At a time when it should be gearing to pay out a higher amount on the back of rising crude oil prices, Nigeria’s state oil company, the NNPC, is projecting that it may not be making any contributions to the federal purse next month due to the cash-guzzling petrol subsidy.
Such is the double-edged sword that rising oil prices have become for Nigeria that every gain from oil exports is now almost entirely cancelled out by the costly subsidy regime.
If the NNPC does not make any contribution to the federal purse in May, it would be the first time it has happened in decades and would be a blow to the federal, state and local governments that rely on cash from the state oil company for a significant chunk of their revenues.
The NNPC’s contribution to federal allocations has become all the more important this year with the country still reeling from a pandemic-induced drop in revenues, which has led to tapping the central bank for cash bailouts.
Basic economics should ordinarily nudge Nigeria towards ditching the wasteful petrol subsidy once and for all, as it has become ever more unsustainable to the extent that the NNPC is unable to make any contributions to federal allocations and the CBN is “printing” money to help the government get by. These are all happening against the backdrop of rising debt levels and weak economic growth.
The current government had announced an end to the petrol subsidy regime last year in the thick of the COVID-19 pandemic but has slowly backtracked as oil prices inched higher and labour unions protested an increase in petrol prices, which they argued was ill-timed during a pandemic that had cost many Nigerians their means of livelihood.
The latest development serves as a timely reminder of the opportunity that Nigeria missed in 2016 to abandon the wasteful practice, which richer countries began to embrace during the global oil price crash.
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Contrary to the perception of many Nigerians, Nigeria is neither oil-rich nor is it able to afford the subsidy. Oil production in Nigeria is lower than during the 1970s even as its population has nearly tripled, and even though Saudi Arabia, which can be considered oil-rich, produces five times more oil than Nigeria and exports 27 times more per person, Saudis pay more for petrol than Nigerians.
However, while the economics has never been more in favour of ditching the costly practice, the politics behind keeping the subsidy is more intense than ever before.
The politics of keeping the subsidy is more intense due to the current state of the economy and the government’s ruthless handling of the EndSars protests, which widened the trust deficit between the citizens and the leaders they elected.
Because the economy is in tatters, the current government risks a more severe backlash from the majority of Nigerians if it ends petrol subsidy than in 2012 during the Occupy Nigeria protests.
Occupy Nigeria was a socio-political protest movement that began on January 2, 2012, in response to the fuel subsidy removal by the then President Goodluck Jonathan.
Protests took place across the country, and at the Nigerian High Commission in London. The protests were characterised by civil disobedience, civil resistance, strike actions, demonstrations and online activism.
The protests were fuelled by concerns over inflation and unemployment, coupled with rising poverty levels, which Nigerians argued made it particularly difficult to swallow such a bitter pill of a petrol price hike.
At the time, inflation was 12.22 percent, well above the CBN’s preferred target of between 6 and 9 percent and unemployment was 3.74 percent.
The macroeconomic environment is significantly worse today. Inflation has accelerated to a four-year high of 18.17 percent in the month of March 2021, with food inflation (22.95%) at levels never before seen since the National Bureau of Statistics started collating data.
The jobless rate in Nigeria rose to 33.3% in the three months through December 2020, according to the NBS. A third of the 69.7 million-strong labour force in Africa’s most-populous nation either did nothing or worked for less than 20 hours a week, making them unemployed, according to the Nigerian definition. Another 15.9 million worked less than 40 hours a week, making them underemployed.
Poverty is also rife. With Nigeria now home to the world’s largest number of poor people (87m), overtaking India in 2018, according to a Brookings Institution report, despite having only a fifth of India’s population.
“Going by the change in Nigeria’s economic fortunes since the 2012 protests, it is easy to see why the government, which is in no mood for any protest at this time, especially after the EndSars episode, is in no hurry to remove the subsidy even though it is massively ruining the economy,” a business leader, who did not want to be quoted criticising the government, said during an interview in his Lagos office, Tuesday.
The pandemic contributed to Nigeria’s economic deterioration but economists say part of it is also down to bad policies by the current administration. One of such bad policies is the costly petrol subsidy regime, which inhibits private investment, and is starving the economy of badly-needed jobs.
The recovery of the economy of 200 million people will be slow, with growth seen at 1.5% this year, after last year’s 1.9% contraction, according to the International Monetary Fund. Output will only recover to pre-pandemic levels in 2022, the lender said. But the pre-pandemic growth levels are nothing to write home about, especially given that it remains below the population growth.
Analysts say only a private sector-led approach to economic growth, perhaps similar to the one that has just been launched in neighbouring Egypt, can help put Nigeria on the path of robust economic growth and improve the living standards of the people.
It is the same blueprint that several developing countries have used to transit to developed countries with examples ranging from China to Singapore.
If the economy is growing at a healthy rate and livelihoods improve, it becomes easier for the government to push through difficult reforms, according to Muda Yusuf, an economist and the director-general of the Lagos Chamber of Commerce and Industry (LCCI).
“Until then, it will always be difficult to get the by-in of people,” Yusuf said.
The government must also find a way to repair the damage caused by its handling of the EndSars protests.
What began as a protest against the hated police Special Anti-Robbery Squad (SARS) soon became a conduit for the youth to vent their anger with the people who have been in charge of Nigeria for decades.
But the violent end to the protests worsened the trust deficit between the people and their leaders.
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