Subsidies: ‘Scam and Punishment’

YOMI MAKANJUOLA, PhD

Yomi Makanjuola earned a doctorate in Materials Engineering and Design and worked primarily as an Associate Partner at Accenture in Nigeria. Currently, he is an author and freelance consultant in the UK. He is the author of the book, “Nigeria Like A Rolling Stone”. “His most recent book titled “iProverbs: Wisdom Rebooted” is available on the Amazon platform at https://www.amazon.co.uk/dp/B0D31W2P2W. He can be reached at 9yoma9@gmail.com

“Scam and Punishment” is a blatant riff on Fyodor Dostoevsky’s “Crime and Punishment” book title, but it is doubtful that a pernicious scam rises to the same level of malevolence as premeditated murder, which the Russian author explored in his classic novel. Rather than deconstruct the heinous crime of murderous aggression, this article delves into the counterintuitively lethal and strangulating policy imposed on Nigerians through government subsidies. For too long, a huge barrier to querying the consequences of decades-long incentive schemes has been Nigerians’ visceral disagreement about what exactly constitutes a subsidy.

Among the plurality of stakeholders – including the ruling class, technocrats, and laypeople – financial illiteracy does not fully explain why emotions seem to override rational analysis of a perennially controversial topic. Evidently, there are millions who view subsidies as a figment of the imagination of policymakers. Like unreconstructed flat-earthers, insisting that subsidies are non-existent does not validate ignorance.

Conscious of reality or not, a government subsidy is a form of assistance to citizens or businesses, aimed at reducing the prices of goods and services. Typically, it is applied via direct or indirect grants and payments. As part of their economic tool kit, incentives are sometimes deployed by governments to stabilise and course-correct imperfect market conditions. Since no economy is wholly ultra-capitalist or hyper-socialist, overt and disguised subsidy schemes are usually designed to achieve market equilibrium, although they can also be destabilising.

In my view, taxpayers deserve transparency and ought to demand answers to questions such as: (1) Who benefits? (2) For how long? and (3) How large is the subsidy? Contrary to the misconception that subsidies represent a free lunch, economists highlight “opportunity cost,” which postulates that misapplied incentives can crowd out more deserving investment goals. Ideally, subsidy programmes should be means-tested to ascertain eligibility. However, in countries with weak bureaucracies, they are often administered indiscriminately.

Using Nigeria as a case study, the free education policy of the Western Region administration in the 1950s represented a democratic socialist vision for human capital development. Essentially, education was fully subsidised [size] for children and adolescents [who] in their formative years [duration]. By most accounts, this was a well-executed policy that encompassed provisions for teacher training colleges and domestic production of textbooks, chalk, and other accessories. Furthermore, this model extended to apprenticeship and vocational education that fed into light industries. Sadly, no other Nigerian government has been able to replicate this holistic template for sustainable development. Big takeaway: government subsidies must never be mere giveaways, but should constitute a strategic component of a generative value chain.

After the dark chapter of the Civil War, Nigeria became a certified petrostate governed by successive administrations that introduced populist and exploitative [open-ended] subsidies. Opening the floodgates to unchecked malfeasance, the ruling elite ramped up its playbook by encouraging the masses to view everything through the lens of ethnicity and religious affiliation. This sleight of hand enabled venal chauvinists to make out like bandits. Starting with petroleum products, Nigerians bought into the dubious idea that the country’s oil-producing status was a pseudo-birthright to cheap refined products. Similarly, electricity consumers in many parts of the country imagined that paying their bills was an optional and inconvenient nuisance. Profligacy was further exemplified by the fertiliser racket which has jeopardised agricultural production for decades. As a sidebar, why does the government subsidise personal annual pilgrimage to holy lands?

In exchange for political and social support, the underlying confidence trick signalled that prized consumables could be provided by a paternalistic government below the cost of production. In practice, domestic oil refineries were steadily incapacitated and product pipelines sabotaged, thus paving the way for unrestrained importation. By accessing imported products at subsidised rates, mendacious insiders then routinely diverted huge volumes by trucks to neighbouring countries and sold at grotesque profit. Likewise, crippling the electricity infrastructure allowed sinister “generator and diesel” cartels to mushroom. Undertaken with the connivance of government agencies, the foregoing portrays flagrant rent-seeking and a conscience-lite contempt for the stewardship of Nigeria’s public wealth and shared destiny. 

For decades, subsidy scams grew like a hydra-headed monster that mirrored the explosion in the cost of governance, until Nigeria’s inflation-ravaged economy ran aground. Stumped, this forced the current administration to largely free up electricity tariffs and pump prices. Grievously weakened, Nigeria had been bled dry after loading up on massive debts that forsook capital investments. Notwithstanding, elected officials seem to live in a parallel universe whereby the country borrows heavily to shore up recurrent expenditures while subsidising their obscene emoluments. Instead of a revolving cast of unscrupulous chancers and plunderers who have debased Nigeria, what if the country had been blessed with selfless leaders with foresight and personal integrity? But, then again, maybe every nation ends up with the leaders that it deserves.

Like an oblivious rolling stone, the long-deferred punishment facing Nigerians now manifests as abject deprivation, toxic cynicism, and plunging living standards from an already low base. Sustainable reversal requires higher worker productivity, not by arbitrarily raising the minimum wage. Although the proportion in poverty is skyrocketing, it could be argued that Nigeria’s middle class, built on a bogus foundation long propped up by a bubble economy, has been the hardest hit. Unsurprisingly, self-entitled Nigerians are now screaming blue – no, make that green – murder, deafening enough to rouse the tortured conscience of Rodion Raskolnikov in old sport Dostoevsky’s chilling masterpiece.

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