Leading into the 2023 Nigerian Presidential elections, there was an unspoken consensus among the leading presidential candidates that it was imperative and urgent that the Nigerian fuel subsidy regime come to an end. They spoke about it in their interviews and debates and alluded to different reasons necessitating the removal. On May 29th in his inaugural address, President Bola Tinubu stated emphatically that the subsidy regime has officially ended and no amount of protests was going to get his incoming administration to reverse it.
Hitherto, any mention of fuel subsidy removal by the Nigerian government was met with angry protests by the citizenry who had become addicted to cheap fuel. It was also met with efforts to sabotage the edict by the petroleum marketers (the companies who handle the importation and distribution of PMS) as they had equally become addicted to raking in millions and millions of dollars which they pocketed annually in profits and largesse as major players in an inefficient system with poor oversight.
Most memorably, the 2012 attempt at fuel subsidy removal caused an uproar in the streets as the masses, supported by labor unions (NLC – the Nigerian Labour Congress and the TUC – trade union Congress of Nigeria), protested for weeks in what was dubbed OccupyNigeria Movement. Weeks of turmoil lead to the government rescinding the order. In retrospect, it seems this was just a missed opportunity to take off the bloody band-aid on a festering bullet wound in abeyance of the required surgery. Rather, the can was kicked further down the road.
Let the poor breath.
Part of the problem is that since none of the refineries in Nigeria work, the large oil producing state is forced to import the refined petroleum products with the ever scarce, ever appreciating dollar. What this means to the common man is that the more the Naira falls against the dollar, the more you’ll pay at the pump – even at the subsidized prices.
Some of the factors that add to the quagmire are
- Non Functional Refineries –
- None of the government owned refineries have any output though cost the nation billions to maintain annually
- Difficulty Tracking daily consumption
- Due to Fraud – as some marketers pad/falsify numbers to increase subsidy payouts they receive
- Inefficiency – as there is poor oversight and alleged round-tripping
- Seepage to neighboring countries – as Nigeria’s neighbors have found it far more economical to supply their own needs from the subsidized Nigerian supply + cost of logistics, rather than refining or purchase through more scrupulous means.
- Over bloated Cost
- As at a 2022, the nation spent $9.7 billion paying for subsidy alone. Contrast that against the entire national budget of $39.8 billion in the same fiscal year for healthcare, education, defence, infrastructure, payroll, etc, then the discrepancy and unsustainability become quickly apparent
- Depreciating Naira
- Purchase of PMS is a dollar based affair and the more the Naira falls against the dollar, the more you pay, both for the product and for the subsidy
All of these issues factored together, contribute to the reasons why politicians and economists alike agree that the subsidy gotta go
You can plan a pretty picnic but you can’t predict the weather. Sorry Ms Jackson
If we all agree that the removal of the subsidy is the both urgent and necessary, how do we make it to the light at end of the tunnel? I previously made an analogy of the initiative being an injection to a sick person who is deathly scared of needles. You’re gonna feel a sharp pain momentarily, but it’s the effect of the sharp pain that would ultimately restore your health.
We all imagined that there would be some impact to the business and spending habits of the average Nigerian, but we can’t say that anyone accurately predicted the degree. The city of Lagos, notorious for traffic and grid lock has suddenly become a leaner, less congested version of herself. The dreaded rush hours are now easy like Sunday morning and the streets look like the first week of January where everyone has travelled out of the state. Going from Ikoyi to Lekki around 5 pm would easily have you in traffic for about an hour or so before, now you can get there in 15-20 minutes….during rush hour!!!
Though I can’t say that I have the actual numbers, it feels like there’s been about a 65-75% reduction in vehicular traffic in Lagos, which impacts human traffic, which in-turn impacts commercial traffic. You pull up to the fuel station and you are the first or second in line. No queues. You buy a full tank of petrol and the attendant immediately starts “hailing” you as a big man as nobody buys a full tank anymore these days. That’s for the people that still drive their cars.
So I waka waka waka
A significant number of people have just parked their cars in favor of public transportation. As expected, there’s also been a hike in the cost of public transportation and it has more than doubled in many cases. The trip that used to cost N200 or N300 is now N500 to N800 with many low income earners questioning even if it makes sense to keep going to work. Nigeria’s minimum wage is still N30,000 per month which converts to less than $40 at the current Dollar rates.
Others have ditched vehicular movement all together and opt to leg it, slap, trek and camel their way to their respective destinations. You’ve probably seen videos of people walking in droves to various areas of the mainland, Ikeja computer village more notably trying to stretch the lean Naira in their pockets.
A friend joked that one of the upsides of the removal of subsidy is that people will be healthier now as the average Nigerian is walking more. I beg to differ. Anything that’s going to force you to walk in the sweltering West African heat with no money in your pocket and no food in your stomach, probably won’t have a positive impact on your life expectancy either.
Don’t suffocate them. We have that responsibility
In the past decade or so countries like Iran, Morocco, Malaysia, Indonesia and Egypt have all removed the petroleum subsidy. The benefits are definite but not immediate, however in the short term, they all adopted similar measures to try to cushion the effects of the removal on their populace.
Factors that seem to have contributed to success include: strong research/social and political analysis; cash or in-kind transfers to cushion the impact on the poor; policy coherence; a phased approach; attention to public trust; public campaigns; and persistence and adaptability that keeps in mind the key objectives. For example:
Governance and Social Development Resource Centre
- Independent research, conducted early on, can quantify the level of subsidy, assess distribution of its costs and benefits and estimate the likely effects of its removal; and can inform cash transfer targeting.
- To protect lower-income households, several governments initiated cash transfer or benefit-in-kind processes. Such schemes must involve a low-cost administrative mechanism.
- Public education campaigns have been used to promote understanding of the rationale for subsidy removal.
- Direct Cash Transfer
- This is basically sending money directly to those who the government deems are most in need. This is supposedly in the works for Nigeria and Nigerian, but the individual success in each country is primarily based on their ability and effectiveness in identifying and distributing such monies to their populace. Some did one time transfer, some di monthly transfers and Malaysia for instance used about 50% of the savings from the subsidy removal to fund the program
- Nigeria is proposing an N8,000 (about $10) direct cash transfer to its citizens. A full tank of petroleum averages about N40,000 and with the deep level of mistrust of the government, it remains to be seen how effective the cash transfers will be
- Comprehensive Communication Campaign
- The people need to be carried along so the government has to communicate effectively on what is happening and what to expect. Though the communication efforts are apparent, they seem rather disjointed with each headline seeming like an afterthought simply to “fulfil all righteousness” rather than a communication to a partner who is expected to sacrifice so much without fully understanding what exactly is going on
- Encouraging Energy diversification
- Now this is an area where additional opportunities lie. Some people have started converting their fuel generators to gas powered generators and companies like Innoson Motors are claiming they can convert your vehicles to LPG which is considerably more affordable than the PMS alternative. In 2020, NNPC said that it would help convert cars to run on LPG for free, but started charging for N250,000 for the service.
Since the change is price is neither a result of demand pull nor cost push but rather regulatory, there will be an adjustment period before regular market forces can have a predictable effect. There are discussions about increment in the minimum wage but nothing is set in stone as yet. The Dangote refinery that people had hoped would add additional cushion by reducing the demand on the Dollar when it comes online, has shifted its production commencement date for the 3rd time in the past year even after being commissioned by outgoing president Muhamed Buhari in May 2023.
The Labor unions which had been in conversation with the Tinubu administration are threatening a fresh round of strikes in August.
Whatever happens, hopefully we can get it right. Nigeria na the only country wey we get.