasua’s view, this alternative approach to subsidies would not only provide immediate relief to the most vulnerable but also lay the groundwork for long-term, sustainable economic growth and job creation in Nigeria.

Dwelling on the critical need for systemic change, Ifueko Okauru, a former chairman of the Federal Inland Revenue Service (FIRS), underscored the vital role of leadership, both at NNPCL and beyond, in resolving the myriad challenges facing the country.

According to the strategy and change management consultant and entrepreneur, while reforming NNPCL is a crucial step, it is only the first of many necessary adjustments to the national leadership structure to tackle the broader issues confronting Nigeria.

She urged policymakers to recognise that dynamic leadership must be fostered across multiple levels of government and the private sector, with a focus on addressing the issues hindering Nigeria’s development beyond just the oil sector.

Okauru further argued that the solution to Nigeria’s issues transcends mere organisational reform at NNPCL. Instead, she underscored the need for the president to set a powerful example of leadership and accountability, steering the nation’s efforts towards greater transparency and efficiency.

Adding to the discussion, Kelvin Emmanuel, an energy economist, weighed in on the crisis plaguing the oil sector and placed the blame largely on the  Nigerian National Petroleum Company Limited’s (NNPCL) lack of transparency and accountability.

Emmanuel emphasised the need for urgent and comprehensive reform within NNPCL, while also stressing the importance of implementing holistic measures that would mitigate the fuel price crisis without causing adverse effects on macroeconomic stability.