• Saturday, July 13, 2024
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Four alternatives to N4tn petrol subsidy

Nigeria faces tough choice of N6trn petrol subsidy in 2023

Nigeria will spend as much as N4 trillion on petrol subsidy in 2022, about the same amount spent on subsidy between 2017 and 2021, according to the Federation Account Allocation Committee, and more than the N3.4 trillion reported as total federal government revenue in 2021.

The Senate and the House of Representatives recently approved N4 trillion to fund the fuel subsidy in 2022, an increase of N3.557 trillion from the N442.72 billion initially approved, due to the increase in global crude oil prices, which was a fallout of the Russia-Ukraine war.

The petrol subsidy bill for 2022 which is a part of recurrent expenditure is just N1.91 trillion less than the total amount budgeted for capital expenditure.

The upward review of the petrol subsidy bill was done amid a cut in other critical spending areas. For instance, the Basic Health Care Fund was slashed to N44.56 billion from N56.14 billion.

Furthermore, the subsidy bill increased the nation’s budget deficit of N6.38 trillion by N965.42 billion to N7.35 trillion, representing 4 percent of Gross Domestic Product.

The above analysis shows that the country has continued to subsidise fuel at the expense of some other productive investments that would contribute to the growth of the economy.

BusinessDay highlights four areas where the N4 trillion to be spent on fuel subsidy this year would have been more impactful.

Capital projects

Most of the developed economies spend more on capital expenditure to contribute to the development of the country. This is because capital expenditure involves acquiring or maintaining fixed assets, such as land, buildings, and equipment. This in the long run would contribute to the development and growth of the country.

The N4 trillion earmarked for petrol subsidy this year is higher than the government has ever spent on capital expenditure since at least 2017.

Some N1.44 trillion, N1.67 trillion, and N1.17 trillion was spent on capital expenditure in 2017, 2018 and 2019 respectively, while N1.74 trillion in 2020 and N3.4 trillion was spent on capital infrastructure as at November 2021.

Nigeria is failing to prioritise capital expenditure at a critical time when businesses need to be enabled if they must step up to become the growth drivers they can be as the oil-fuelled economic growth fades.

Education

Some N1.234 trillion was budgeted for the education sector in 2022, compared to N4 trillion budgeted for subsidy this year.

Petrol subsidy has been more of the priority, compared to education, of the government since 2017 and that has shown in the country’s deteriorating education outcomes.

In 2020, N40.64 billion was spent on education, while in the same year, N1.192 trillion was used for petrol subsidy.

From 2017 to 2019, N101.91 billion has been spent on education, while N1.43 trillion has been spent on subsidies within this period.

However, this subsidy spree could be used to support and promote quality education in the country.

Read also: Reps approve 4trn for petrol subsidy in revised 2022 MTEF

Health

Data from the Budget Office of the Federation show that N199.53 billion was spent on health by the government from 2017 to 2020.

Compared to the subsidy cost of N4 trillion budgeted for the country this year, the government budgeted N876.38 billion for the health sector.

Analysis by BusinessDay shows the proposed subsidy can fully equip 100,000 primary health centres across the country at N30 million each.

This would improve access to good healthcare for the people and also create jobs for an average of 10 persons per health centre.

Power

Improved power supply has the capacity to contribute largely to the economic growth of the country as this means reduction in production cost by manufacturers, thereby also attracting investments into the country.

The country, instead of spending on subsidies, can invest in adding 27,342 megawatts (MW) of solar electricity to the national grid at N360 million per MW.

According to Reuters, in 2018, Egypt opened three new power stations built at a total cost of 6 billion euros ($7 billion) as part of the Arab country’s development drive. This was a 19,200MW plant.

Nigeria, on the other hand, is about to spend about $9 billion subsidising petrol this year, more than Egypt spent to deliver a 19,200MW power plant.

Nigeria would need to go back to its drawing table to prioritise and use funds to embark on projects that would yield results and increase economic growth, especially with the need to efficiently utilise funds.