• Friday, April 19, 2024
businessday logo

BusinessDay

The politics of subsidy, moribund refineries and independent marketers

Subsidy gone, effect lives!

Subsidy given to an individual, business or institution—usually by the government—can be direct or indirect. They can assist struggling industries, encourage new developments, and promote a social good or policy. Sometimes by helping one sector or group in the economy, they hurt another group, such a subsidy that helps farmers but increases food prices for consumers. Or they can fail economically but achieve cultural or political goals.

Subsidy is typically given to remove some type of burden, and it is often considered to be in the overall interest of the public, given to promote a social good or an economic policy.

The benefiting independent marketers:

Even if a subsidy is created with good intentions, without any conspiracy or self-seeking, it raises the profits of those receiving beneficial treatment, thus creating an incentive to lobby for its continuance, even after the need or its usefulness runs out. This potentially allows political and business interests to create a mutual benefit at the expense of taxpayers and/or competitive firms or industries.

Whilst appreciating the yeoman effort of the Dangote group in building one of the biggest refineries in the world in two years, analyst have wondered why the business mogul did not invest in solar , wind or other forms of energy that is forward looking. Anyway kudos to him for doing what the government of Nigeria could not achieve in twenty years in two short years with very clear results to show for it.

Subsidy in the West and East :

How the US use subsidies to support the economy

1. Farm subsidies: The US government provides subsidies to farmers to help them produce crops at a lower cost, helping them compete with foreign producers. The subsidies aim to stabilize farm incomes and prices and keep the supply stable.

2. Corporate subsidies: The US government offers various forms of subsidies to corporations, including tax breaks, grants, and direct payments, to encourage expansion, job creation, and investment.

3. Health care subsidies: The US government provides subsidies for health care services, including Medicaid and Medicare programs to support struggling families who can’t afford private health insurance.

4. Education subsidies: The US government offers subsidies to support education at all levels, including grants, scholarships, and loans, to make education accessible to all people regardless of their economic background.

Read also: Stocks of major oil marketers hit new highs as subsidy goes

5. Housing subsidies: The US government subsidizes housing for lower-income families to make it affordable and accessible, mainly through the provision of affordable public housing.

Overall, government subsidies play a crucial role in the US economy, stimulating growth, creating jobs, enhancing competitiveness, and improving the standard of living of the people.

The Japanese and Chinese government are known to subsidise many businesses in their economy especially electronics and automobile products that’s why we are able to afford some electronics products sold expensively in the West but available to us in Africa at a cheaper rate. The government of these countries are known to use it’s resources to prod sectors of the economy that needs help and to generate power . However is this support meant to be perpetual and forever? Definitely not. Subsidies are supposed to be interim measures and the businesses and sectors supported by this help line must be weaned off it as soon as practicable.

Recall former President Donald Trump of the US constantly complained that companies in the US are struggling against Chinese companies and economy because of this singular reason

How far should a subsidy regime go :

There are a few different ways to evaluate the success of government subsidies. Most economists consider a subsidy a failure if it fails to improve the overall economy. However, policy makers might still consider it a success if it helps achieve a different objective. Most subsidies are long-term failures in the economic sense but still achieve cultural or political goals. Support provided by government for such initiatives as trade moni , N-power and others are not always successful. The frustrating experience of Tai Solarin and the People’s and Community banks are still relatively fresh in our minds in Nigeria. These banking initiatives all ended in a failure because loan repayment was abandoned by most of the customers of the bank. These banks met their socio cultural objectives but failed on the business side of thing’s.

For instance with the enactment of the Affordable Care Act (ACA), some U.S. families became eligible for subsidies, based on household income and size.These subsidies are designed to lower the out-of-pocket costs for insurance premiums. In these instances, the funds associated with the subsidies are sent directly to the insurance company to which premiums are due, lowering the payment amount required from the household. According to the President of the Nigeria Labour Congress Comrade Ajaero Government is not a tea party were the easiest solution is what is put on the table for implementation. Government is about tough choices and hardwork these new can’t decree hardship into our lives without doing the hardwork. Fix the refineries first and we would all wave subsidies good bye.

The NLC in principle is not against subsidy removal but the lack of palliatives would translate into suicide for the working public the Congress says. Government is to provide soft landing for the people not to throw stones and bottles on their landing sites. The government of Senator Bola Tinubu seems to have forgotten that his former colleagues in office have abandoned our refineries for nearly two decades and if those refineries were fixed via Turn Around Maintenance we won’t be here today Yoruba people in their deep wisdom are known to say … my idol if you can’t improve my plight left me be the way you met me don’t make my plight worse. The politicians have wasted N13 Trillion on the four refinaries in the country with nothing to show for their efforts .

Organized Labour recently barked at the governments across board that they can’t be collecting taxes , oil & mineral revenues and excise duties and then be running away from challenges and tough calls. Governing 200 million people is not a barbecue party. Senator Bola Tinubu please saddle up for the rough ride. Presidents Jonathan and Buhari could not fix the refineries in 15 years. BAT must device a smart way to do it in two years and then let the subsidy take a walk before then the removal of subsidy would be an albatross for him to bear.

Michael Umogun is a chartered marketer with interest in public policy.