Fuel subsidy, its impact, and moving the economy forward

Nigeria’s socio-economic landscape is currently in a tumultuous state because of the ill wind of the dreaded scourge blowing everywhere in the country; the so-called fuel subsidy policy regime. Truth be told about this monster that is creating confusion in and around the economy. Nigerians, both the rich and the poor are presently feeling the same painful impact and having ugly experiences from the astronomical hike in pump price of the premium motor spirit or petrol at filling stations in the cities and villages across the country. The situation indeed, brings the proverbial quote into reality which states that “the rich also cry”.

The development (for once, as observed) creates an atmosphere of silence, absolute tranquillity and total darkness in a wealthy neighbourhood, characterised by a discordant sound of numerous noisy generating sets that constantly run 24/7 (all through the year, as a result of very chronic and incessant power outage being suffered by everyone within the estate) in a very prime neighbourhood for the privileged Nigerians in the society. It was observed as a moment of sober reflection on the state of the nation and her economy. Not that they cannot afford to lavish money at whatever pump price that might ever be fixed but, the situation of a sudden hike on the product’s pump price, brought everyone on his or her knees to reflect on what is going on in the nation (where the fuel metre was instantly adjusted from a rate of N195/210 to as much as N600 per litre). What a country?

Discussing this painful issue that bothers the economy and prevents it from moving forward and making real progress, leaves one in a state of rude shock with unimaginable thoughts about what is really happening to this economy, vis-a-viz the uncoordinated financial growth from the sales and exports of crude oil and yet the nation is totally in lack of locally refined products. The financials and the economic dynamics of what goes on in the oil sector (both at the upstream and the downstream sub-sectors of this oil industry) do not add up, at all! Financially, the foreign exchange earnings from the upstream swings in the opposite direction of what gulps up the nation’s hard earned foreign currency; with both operations swinging back and forth like in a “simple harmonic motion” studied in physics (mechanics). In one’s mind, this economy should march on with enviable progress and success.

To say the least, yours sincerely started in 2008 to lament against the pains of the fuel subsidy policy regime; which I outrightly declared as “a thorn in the flesh” in a national newspaper article, and called for its scrap! Explanations and definition of what fuel subsidy means, with its benefits to the economy and the entire citizenry (especially to the common man in the streets) were clearly given in detail. It might surprise many to hear that Nigeria has not been practising the policy in its real meaning but, intentionally was obviously operating and implementing a wrong scheme full of corruption and financial pervasion. It is because, subsidy on fuel could only be meaningful and rightly interpreted when done over local refining. It is only now that it could make sense (for instance, with the freshly commissioned Dangote Refinery, with daily off-take of 650,000 BPD). All these 15 years, I never blamed the entire public or the labour unions that were agitating (out of ignorance) for non-removal of subsidy on imported refined products.

Their calls for non removal makes sense now, but never in the past situations (like in January 2012 when pump price was jacked up from N65 to N200 per litre of PMS). They were only demonstrating in favour of their economic saboteurs, who operated under the guise of oil marketers, and rent seekers then but now, using Dangote Refinery as an example, when the crude is to be supplied by NNPC Limited in our local currency, the naira. Considering the fact that the national budget is annually benchmarked against the price of crude in the international oil market, and if for instance the current benchmark is $70 per barrel, while the current oil price is @$104 per barrel (for instance); and NNPC Limited decides to supply to Dangote Refinery at say $80 per barrel (ignoring what the going rate in the oil market is). The fact that our budget isn’t losing oil money on the budget benchmark, that difference of $104 – $80 = $24 is a discounted amount offered local refiners, and that is the “Fuel Subsidy”!

Considering the principles of Backward Integration Policy and that of Import Substitution, the economy shall be on a better footing (where there’ll no longer be foreign currency pressure on the nation’s external reserves due to refined products imports); which ultimately shall begin to strengthen and improve the integrity of the local currency, naira. In as much as these local refiners begin to smile home with fat profits (which shall attract more small sized local investors/operational modular refineries in the industry) by subjecting/improving the market to healthy competitiveness with approved and operational deregulation policy, we should not lose sight of the fact that the governments (Local, State and Federal), through their levies and taxations shall eventually recoup and/or even more from that $24 per barrel, in the long run (with all the attached attractiveness of wealth conservation within the economy). I therefore urge the oil marketers to sincerely partner with all the existing (functional and non-functional) modular refineries, and be lifting products locally (barring corruption; along with the ongoing UN climate action timeline for non-fossil fuel sources of energy, of next 40-50 years notwithstanding).

Economic variables like GDP growth and productivity (which cuts down unemployment), national economic efficiency that relates to investment, consumer expenditure and government expenditure; shall favourably swing the economy to an impressive growth rate (to frustrate inflation). Imports of refined products, which, of course, shall be displaced, known to have been the singular significant (the highest) consumer of the nation’s foreign reserves, shall reverse in a continuous downward decline. And quoting the former Emir of Kano (also former CBN governor), Sanusi Lamido Sanusi verbatim, the removal of the falsely operated subsidy regime is to avert fraudulent activities (from his interpreted speech) made at a forum in 2022: “The first thing whoever becomes President should do is, to ask NNPC to document and bring every Dollar they took as subsidy. They must give the ships that came, and we can verify from the Insurance companies if those ships were in Nigeria on that date. You must bring evidence because that is what the law says. There must be proof that you brought it in before you pay [the] subsidy”.

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