• Sunday, June 23, 2024
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Lessons from Kazakhstan over fuel subsidy

Fuel subsidy removal: Nigerians are paying for chronic government failure

The current turmoil in oil-rich Kazakhstan over an increase in fuel price is a template of how Africa’s biggest oil-producing country may look like if issues concerning petrol subsidy are not properly managed.

Powerful anti-government protests are currently rocking Kazakhstan after a sudden hike in fuel prices drew intense public condemnation over last weekend, a scenario that holds many lessons for Nigeria’s economic managers who are also on a voyage to wean the country off petrol subsidy in July 2022.

The development in Kazakhstan began with the phased transition to electronic trading for fuel prices that began in January 2019 and concluded on the first day of 2022.

The idea was to gradually end subsidising fuel for domestic consumers and to allow the market to dictate prices instead.

This meant that almost all trade in fuel happened over online trading platforms, with the exception of sales to industrial consumers in the petrochemical sector and a few other cases.

This policy has, predictably enough, led to a particularly precipitous rise in costs where demand for this fuel is high, which has been the case in Kazakhstan’s western Mangystau region.

In a matter of days, prices for fuel used in powering their vehicles doubled from $0.14 to $0.28 per litre.

Read also: How oil-dependence truncated Nigeria’s industrial development

This sudden spike set off the latest crisis in the dusty western oil town of Zhanaozen, a region most Kazakhs claim the roads are often poor, public amenities below standards, and because food has to be brought in over long distances, it can often end up costing more than in those richer urban centres.

Just like Kazakhstan, the poor in Nigeria rely heavily on public transit. As a result, their per capita fuel consumption is substantially lower than that of the country’s rich, who typically drive private vehicles.

To avoid Kazakhstan’s scenario, experts believe Nigeria has to plan properly by putting structural policies in place to reduce the economic effects of subsidy removal on struggling Nigerians.

“The economic case for the removal of Nigeria’s fuel subsidy regime is very clear but how you do it also matters,” Joe Nwakwue, former chairman, Society of Petroleum Engineers (SPE), told BusinessDay.

In Africa’s biggest economy, removing subsidies has heated up the polity in the past and in recent times. The most popular being the Ojota protests of January 2012, which some argue was a big factor towards the end of the People’s Democratic Party (PDP) regime of Goodluck Jonathan and the birth of the All Progressives Congress (APC).

The Jonathan administration tried a public education campaign to explain the economics behind the need to remove subsidies as well as proposals to direct the savings to a special fund for infrastructure and education – the SURE-P programme, as it was called. All those efforts were torpedoed when petrol subsidy was removed on January 1, 2012, prompting the protests. Corruption was the problem, most Nigerians claimed.

“The main argument, therefore, is that money spent on subsidies can be better spent elsewhere. Spending that subsidy money on infrastructure, or education, or health is a wiser investment than spending on fuel subsidies that benefit mostly more affluent households,” Nwakwue said.

Nigeria has planned to remove petrol subsidy this year with N5,000 monthly payment to over 40 million poor people.

“Our assumption is that by June, we would have been able to work through a process together with all stakeholders including the National Oil Company, all the regulators in the oil and gas sector, different MDAs that have a role to play as well as businesses and labour organisations,” Zainab Ahmed, minister of finance, budget, and national planning, said during the public presentation and breakdown of the highlights of the 2022 budget in Abuja.

She, however, said there were also other proposals in this regard, including identifying through the transparent workers union, commercial vehicle drivers, get them registered and pass the subsidies through them using vouchers.

Data collated by BusinessDay show between January and September last year, the Federal Government collected N2.81 trillion in taxes but spent over N1.004 trillion, equivalent to 48 percent of taxes collected, on petrol subsidy, an expenditure pattern analysts say puts the economy at risk.

Further analysis shows that what Nigeria paid to subsidise petrol in 2021 is higher than what it budgeted to spend on education and health, expenses that would have raised the living standards of its people and translated to economic growth.

Beyond fiscal crises, wasteful petrol subsidy means fewer opportunities in making life better for Nigerians, most especially the generation Z, the generation born between 1997 and 2012/15.

They are currently between 8-23 years old and are a generation impatient with failed leadership structure, a development that could lead to a decline in the loss of skilled manpower to countries that prioritise them better.