A renewed economic hope for Nigerians: Fuel subsidy

BY OLUWATOSIN OLADETAN

Oluwatosin Oladetan, (ACCA, PMP, NIM), an actuary, business and corporate strategist, financial analyst and process improvement professional, is a Volunteering Analyst/Columnist.

On May 29, 2023, Nigeria had a successful leadership transition in its Fourth Republic which commenced in 1999, as it ushered its 16th president into office. Bola Ahmed Tinubu was the presidential flag bearer of the All Progressive Congress (APC) who emerged victorious having secured 8,794,726: 36.61% votes in the presidential election conducted on February 25, 2023. Upon the inauguration of the 16th president, his address indicated the intended changes to the existing fiscal and monetary policies. Key concerns in his address focused on security, rule of law, unity and cooperation, stronger economy, job creation, food security, agriculture, addressing extreme poverty, youth inclusion, women inclusion, electricity, anti-corruption, infrastructure economic relief (fuel subsidy), change or the naira note, unified exchange rate, multilateralism, posterity, among others.

It did not take too long for the stock market to react positively to the TinuBUll as the market sales increased by 10%, trade volume increased by 133.5%, and market capitalization increased by 5.21% from N28.844 trillion to N30.349 trillion. The All-Share Index (ASI) rose by 2,764.47: 5.22% to be at 55,738.35 points. The Y-o-Y gain was at 8.76%, and the number of deals increased by 56.38%. A flip back to the market indices when the now former president Buhari emerged as the presidential winner in 2015 will be apt here. The stock market reacted positively to Bullhari as the market experienced a boom for ten consecutive days (March 24, to April 8, 2015). There was a gain of 5.45% in March and 9.33% in April 2015. The market went into a chasm from May till August and the year 2015 closed negatively at 17.36%.

The average Nigerian pulse went bearish as the market reacted to President Tinubu’s statement “Subsidy is gone.” This implies an earlier impact on the removal of subsidy on Premium Motor Spirit (PMS) which was due to it becoming effective in July as there was no provision for subsidy in the second half of 2023 from the 2023 national budget. This fiscal intervention scheme will save the country over N7.3 billion in 2023 and over N15 billion resources which could have other uses in fiscal or monetary projects. Despite the fact, there is no subsidy on Automotive Gas Oil (AGO), Jet fuel and Dual Purpose Kerosine, which are trading above N500 to a litre, there was an increase of about 170% minimum in the price of fuel across filling stations all over the country.

Despite the fuel subsidy removal being an incredibly good initiative to reduce the national budget deficit and advance a positive outlook on the national debt-to-revenue ratio among others, the rollout and implementation of the subsidy removal is important. The minimum wage of an average Nigerian is still N30,000, the inflation rate for the month of April is 22.22% an all-time high within the last 18 years, and the unemployment rate is 33.3% with some market experts speculating it is around 40%, 2022 Annual GDP growth rate of 3.10% 50 BPS higher than the average population growth rate of 2.6%, N10.78 trillion budget deficit, 83% debt financing to FGN share of gross federation revenue, negative trade balance due to more import than export, heightened insecurity, high skilled labour expatriation, volatility of the exchange rates, foreign reserves of $35 billion among other indices. The increase in the price of PMS will lead to an increase in the average cost of goods and services as there is no cushioning effect to zero off the negative effect in the interim.

Our expectations are that there will be the rollout of relief and cushioning programmes from the government to reduce the adverse effect of this situation. The average Nigerian can take the following measures to prevent further depletion of his/her wallet.

•  Commute more with public transportation rather than driving

•  Reduce commute time if possible

•   Reduction in the purchase of Veblen goods

•  Revisit the prices charged to customers on goods and services.

We indeed have a renewed hope that the government will utilise the fund from the subsidy to increase social welfare for Nigerians.