• Monday, June 24, 2024
businessday logo


Understanding the real impact of subsidies: A call for targeted government support

Delay in implementing PIA 2021 continues to impede consistent fuel supply

In a world where economic stability often feels like a distant dream, subsidies stand out as a vital lifeline for many. Governments across the globe use subsidies to ensure that essential goods and services remain accessible to their citizens, particularly when it comes to public and quasi-public goods like healthcare, education, transportation, and energy. But the question remains: Are these subsidies reaching the people who need them the most?

Q: “While the concept is straightforward, the implementation is often fraught with challenges and disparities.”

Subsidies are essentially government payments made to reduce the cost of goods and services. They can take various forms, such as direct payments, low-interest loans, or incentives for businesses to produce certain goods. While the concept is straightforward, the implementation is often fraught with challenges and disparities.

Read also: Electricity tariff hike: Removing social subsidies will deepen poverty in Nigeria

Take the example of the coronavirus pandemic. The UK government’s Furlough scheme provided grants to employers to retain staff, a move that undoubtedly saved countless jobs. Similarly, in the United States, the Senate passed a $2.2 trillion economic rescue package, which included $500 billion in subsidised loans to larger industries and direct payments to Americans. These measures were crucial in mitigating the economic fallout of the pandemic.

However, not all subsidies are created equal. In Nigeria, for instance, fuel subsidies have sparked significant debate. While intended to keep fuel affordable for all, these subsidies disproportionately benefit the wealthy, who consume more fuel than poorer households. The average Nigerian, who relies on fuel for generators, public transport, and agriculture, finds little relief as the benefits skew towards the richer segments of society.

The inefficiency of Nigeria’s subsidy system was highlighted by a former vice-presidential candidate in 2019. He pointed out that while the government spent vast amounts on fuel subsidies, essential sectors like health and education were grossly underfunded. With 87 million Nigerians living in poverty, the argument that fuel subsidies disproportionately benefit a small segment of the population is compelling. The call for reallocation of these funds to more impactful areas like health and education is both logical and urgent.

Globally, governments tailor their subsidies to meet the specific needs of their citizens. For instance, during the energy crisis, Germany introduced price subsidies for electricity and gas to protect consumers from exorbitant costs. Meanwhile, in China, agricultural subsidies have made Chinese farmers highly competitive on the international stage. Similarly, the US government spends over $30 billion annually on farm subsidies to support agricultural production.

Nigeria could take a leaf from these examples. The country’s diverse regions have varying needs. While some areas might benefit from agricultural subsidies, urban centres like Lagos might prioritise housing and transportation subsidies. This regional approach ensures that subsidies are more effective and beneficial to those who need them most.

The controversy surrounding subsidies in Nigeria stems from a lack of understanding of the citizens’ diverse needs. A one-size-fits-all approach does not work. It is high time the government tailored its subsidy programs to address the unique needs of different regions, professions, and social groups. Only then can subsidies truly serve their purpose of cushioning the economic burdens of the people.

On the whole, subsidies are a powerful tool for economic stability and social welfare, but their impact is only as good as their implementation. By focusing on targeted, need-based subsidies, governments can ensure that these funds are used efficiently and equitably, fostering a more inclusive and resilient economy. It is time for Nigeria to rethink its subsidy strategy, aligning it more closely with the real needs of its people.