Subsidy is gone. Subsidy is back. Oh no, it isn’t. Oh yes, it is. Such is the confusion that now dogs the fuel subsidy policy. On May 29, Bola Tinubu veered from his inauguration speech and blurted out: “Subsidy is gone”. With that diktat, market forces would dictate the price of petrol. Soon after, the price tripled from N197/litre to N620/litre, fuelling a surge in food and transport costs. However, surreptitiously, some subsidy seems to have returned to stem the soaring of the fuel price. But the Tinubu administration denies any intervention.
Yet, market operators are adamant. In a recent interview, Festus Osifo, National President of the Petroleum and Natural Gas Senior Staff Association of Nigeria, PENGASSAN, said that “the government is still paying subsidies on petroleum.” Mele Kyari, Group Chief Executive Officer of the Nigerian National Petroleum company limited, NNPCL, swiftly issued a rebuttal: “There’s no subsidy whatsoever.” But John Kekeocha, National Secretary of the Independent Petroleum Marketers Association of Nigeria, IPMAN, said the government “is still spending billions to subsidise fuel,” adding: “I don’t know why they keep peddling lies.”
But why would Tinubu’s administration “peddle lies” about the fuel subsidy? Well, it’s one of his signature policies, and he won’t admit its failure. Tinubu said he was “possessed with courage” to scrap the fuel subsidy on his first day in office and basked in premature praises, internationally and domestically, for doing so. For a leader who is concerned about image, who sees policy as performance art, he’s unwilling to concede that the policy’s implementation has caused more harm than good. Thomas Jefferson said that “the care of human life and happiness is the only legitimate object of good government.” But Tinubu scrapped the fuel subsidy without planning and mitigation. He wanted to demonstrate toughness but was simply playing to the gallery!
Now, it’s important to correct a misconception. Depending on its purpose, scope and administration, subsidy is not necessarily a bad thing. Its aim, according to Oxford Dictionary, is to “keep the price of a commodity low.” For instance, when a government sells fertilizers to farmers cheaply, its subsidy because they’re not paying the real price. When students pay tuition fees that don’t reflect the actual costs a university incurs to train them, the differential is a subsidy. There are different forms of social subsidy worldwide. To varying degrees, every civilised country has a social security system that offers a minimum safety net to citizens. For instance, the UK has housing benefits, unemployment benefits and income support for low-income earners. Social protection is a badge of a healthy society.
To be sure, there’s a valid argument for scrapping the fuel subsidy. It’s expensive; it cost $10bn in 2022. But why should Nigerians suffer for their government’s failure to make the country’s refineries work?
But what social protection does Nigeria offer its citizens? Virtually none! The 133m multidimensionally poor get nothing from the state nor do the nearly two-thirds of the population living in extreme poverty. Most Nigerians have no guarantee of the basics: food, clothing, electricity and clean water. The Buhari government spent billions of naira on the so-called National Social Investment Programme (NSIP), but much of it was stolen and wasted; the NSIP made no dent on extreme poverty. Last week, the Tinubu administration announced a N1.2trillion conditional cash transfer to 15million households. But the policy won’t be immune from corruption and mismanagement or improve the lives of Nigerians.
By contrast, the fuel subsidy is totemic. It’s the only policy that, through cheap fuel, benefitted most Nigerians. That’s why, as the Financial Times said in a recent editorial, most Nigerians saw the fuel subsidy as “the only thing the state had ever done for them” or, as Dr Ngozi Okonjo-Iweala once put it, “the only direct benefits they enjoyed from their country’s oil resources.”
In their book Nigeria: What everyone needs to know, John Campbell and Matthew Page asked the pertinent question: “Have Nigerians benefitted from the country’s enormous oil wealth?” Well, here’s their answer: “Some Nigerians have benefitted, but too few.” Of course, they are right. According to a well-cited international report, between $400 billion to $500 billion of Nigeria’s oil wealth has been squandered and embezzled over the last 50 years. Past and present politicians and officials have enriched themselves and their allies from decades of Nigeria’s oil wealth, with nothing of the oil money used to improve the lives of ordinary Nigerians. So, in that context, can anyone reasonably and conscionably argue against subsidising the price of petrol at the pump to make it cheaper for Nigerians?
But here’s a more fundamental point. Why is fuel subsidy needed in the first place? Well, because Nigeria can’t turn its crude oil into refined/consumable petroleum products. Although Nigeria has four refineries, they are moribund due to years of mismanagement and corruption. As such, Nigeria exports crude oil but imports refined petroleum products, which had to be sold to the public at below-market prices.
Adam Smith says in The Wealth of Nations: “No nation is ever rich by the exploitation of the crude produce of the soil but the exportation of manufactures and services”. Simply, a nation that exports only crude products, but imports finished, value-added products will be poor. So, by importing refined petroleum products, especially with rising world oil prices and weak exchange rate, Nigeria is bringing those products in at high landing costs. Now, unless the government subsidises the pump price of petrol, the price would simply skyrocket and push up the costs of other things like food and transport. Therefore, as the National Bureau of Statistics (NBS) points out, the removal of fuel subsidy is a major reason inflation is surging, alarmingly now at 26.7 per cent!
In her book Fighting Corruption Is Dangerous, Dr Okonjo-Iweala said that the Obasanjo administration scrapped the fuel subsidy in 2004 but restored it in 2006 due to high oil prices. That supports the point PENGASSAN and IPMAN are making, namely: with rising oil price and naira’s weak exchange rate, now over N1000/$1, the pump price of petrol can’t stay at the current N617/litre if it is truly determined by market forces. Therefore, the government is somehow still subsidising fuel. Why is the Tinubu administration denying that? Is Tinubu willing to see the price of petrol rise above N1000/litre? He says he’s ready to be unpopular, but his electoral mandate is too tenuous to withstand popular uprising!
To be sure, there’s a valid argument for scrapping the fuel subsidy. It’s expensive; it cost $10bn in 2022. But why should Nigerians suffer for their government’s failure to make the country’s refineries work? Why is Nigeria the world’s six-largest oil-producing country and yet one of the largest importers of refined petroleum products? And why is the government refusing to privatise the moribund refineries? Anyone criticising the fuel subsidy must first answer those questions!
But there’s another point. The fuel subsidy is costly because of massive corruption. Dr Okonjo-Iweala addresses this subject extensively in her book Fighting Corruption Is Dangerous. Also, in 2012, a House of Representatives committee found that the subsidies paid outstripped the actual petrol consumed because of overcharging, false claims etc. Surely, Tinubu should have tackled the unbridled corruption around the fuel subsidy instead of scrapping it. Perversely, he leaves the oil fraudsters to enjoy their ill-gotten wealth!
Let’s be clear. The failure of successive governments to refine Nigeria’s crude oil into consumable fuels necessitated the fuel subsidy, and the failure to tackle the subsidy scams tarnished the scheme. Sadly, with the subsidy removal, ordinary Nigerians are paying for both failures. But if the subsidy must go, the money saved must be used to improve the lives of Nigerians beyond demeaning palliatives. Yet, Tinubu’s handling of the fuel subsidy lacks transparency and accountability. He’s perpetuating decades of government failure.