Thursday, May 7, 2015

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Nigeria's Fuel Subsidy: Gone for Good?

The removal of Nigeria's fuel subsidy has met much resistance but there could be considerable long-term benefits.
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Queues for petrol in Abuja.

The much touted removal of Nigeria’s fuel subsidy came into force over the New Year’s weekend. Annual spending on the subsidy surpassed the $8bn mark by the end of 2011 and its removal forms a central part of the government’s new economic direction to instil fiscal discipline in the country and invest the money saved from the subsidy into infrastructural projects. However, the battle is far from over, with civil society groups and labour unions sounding the drums of war and ordering their members onto the streets in protest as fuel prices more than double across the country.

Soon after the subsidy removal announcement, queues emerged at filling stations nationwide while many outlets remained closed out of confusion over what price to charge customers. The Petroleum Products Pricing Regulatory Agency briskly instructed all petroleum industry participants to adhere to the benchmark price of N143.56 per litre ($0.90), up from N65 ($0.41). This hike led to sporadic protests in major cities across the country such as Lagos and Kano, requiring the joint efforts of Nigeria’s security agencies to stop the situation from escalating.

The objective of the subsidy was to lower fuel prices and increase fuel availability for Nigerians. Yet even with the subsidy in place, frequent shortages were a common occurrence and the price of fuel rarely stooped to the benchmark price of N65 per litre set by government. Nigeria’s four refineries remain in a constant state of disrepair, and allegations of sabotage are rife. The endemic curse of corruption and mismanagement led to the importation business spiralling out of control, and the governor of the central bank of Nigeria, Lamido Sanusi, recently revealed that the cost of the subsidy paid to importers in 2011 actually exceeded $16bn, once taking into account the additional $8bn granted to oil marketers in credit. The subsidy system faced further criticism due to the fact that it was perceived as a major form of patronage, benefiting a select few with strong links to government circles.

Resistance to change

Protests and dissenting voices have been widespread with the Nigeria Labour Congress (NLC) and Trade Union Congress jointly stating “this New Year ‘gift’ by the presidency is callous, insensitive and is intended to cause anarchy in the country”. Trade unions have previously managed to thwart government attempts to remove the subsidy, firstly in 1986 during the military administration of General Ibrahim Babangida. Then, the IMF’s Structural Adjustment Programme had led to the devaluation of the Naira increasing the fuel subsidy’s strain on government spending. Babangida’s attempt to increase fuel prices were met with a barrage of criticisms and mass protests, ultimately leading to the shelving of the plan. The regime of General Sani Abacha in the 1990s fared little better in 1994 when unions paralysed economic activities in the country, forcing Abacha to abandon his plans to remove the subsidy.

As of yesterday, protests have been conducted in major cities including Ibadan, Abuja, Ilorin, and Lagos, and labour unions met today to finalise plans for a nationwide strike on January 11. Monday also revealed the firm stance the police would be taking; in Abuja, for example, 200 protesters were fired upon with tear gas. The coming days will no doubt prove cagey as the government tries to outmanoeuvre the union groups, whilst the strength of the unions will be tested once again as it was in 1986 and 1994.

Making sure

In a move to calm nerves since the widespread unrest, President Jonathan speedily inaugurated the board of the Subsidy Reinvestment and Empowerment Program (SURE). Reuben Abati, special advisor to the president on media and publicity, stated that “the board is to oversee and ensure the effective and timely implementation of projects to be funded with the savings accruing to the Federal Government from subsidy removal”. The NLC is seeking legal advice on the constitutionality of the program.

The board will be chaired by Christopher Kolade, the highly respected former High Commissioner to the UK, while a second committee is to be led by former Chief Justice of Nigeria Justice, Alfa Belgore. Belgore will have the mandate to engage in dialogue with labour groups, trade unions and other stakeholders over the subsidy removal. SURE includes appointed representatives from central and state government, the media, women’s groups, and organised labour.

At the crossroads

The deregulation of Nigeria’s oil sector is viewed by government as the stimulant needed to increase investment in the country’s oil and gas industry. The subsidy actively discouraged private investment and indirectly led to the failure of the nation’s refineries. Yet, due to years of distrust between successive governments and the Nigerian people, there is an air of doubt surrounding the long-term benefits of the subsidy removal. The majority of the population view the subsidy as one of the only luxuries they receive from government and view a total reform of government institutions as more important.

But in defence of the removal, Razia Khan, head of Africa economic research at Standard Chartered Plc in London explained “the subsidy was expensive, responsible for significant distortions and rent-seeking opportunities in the Nigerian economy, with little overall benefit”. Given both the social impact and economic potential of the fuel subsidy’s removal, SURE will prove highly important and could prove to be a vehicle of change in relations between the government and all those opposed to the removal. The subsidy could bring about the required change in the country’s economic fortunes or could follow the same path as previous attempts but what is clear is that Nigeria has reached a crucial crossroad.

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The government’s argument is that if we do not stop funding fuel subsidy, the economy will crash and we all will go down with it. But are there no other places to reduce spending to save money? Let us take a few moments and consider these points:

David Mark earns N600 million annually, enough money to set up at least, 100 schools in his Benue State
President Jonathan and his friends will eat N1 billion worth of food in 2012, while fuelling their cars for N1.7 billion. This amount will build at least, 50 good health care centres in the South-South
N200 million was budgeted to water the gardens of the President in 2011. This is enough to educate 200 Nigerians through university education
This is more than a quest for economic rights, it a quest for justice. This is not about fuel subsidy, it is about the ruling class’ war on the Nigerian masses. They cannot claim our country is broke when president Goodluck Jonathan continues to feed fat on N3 million worth of food everyday. They cannot claim to be broke when they increased the recurrent expenditure of the 2012 budget by another N92 billion. They cannot claim to be broke when the First Lady just spent N5billion furnishing an office. They cannot claim to be broke when in the whole budget is about their salaries and allowances

The video is located at there, you'll see what people think of the fuel subsidy removal.