Subsidy woes, product import dynamics and the economy

Nigeria’s decades-long Petroleum Subsidy Policy regime which, as a result of official mismanagement, has dealt serious economic and financial blows, and specifically nailed the nation’s economy on a platter of abject poverty earning the country recognition as “poverty capital of the world”, still needs to be talked more about. But first, a refresher on the meaning of product subsidy.

Subsidy is the money spent by the government or organisations to make prices lower, by supporting manufacturing to reduce cost of producing goods. By this descriptive definition, it expressly emphasises reduction in the cost of producing goods. This effectively eliminates any form of financial support to manufacturing activities on foreign lands because the government cannot practically perform the role of enablers by supporting foreign manufacturers. This definition of fuel subsidy policy in effect, specifically speaks for local refiners of crude oil only.

At the same time, “deregulation” policy, which simply means removing government’s rules on price controls on some kinds of business activities, needs to be mentioned here too. The primary aim and the essence of introducing subsidies by governments is to lessen any form of financial burden on citizens. The reverse was, however, the case with Nigeria’s fuel subsidy policy which became counterproductive to vulnerable citizens, and added many more sorrows to the poor masses who have been at the mercy of the perpetrators of the evil scam. This leads me to highlight a recent comment by Emmanuel Igbini, president, Vanguard for Transparent Leadership, on Channels TV’s ‘Sunrise Daily’ programme, that “subsidy never existed”. As a close industry worker, I align with him totally.

A deep dive into the economic woes presently being experienced by most people in the country shows it’s occasioned by stagnancy in economic growth, failing economy, financial illiquidity (leading to borrowings and huge debt profile with over 80 percent debt service to revenue ratio), as well as the hiccups in developing strategic capital projects; which, again, is as a result of the impacts of poor policies (including monetary and fiscal) that have adversely affected the local currency.

Nigeria is a nation in the midst of abundance with very rich natural resources (oil & gas/hydrocarbon deposits), and it’s the highest exporter of crude oil in Africa. The only way out of this economic hardship and the attendant financial mess is to apply the suggestion of the former president of Trade Union Congress, Peter Esele, that supports a forward thinking approach, since the government in the past had lacked the political will by being complacent in prosecuting such projects and other very strategic national tasks (demonstrated by the problem of the subsidy scam that is systemic and structural, and lacking in value). The steps and procedures earnestly require making the country’s four moribund refineries to work along the nascent Dangote refinery because the economy cannot practically operate an import-based deregulation policy on refined products.

This financial mismanagement of the nation’s commonwealth, through stealing by a pocketful of privileged people, has always left vulnerable Nigerians on the receiving end. Many well meaning and very highly placed Nigerians have individually and collectively cried out against this “subsidy scam” as they call it,  but I declare it “a thorn in the flesh”. President Bola Tinubu declared that it is “making a few people rich”.

The analytics dwell majorly on the past wasteful spending policy of those in charge. For instance, in 2021, the national annual budget was N13.6 trillion but Nigeria imported N1.47 trillion worth of petrol between January and June that year (amounting to 10.5 percent of the budget). The entire petrol imports the same year came to a total of N5.004 trillion (36.8% of the 2021 national budget, just on a perishable consumable item). Ironically, Mele Kyari, group managing director, NNPC Limited, had in an AIT live telecast on Monday 6th of April, 2020 declared that, “the era of subsidy on petrol is gone forever”. This was even after the petrol imports under recovery claims grew by 600% between November 2017 and June 2018; because, in March 2020 the federal government removed subsidy (after it had very briefly reduced pump price from N145 to N125); by January 2021, it suddenly resurfaced and the NNPC called it “value shortfall”/”under-recovery” @N162 – N165/litre (a very confusing policy summersault); while NNPC incurred N756.99 billion subsidy cost between January and July. The Q1 2021 petroleum imports had gulped a whopping sum of N687.7 billion!

For the general good of poor Nigerians, let Peter Esele’s concept of palliative be implemented by the government, if they really mean to stop forthwith, this huge financial bleeding of an obviously financially very weak national treasury. Esele has suggested that an effective palliative by the federal government could come by way of patronising and funding local vehicle manufacturers like Innoson Motors, to massively produce and supply Mass Transit Busses that are powered by and driven with Compressed Natural Gas (CNG) that is very cheap and affordable in the economy; and also fix those moribund refineries. I wonder, after having borrowed from the Afreximbank in 2021 the sum of $1.5 billion to revamp the Eleme refinery, nothing has started working?

The only way to go now as “palliative”, is to drive CNG Mass Transit buses as suggested (which is cost effective, sold @ around N100 – N130/Kg when compared with LPG/cooking gas that sells for about N650 – N830/Kg), to at least alleviate the sufferings of the majority of Nigerians very quickly, through a drastically reduced transport fares.