Fuel Subsidy Removal: As Conversations Return to Issues of Palliatives

With all eyes on President Bola Tinubu to unveil his economic palliatives in the aftermath of the fuel subsidy withdrawal, economic analysts list key priority areas in this report by Festus Akanbi

Having successfully quelled the initial protest that greeted the removal of the fuel subsidy policy which was announced in his maiden address to Nigerians, analysts said the coast is clear for President Bola Tinubu to unveil the economic palliative programmes designed to cushion the pains and frustrations of the new fuel pricing regime.

In a nationwide address to mark this year’s Democracy Day on Monday, the president identified with Nigerians going through a period of economic hardship unleashed by the astronomical hike in fuel pump prices and the attendant high cost of living. 

Speaking during the broadcast, he said: “I feel your pain. This is one decision we must bear to save our country from going under and take our resources away from the stranglehold of a few unpatriotic elements.

“I admit that the decision will impose an extra burden on the masses of our people. Painfully, I have asked you, my compatriots, to sacrifice a little more for the survival of our country.”

Tinubu, during his inaugural speech on May 29, had told Nigerians to brace up for the immediate removal of the fuel subsidy. 

A few days later, the management of the Nigerian National Petroleum Company Limited (NNPCL) announced a hike in the price of petroleum and other marketers immediately followed suit with different prices.  

However, in his Monday broadcast on the occasion of the June 12- Democracy Day- anniversary, the president promised Nigerians massive investment in sectors that will improve their standard of living.

Tinubu said: “The government I lead will repay you through massive investment in transportation infrastructure, education, regular power supply, healthcare, and other public utilities that will improve the quality of lives.”

Cushioning Effects of Subsidy Removal

Analysts lamented that despite the long period of dialogues on the removal of fuel subsidy removal, the necessary investments to cushion the effect of the increase in the pump price of petrol have not been put in place. The consensus is that the increase in the price of petrol would affect Nigerian most directly through transportation inflation and indirectly through many other sectors such as energy, manufacturing, and most importantly, food. It is also believed that the impact will bring a reduction in disposable income across the populace. 

They believe that while the last administration did a bit by investing in the construction of roads and rail infrastructure across the country, the new administration would need to complete these projects very speedily for Nigerians to feel their impacts. This was the position of a Lagos-based economic analyst and Group Executive Director, Cordros Capital, Mr. Femi Ademola.

Investing in Infrastructure

Ademola said that “The provision of physical infrastructure will benefit most Nigerians that reside in the urban centres. However, the residents of the suburban and rural areas would need more government interventions in the provision of basic social infrastructures such as schools and hospitals. The savings from the fuel subsidy removal should therefore be used to invest in transportation infrastructure, educational and health infrastructure, and energy infrastructure.

“There is no doubt that the implementation of the above would take some time and the people would have to bear some pains for some time. Hence, the request for wages and salary increases may not be a totally bad idea. However, increases in salaries will benefit those in formal employment, the informal sector, the unemployed and other vulnerable populations who may not benefit from such salary increases. It may therefore be necessary to consider some conditional cash transfer to the most vulnerable people using an approach similar to the successful “Bolsa Familia” Programme adopted by the Brazilian government.” 

Targeting the Extremely Poor

However, unlike the experiment of the previous administration that was shrouded in secrecy, Ademola suggested the new administration should adopt a conditional cash transfer that targets the extremely poor families, saying that with this, the effect of the subsidy removal would be well cushioned at the lower ends while the formal sector benefits from the expected improved economic and business activities that should follow the end of the fuel subsidy regime.

However, in his input, the Director and Chief Executive Officer Centre for the Promotion of Private Enterprise, Dr. Muda Yusuf called for a combination of what he described as direct and indirect policy measures from government and private policymakers.

Yusuf, who is also a former Director-General of the Lagos Chamber of Commerce and Industry (LCCI) called for policies that will convince Nigerians that savings from the scrapped fuel subsidy programme are expended on policies and programmes targeted at the people.

Upscaling Power Supply

For instance, while calling for the acceleration of the Presidential Power Initiative to upscale power supply in the country, Yusuf said state governments and private investors should be supported to leverage the decentralisation of power supply and off-grid power solutions. This, according to him, would reduce the demand for petroleum products [petrol and diesel] for purposes of electricity generation by households and businesses.

He stressed the urgent need for government to put an end to the pricing of gas in dollars for domestic use, especially for manufacturers, adding that necessary urgent steps must also be taken by the government to put an end to this dollarisation framework to ensure moderation in energy cost for the manufacturing sector. He said the recent reduction in the LPG price is laudable, but that the price reduction trajectory should be sustained to ease pressure on households and prevent deforestation. 

On the appropriate fiscal policy needed, Yusuf suggested that import duty, VAT, and other port charges on Semi Knocked Down parts for the assembly of mass transit buses should be waived.  This, he said, would not only make mass transit buses cheaper but will also enhance industrial capacity utilisation of the vehicle assembly plants in the country. 

Reducing Import Duty on Passenger Buses

He also called for a 50 per cent reduction in import duty on passenger buses of 15 passenger capacity and above for the next one year; a 30 per cent reduction in import duty on fairly used cars of engine capacity of 2000cc and below, saying the latter would enhance access of the middle class to vehicle ownership in the light of the high deficit in the provision of public transportation.

He enjoined the government to engage major food processing companies to determine specific policy options for the realisation of this objective. This would moderate food inflation.

“All agricultural inputs – machinery, agrochemicals, fertiliser, etc. should attract zero import duty and zero VAT.  This would boost investment in agriculture, especially commercial agriculture.  Higher agricultural output would boost food production and ultimately moderate food inflation,” he said.

Tax Exemption 

He suggested that gross monthly salaries of N200,000 and below should be exempted from payment of Personal Income Tax (PAYE). This, he believes, will give low-income earners some room to improve their spending capacity and reduce poverty.

Saying the private sector needs to be part of the moves to make life meaningful for Nigerians, Yusuf said employers, especially thriving medium and large enterprises, should be persuaded by the government to provide buses for their employees if they are not already doing so.  This, he believes, would complement the intervention of government in this respect. Where possible, employers should provide lunch vouchers for their staff.

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