To cushion the effect of the removal of petrol subsidies, experts say the incoming government must enact policies that will enhance supply liberalisation, promote competition and price stability as well as protect consumers.
The President Muhammadu Buhari-led administration leaves office May 29 and hands over his successor an economy with a public debt stock of over N46 trillion, a third of the citizens unemployed, declining oil revenues and low crude oil production while subsidy payments have gone through the roof.
Oil marketers under the aegis of the Major Marketers Association of Nigeria (MOMAN), in a publication shared with BusinessDay, said Nigeria now needs policies that will promote supply liberalisation and competition. They must also be inclusive and transparent.
The country also needs to level the playing field, allowing access to the country’s logistics as well as access to foreign exchange at competitive rates.
Policies that will cushion price and supply volatility and robust onshore and floating strategic stock management are also required. This will curb scarcity of products and the attendant social dislocation.
For sustainable development practices and enhancement of regulations, the government should prioritise health and safety and carry out periodic reviews of regulations and guidelines to keep pace with international best practices.
Managing social change through effective public and stakeholder engagement is vital to the successful implementation of deregulation.
There should also be strong regulation and active consumer protection to protect against imperfect competition.
“Benefitting fully from price deregulation requires getting as close as possible to having perfect market competition,” MOMAN said.
Some analysts have called for phased removal. “A gradual removal of, say, 30 percent or 50 percent, whatever percentage of the subsidy, will allow people to start adapting to the cost of petrol,” said Promise Nwogu, co-founder and president of African Youths in Energy Network.
Deregulation of the downstream sector, according to experts, will improve the efficient use of scarce resources, end the scarcity of products, and improve the sector as operations will be governed by market rules.
Where subsidies savings should go
Nigeria’s next president would have to confront serious challenges from day one, and none more contentious as the removal of petrol subsidies, which cost the country over N18 billion daily.
“The next president will be tasked with a course correction anchored on sound economic policies, fiscal and structural reforms, as well as monetary policy orthodoxy,” Gbolahan Taiwo, an analyst at JPMorgan Securities Plc, was quoted as saying in a note.
“The top policy priorities are clear with fuel subsidy reforms and the liberalisation of the foreign exchange market at the top of the agenda,” he said.
Analysts say how petrol subsidy is managed will partly determine its success.
Read also: Subsidy, stranded crude rob Nigeria of gains in OPEC+ cut
According to Etulan Adu, an oil and gas production engineer, if government savings from subsidy removal is not channelled for agricultural development, health care, manufacturing, power generation and distribution, infrastructures, and transportation, then the common good of the people has failed.
He said the Nigerian National Petroleum Company (NNPC) Limited and the government can use the savings to run efficient refineries that provide the necessary energy for the economy.
In January this year, during a meeting with the Nigerian Economic Summit Group in Lagos, Bola Tinubu, who is now the President-elect, said Nigeria needs to remove subsidies as it has lost its importance.
“The subsidy money will not be saved because that means elimination from the economy. Instead, we will redirect the funds into public infrastructure, transportation, affordable housing, education, health, and strengthen the social safety net for the poorest of the poor, thus averting increased security challenges,” Tinubu said at the meeting.
Tinubu also promised to carefully review and better optimise the country’s system of multiple exchange rates – a central bank policy he described as somewhat arbitrary.
Franklin Ngwu, director of public sector initiative at the Lagos Business School, during a recent interview on Arise TV, called on the government at all levels, including the private sector, to increase the salaries of their workers as a way to cushion the impact of the impending fuel subsidy removal.
Ngwu suggested that the government should divert the money saved from the subsidy removal to critical areas of the economy such as transportation, infrastructure, education and healthcare.
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