RESTORING PETROL SUBSIDY

 SEUN AWOGBENLE argues that Atiku’s proposal will be difficult to implement

On the day President Bola Tinubu was inaugurated in May 2023, I was fortunate to join the Arise News marathon coverage in a segment that followed the inaugural address. I described the policy announcements that followed as important quick fixes for an economy that was already flat on its knees.

President Tinubu was inheriting a fragile economy with mounting debts, low revenue, and multiple subsidies that created a big hole in our public finances. States were struggling to pay salaries, and fuel subsidies were taking up all our earnings. It got so bad that we began to pledge away the oil we had yet to produce to creditors just to get some quick reprieve.

That the petrol subsidy, which constituted a major drag on our finances, must go was the refrain of almost all the presidential candidates in 2023, including former vice president Atiku Abubakar. More than three years after President Tinubu’s decisive move, I had quietly hoped that the subsidy removal would no longer be a tool for political opportunism. And that if there was any debate at all, it would be on how to better manage the attendant fallout, and on that basis we might diverge. 

But look, to bring back fuel subsidy is to take Nigerians back to the biblical Egypt. Whatever Atiku is trying to do, I believe it is just political opportunism, but even as mere political rhetoric, it is a dangerous proposition that sets Nigeria back by a mile.

There are three layers to the pro-subsidy removal argument: the first is that the fuel subsidy was creating a major hole in our public finance and, in essence, created distortion in our economy; the second one is that in retaining that line item, we were crowding out investments in other key sectors of the economy, which had made allocation of resources inefficient; the last argument is that removing the subsidy gives government the fiscal headroom to make investments in the sectors that support growth.

And I say fiscal headroom because a lot has been said about some phantom fuel subsidy savings. But how do you save what you never had? Nigeria was essentially borrowing to pay fuel subsidy; it was a net negative. Removing fuel subsidies only helped to stop the economic bleed. The increase in government revenue is partly driven by foreign exchange devaluation, where every dollar translates to more in naira compared to what it was when we operated a hard peg.

But the real danger is not just in what Atiku is proposing; it is in how he would achieve it based on the current realities of the oil sector. Atiku is proposing a producer-based subsidy, which would be provided directly to local refiners at a discount. With most of our share of oil already pledged to creditors under a previous subsidy arrangement, it is unlikely that we would have enough to meet the demand of local refiners.

Assuming without conceding that Nigeria has enough domestic allocation after accounting for export, who is going to pay for the difference between the market price and the discounted price? What is going to happen to the states and local governments whose obligations have ballooned with a higher minimum wage and capital projects? And in any case, the federal oil includes the state and local governments; Atiku’s proposal would require the buy-in of sub-nationals, who are not likely to voluntarily agree to a pay cut.

I would understand if Atiku were speaking about relief in light of the tensions in the Middle East leading to the blockade of the Hormuz Strait, pushing up energy prices globally to astronomical levels, but no, Atiku is saying he wants Nigeria to bring back a blanket subsidy that is reminiscent of Nigeria’s dark days. 

I believe that if there was any debate at all, it must be on how to manage the attendant fallout and channel part of the fiscal headroom into sectors that provide some cushioning and direct relief to the most vulnerable. The increase in the cost of food items and transportation are the two major issues that have impacted household income the most. These are the areas we must look to accelerate intervention by ensuring that food items are not priced out of the reach of the ordinary people and encourage states to implement mass transit schemes.

With that said, a lot has been said about the gains of the reform in the form of higher revenue to states, competitive exports, stronger foreign reserves, foreign exchange stability, and a generally much improved macroeconomic climate. However, I believe that the most important gain from the reform is that it has helped to rebuild our economic foundations, which is a condition that is necessary for the jobs, direct investments, businesses, and growth we want to see in the economy.

I am in no doubt that people must be at the centre of the government agenda, but there is almost nothing we can achieve as a nation when the assumptions and fundamentals that underpin our economy are contrived. We have lived a lie for too long, and this is the closest chance we have had for a reset.

 Awogbenle, a development economist and founder of Policraft, writes from the United Kingdom. He can be reached via seunawogbenle@gmail.com.