Since after President Buhari declared his stand on the subsidy removal issue, indicating that he was still pondering over the matter as, according to him, removal of subsidy will hurt the poor, I had thought of joining issues to explain that even if removal of subsidy could be inflationary, it might not harm the poor as feared. Studies have established the fact that only a negligible proportion of the poor enjoy the benefit of subsidy.
Therefore, what really needed to be done is to build in some palliatives to cushion this probable effect before effecting the removal. But I was reluctant and was not convinced that it was worth my while, until I stumbled on and watched a programme on Sunday night after the popular Channels Television News at Ten.
The programme was on the 16 years of public service of Rotimi Amaechi, the immediate past governor of Rivers State, whom many marvelled at his courage at taking on a sitting president, particularly the way and manner he did so. Amaechi declared during the programme, speaking on the subsidy regime, that the cost of subsidy was N300 billion under both the Obasanjo and Yar’Adua governments but suddenly increased to N1.9 trillion (I heard N1.4 trillion earlier) under President Jonathan. He also told of how he was invited to a meeting at which it was announced that the amount of the subsidy was going to be jacked up, which he balked at in conscience as he was supposed to get a share as the chairman of the Governors’ Forum, and how he was upbraided and called all manner of names by President Jonathan. After listening to all this, I thought that I needed no further motivation to join issues regarding the subsidy removal debate.
What therefore I intend to do in this article is to dispassionately look at the subsidy environment as it is presently, highlight some of the murky issues relating to it, avert our mind regarding a preferred strategy for the removal of subsidy in the country mindful of our recent experience, and recommend the way forward. But it will be most unfair if I do not in the first place say one or two things about the entire programme during which Amaechi was celebrated. As the vice president who was the chairman of the occasion observed at the event, Rotimi Amaechi had certainly been the toast of the moment as he had one event or the other celebrating him recently. I recall particularly a book launch at the Institute of International Affairs here in Lagos where Bishop Kukah was the reviewer. The book was supposed to be on Amaechi’s time as the governor of Rivers State. I recall particularly the observation made by Bishop Kukah to the effect that there was a misalignment between the title and the content of the book as it was really a collection of testimonials by some notable stakeholders on his tenure rather than an account of his stewardship.
I was particularly fascinated that I share a lot in common with Amaechi. We both share the Catholic faith. In fact, I am a knight of the Church since 2000 and both of us share the culture of attendance at daily morning Mass and I agree with Amaechi that it is quite efficacious as it is tantamount in faith to literally handing the day over to the Lord and asking Him to take preeminent control. What was not probably added is the fact that to enjoy the full benefit of the protection of the Lord, you must strive to avoid sin, particularly the sin of the flesh which is a sin against the Holy Spirit as our bodies are temples of the Holy Spirit. Once one commits sin he loses sanctifying grace and God literally turns away from the sinner.
The other talking point was the declaration by Amaechi that he does not like money, alluding to the fact that everyone knows so in the state and yet they will not rise to his defence. Well, I do not know if he is privy to what is currently trending in the social media announcing key compatriots and the amount of money reported to have been found in his account overseas even if one must quickly add that it is advisable to take such information with a pinch of salt. My position on the issue of money is that money is a good servant but a bad master. You need money to sustain a reasonable quality of life. What is bad is excessive love of money which is simply ‘greed’, a capital sin in the same class as envy, slothfulness, pride, gluttony, lust, anger and covetousness.
On the whole, it was a well-packaged programme. In my opinion, the entire programme was professionally packaged including the choice of entertainers that performed live during the event, including the joke regarding short, average or diminutive height and who the leader should be amongst those in government!
The subsidy environment in the country today is characterized by the payment of unearned subsidy which had placed an unsustainable toll on the treasury; the amount of subsidy is variously estimated at about 30 per cent of government expenditure, 4 per cent of Gross Domestic Product and 118 per cent of capital expenditure. The level of subsidy as has been severally demonstrated breeds the worst type of corruption, encourages the smuggling of imported refined products across the borders to take advantage of the subsidized prize, creates occasional scarcity, productivity-sapping long queues, cost of product in many parts of the country outside the main urban centres of Lagos and Abuja at prices higher than the regulated price, potential damage to car engines as citizens purchase adulterated products owing to the activities of greedy hawkers, and the growth of the sector is undermined as even associated gas is not optimized and as private capital remains shy of going into a regulated environment. It is also generally a poor advertisement for a country which is the sixth-largest producer of crude petroleum but which is woefully dependent on importation to meet its needs for refined products.
It goes without saying that this level of subsidy payment is injurious to the development of the national economy and cannot therefore be sustained. And therefore there is the urgent need for some initiative in this connection. As a quick win it will be necessary to activate the refineries in the country to begin to operate optimally to reduce the burden of importation which also contributes in no small measure to the pressure which the country presently confronts in managing the exchange rate. It is welcome development as it has been recently announced that all the refineries in the country are roaring back into operation; the fear of President Buhari! And my considered view is that the fear that the poor will be impacted is to a large extent exaggerated. One is of course mindful of the experience during the most recent attempt to remove the subsidy in January 2012 which resulted in total gridlock as the country ground to a halt over the whole of one week and there was palpable fear that an environment was being inadvertently created for the return of the military.
We therefore recommend consultation with organized labour to convince them of the unassailable need for the subsidy to be removed. And we would wish to caution that what we recommend is once-and-for-all removal of subsidy by total deregulation of the downstream petroleum sector. Experience has shown that partial increase in the price of products will not do as President Obasanjo alone is reputed to have increased product price seven times, the last of which was undertaken a few months to the end of his two-term tenure as civilian president. All that will be required is to agree some palliatives as product price increase works through the economy. The savings from the subsidy payment could for instance be deployed for the provision of social infrastructure for the benefit of the poor to cushion the unlikely effect of this proposed and recommended course of action.
Q: What we recommend is once-and-for-all removal of subsidy by total deregulation of the downstream petroleum sector. Experience has shown that partial increase in the price of products will not do as President Obasanjo alone is reputed to have increased product price seven times.
Dr. Chizea writes from Lagos.