Nigerian economy: Ripples and pains in a fuel subsidy removal

Unknowingly but steadily, the ripples of the petrol subsidy removal by the President Bola Ahmed Tinubu administration have become the albatross of the few-weeks-old government. The ‘heroic’ pronouncement by the president in his inaugural speech on May 29, 2023, has since remained a ‘three-edged sword’— eliciting opprobrium and condemnation from the populace, tacit acceptance from the elite and moneyed class and rabid applause from hirelings and the gullible public. Subsidy on petrol (Premium Motor Spirit, PMS) has been in place in Nigeria in various forms and shapes in the past several decades.

Successive administrations have made efforts at subsidy removal (in part or in full) without much success; but at his inauguration, President Tinubu said: “fuel subsidy is gone.” Since this declaration, however, the Nigerian economy has been in a ‘turmoil’ of sorts. Prices of literally everything has gone through the roof. Indeed, the day after the ‘fiat’ by President Tinubu, the pump price of PMS jumped several fold, from below two hundred Naira per litre to over seven hundred Naira per litre — depending on the location. This quickly translated into very high cost of transportation, food stuffs, house rents, etc.

All these in turn led to soaring cost of living, weakened consumer purchasing power and impoverishment of many more Nigerians. Practically, many salary earners’ take-home-pay could no longer take them home. Not a few state governments reduced their work days in a week from five to two or three — just to somewhat ease the terrible plight of their public/civil servants. Most of the civil servants could no longer sustainably afford the cost of transportation to and fro their places of work. Of course, this, inadvertently, gave more room and tacit support to truancy, absenteeism and massive dereliction of duty. On the aggregate, these translated to immeasurable drop in productivity and morale across the states and at the federal level — where nobody bothered anymore to query anyone for lateness or absence from work.

As the situation persisted, the federal government, apparently in response to public outcry and agony of the people, came up with the idea of some palliatives to cushion the hardship. Evidently at its wits’ end, the federal government came on the 2022 supplementary Appropriation Act — to draw some N500 billion. From this amount, according to the government’s plan, each poor/vulnerable household would be receiving a cash transfer of N8000 per month for a period of six months. On the whole, twelve million poor households are to benefit from the scheme, according to the government. But rather than assuage public angst and pain, the proposed palliative package drew public opprobrium and the ire of practically all Nigerians — irrespective of socio-economic strata.

Everyone recalled the recent experience during COVID-19, when similar palliatives were meant to get to the masses, but largely ended up in private pockets. Indeed, large quantities of some food stuff procured as part of the palliative, were later discovered to have been stolen and stored in private warehouses or diverted elsewhere. Deep-seated corruption ensured that the target public did not get either the money or other items. The conditional cash transfer initiative of the immediate past President Muhammadu Buhari administration that was a woeful failure also sustained the doubt about the Tinubu cash dole. Thus, the cash transfer plan of the current administration was not only widely criticised but also wholly rejected by a critical mass of the people.

At present, the federal government has backpedalled, jettisoned the cash transfer initiative but still promises an amorphous palliative package for the suffering Nigerians. This vacillation and prevarication is coming at a time the Nigeria National Petroleum Company Limited (NNPCL) came up with a new PMS pricing template that further raised the price of the product. The template carries prices ranging from N560 to N620 per litre (depending on the location) as against about N500 per litre that had since remained the ‘default price’. The latest move by the NNPCL is ruffling not a few feathers in the Nigerian polity: organised labour, civil society organisations and all and sundry are literally ‘up in arms’ to fight the measure. Threat of civil unrest and protests is rampant. 

As it were, the people, indeed, remain at the receiving end of the government’s indecision as it continues to unleash ill-digested policies on the citizenry. From all indications, the NNPCL’s new pricing of PMS is a reflection of the landing cost of the product (just imported by the marketers). Rather than dealing with the petrol subsidy fiasco from the roots, the government has elected to licence more importers/marketers of PMS. But the business moves of these importers imply more pressure on the exchange rate of the Naira vis-à-vis the dollar — because these marketers must acquire the greenback to import the PMS. The more Naira they amass to acquire ‘enough’ dollars to import the product, the higher the prices at which they (marketers) will sell at the pump.

However, in playing to the gallery, as it were, the Tinubu administration has also devalued the national currency (via exchange rates unification or floatation policy). This initiative has since crashed the Naira exchange rate against the dollar (even in the official window), from N465/$ in May to over N800/$ at present. The forces of demand and supply have shown that the demand for dollars consistently far outstrips its supply as far as Nigeria is concerned. Being a largely import-dependent economy, the scenario cannot be otherwise; and being a mono-product nation (largely depending on crude oil sales), its foreign exchange earnings remain constrained.

The upshot of all these is the continued deterioration of the economic condition of the people as well as all growth and development indices. This is why inflation has maintained its runaway trajectory — hitting a 17-year-high of 22.79 percent at end-June 2023. The trend is driven essentially by food inflation, according to the National Bureau of Statistics (NBS). Apparently in another whimsical and knee-jerk reaction to the continued acute shortage of food (and its high prices), President Tinubu administration has declared a ‘state of emergency’ on food security. Again, like a grope in the dark, no clear details of the ‘emergency measures’ are available yet in the public space.

All the lingering challenges inhibiting food production/agriculture generally are yet unaddressed by the government. Devastating flooding, gully erosion, desertification and other adverse climatic conditions in various parts of the country keep getting worse. Above all, insecurity — banditry, kidnapping, brigandage among other social upheavals — have since dislocated the farmers, many of whom now live in internally displaced persons (IDPs) camps. Moreover, farming in Nigeria today is still largely at subsistence level — with little or no mechanisation. Therefore, how soon or how well the state of emergency on food security declared by the government will yield results remains a conjecture.

Besides food, many micro, small and medium enterprises (MSMEs) have been having tough times since the hike in the prices of PMS courtesy of subsidy removal. In point of fact, some businesses have either temporarily suspended operations or closed shops — because the cost of energy (petrol) which propels them has gone beyond their projections. So, rather than helping with the unemployment crisis in the land, fuel subsidy removal has (directly) led to job losses. And as it is, the higher the price of PMS (courtesy of the NNPL’s price template), the more the number of businesses that go under due to ballooning cost of operation.

As this reality is dawning on the citizenry, the Tinubu administration, practically cap in hand, is also going after the $800 million loan (for palliatives) from the World Bank initiated by the Muhammadu Buhari administration at its twilight. This facility, said to have been approved by the National Assembly, automatically adds to the humongous and already unsustainable debt profile of the country. At present, over 90 percent of Nigeria’s public revenues goes into debt servicing — and new loans certainly go to worsen this situation.

It is therefore imperative that the President Tinubu administration should beat a retreat, and come up with its full-scale economic development blueprint — so that it can tackle the nation’s multifaceted problems in a more deliberate manner. A ‘fire brigade approach’ is certainly counterproductive!