BusinessDay

Investing in fuel consumption: How well are we preparing for our future…

It is good to invest in one’s economy in order to improve productivity and also to increase competitiveness of that particular economy. Without investment, an economy could enjoy high levels of consumption which in the views of economists creates unbalanced economy.

Investment is very crucial to the economic development of a country. Investment is the government’s spending for public assets that provide benefits over a long period of time. Such spending includes physical assets such as infrastructure, equipment or buildings; scientific research and development in areas such as finding cures for COVID-19 and research on climate change; and education. Investment is the main source of employment creation and indeed, the main factor of economic growth.

As citizens and corporate bodies invest in an economy, it induces the citizens’ economic prosperity and improves their welfare in general. But when a nation decides to invest in consumption, it is considered wasteful. Consumption includes other forms of spending – most of which produce value in less than a year. Examples include spending on salaries, pensions, gratuities, food and other goods and services that are consumed promptly. No wonder the nation’s debt is rising. The nation needs to do something different to get a better result.

We can see why petrol subsidy coupled with lower oil output has triggered more borrowing by the government. Nigeria is at crossroads as the country faces serious economic challenges and concerns

Sometime ago, the World Bank released a report titled, “The Continuing Urgency of Business Unusual” on Nigeria’s fuel subsidy regime. The World Bank report, which many scholars considered as a warning to those at the helm of affairs, was about the rising cost of fuel subsidy in Nigeria which has reportedly, exceeded government’s spending on health, education and social protection for Nigerians.

As we write, the honorable members of the House of Representatives at the National Assembly have started probing the petrol subsidy payments. The probe, according to reports, is based on a motion titled “Need to Investigate the Petroleum Products Subsidy Regime in Nigeria from 2017 to 2021”.

The House, we were told, is worried that the consumption rate of Premium Motor Spirit (PMS) is 40 million to 45 million litres per day. However, the NNPC uses 65 million to 100 million litres per day to determine subsidy as discoverable from NNPC’s monthly reports to the Federal Allocation Committee.

The House of Reps we were told is concerned that as of 2002, the installed capacity of Nigeria’s local refineries stood at 445,000 barrels per day. However, their capacity utilization began to fall and eventually fell completely to zero due to the ineffectiveness and alleged sharp practices demonstrated by critical stakeholders in the value chain. It is the decline in production capacity of the refineries that has necessitated the NNPC to export domestic crude oil in exchange for petroleum products on a trade-by-barter basis.

The House of Reps is equally worried that the subsidy regime has been unfairly used by the NNPC and other critical stakeholders to subvert the nation’s crude oil revenue to the tune of over US$ 10 billion with records showing that as at 2021. To compound the worries of those legislators handling the investigation, “there exists evidence that subsidy amounts are being duplicated.

Thus, subsidy is charged against petroleum products sales in the books of the NNPC as well as against crude oil in the books of NAPIMS to the tune of over N2.0 trillion.” This, in my view is another dimension of man’s inhumanity to man.

Government subsidizes petroleum consumption for everybody to benefit, but empty vessels would sail to our waters and payment received for no petrol.

We can see why petrol subsidy coupled with lower oil output has triggered more borrowing by the government. Nigeria is at crossroads as the country faces serious economic challenges and concerns. So, do we remove fuel subsidy now or never? Do we remove fuel subsidy in phases?

Honestly, I do not have an answer to these questions. But we know that removal of fuel subsidy at a time when 2023 elections is about 8 months away has both political and economic implications.

The political implication stems from the fact that it would further strengthen acceptability or popularity of the ruling political party. The economic implication on the other hand is that the government at the center will have money to spend towards its poverty reduction scheme and provision of infrastructure.

The World Bank report in part read that Nigeria’s petrol subsidy cost around $4.5 billion or roughly 2 percent of the Gross Domestic Product (GDP), which exceeds the Federal Government’s spending on healthcare, education and social protection.

Accordingly, the World Bank advised that “diverting spending away from the petrol subsidy towards more pro-poor causes could help spread the gains of the growth which is essential for reducing poverty.

Additionally, Nigeria is not benefiting from the high oil prices in the international market due to lower oil output and rising cost of fuel subsidy. Some experts are of the view that due to the petrol subsidy and low oil production, Nigeria faces a fiscal time bomb.

Petrol subsidy is seriously hampering government’s ability to invest in human capital development. Since Nigeria is aspiring to becoming one of the leading economies in the world by 2030, developing its human capital is very important.

Human Capital Development is a necessary condition for Nigerian graduates to be competitive in the 21st Century economy driven by knowledge and skills. Have we suddenly forgotten that our youths are not supposed to be spectators in the 4th Industrial era?

Some of the challenges that Nigeria and a few developing nations are facing today, include managing trade disruptions and energy security, maintaining high GDP growth post COVID-19 pandemic, skill development and employment generation and resource mobilization for infrastructure development.

But how are we going to develop human capital when our youths in public universities are at home doing virtually nothing because of ASUU strike since February. The youths have been shut out of public tertiary schools on many occasions. This is not good for human capital development.

Although Nigeria loses almost a trillion Naira annually subsidizing PMS, a product used for consumption and production which in my view has real economic benefits for the country. The problem with fuel subsidy is duplication of payment and smuggling of the product to neighboring countries.

Deregulation and subsidy removal makes economic sense, but it must be done cautiously. The subsidy removal may be staggered. But is the government ready? I do not think the government is ready for subsidy removal now.

We have been told by the government that petrol subsidy is the only factor discouraging the private sector from investment in refineries despite being issued licenses to do so a decade ago.

Frankly, the future is bleak if the nation continues to spend funds on subsidizing fuel consumption. The gradual removal of fuel subsidy will provide funds for more socially beneficial investments that will improve the quality of life of the citizens and put the country back on track to meet its development goals.

But there are other issues that will impact negatively on the gains of gradual removal of fuel subsidy namely inflation and devaluation of the Naira. The main point here is that our PMS and diesel needs must be met locally. However, the journey of a hundred years start with a single step. Thank you.

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