A subsidy is defined as any measure that keeps prices for a good or product below market level for consumers or producers. Subsidies can take different forms like grants, tax reductions or exemptions, price control, etc.
Nigeria, since 2012, has embarked on the gradual removal of petroleum subsidies and the effect had been a mixed reaction to economic welfare. While some have argued that the removal of petroleum subsidies had increased the prices of goods and services in Nigeria, some have argued that it has increased socioeconomic welfare since the removal started. The reality remains that the Nigerian economy is yet to feel the full impact of complete subsidy removal.
Despite the huge amount of money the Nigerian government spends on fuel subsidies, the situation in the oil sector has not been promising and Nigerians still experience scarcity of premium motor spirit. There has been a dearth of infrastructural investments in the oil sector due to the enormous funds sunk into fuel subsidization, and as it is now, the government is yet to fix its refineries. As a result, there has been little or no significant improvement in the quality of life for the majority of Nigerians, 54% of who still live below the national poverty line. This explains the frustration of some Nigerians.
This fuel subsidy policy however, has bred several unintended consequences and malpractices which in turn have affected the economy negatively, such as the smuggling of petroleum products out of the country, and claims by the federal government that the fuel subsidy policy has made them unable to tackle problems of our collective infrastructure such as roads, power, agriculture, fixing the refineries etc.
One might ask if the country has made attempts to improve the economy with funds realized from the partial removal of subsidies. Well, in the era of President Goodluck Ebele Jonathan’s reign, the subsidy re-investment programme (SURE-P) was initiated to channel the money realized from the partial removal of subsidy to ameliorate the plight of the generality of Nigerians. The committee set-up was to oversee and ensure the effective and timely implementation of projects to be funded with the savings accrued by the federal government from subsidy removal, increase maternal and child health services, make mass transit available, provision of zero-interest loans to establish transport operations, provide vocational training centres in all the states in the country and the federal capital territory, the construction of road infrastructural projects, to accelerate economic transformation through investment in critical infrastructural projects, to provide internship to the teeming Nigerian graduates yet to be employed, and to mitigate the impact of petroleum discontinuation on the population. Whilst efforts have been made, the country is yet to experience the full actualization of any of the SURE-P programs.
Looking at the immediate impact the removal of subsidy could have on the economy, according to the National President of the Independent Petroleum Marketers Association of Nigeria (IPMAN), Mr Chinedu Okoronkwo, he believes that the initial cost could be up to N750 for every litre of petrol after the full implementation of the subsidy removal, he, however, believes that this pump price is likely to drop to around N500 per litre if the government encourages the Central Bank of Nigeria (CBN) to provide forex to marketers at the official rate.
As we arrive at the destination of this article, it is important to note that the most important factor in this discussion is the health of the Nigerian economy. So, what can the government do to cushion the effect of complete subsidy removal on the economy?
Some experts like The Centre for the Promotion of Private Enterprise (CPPE) have said that the proposed plan to remove petroleum subsidy would improve the Nigerian government’s revenue by at least N6 trillion annually. Others have given clear recommendations on what the government should do, like giving more attention to refining her petroleum here in Nigeria by fixing her refineries and possibly building new ones, embarking on massive infrastructural investments in major sectors like health, education, power and works, with funds saved from fuel subsidy removal. This will create employment for Nigerians and a market for these sectors, which will in turn, serve as a big push for the ailing Nigerian economy, implement appropriate palliatives in the form of public transportation and freight of agricultural produce, ensure transparent and effective communication, and improve access to foreign exchange. They also urged the government to address issues around trade finance, guarantee strategic stock, and provide access to crude oil for refineries ahead of the plan to embark on the total removal of the fuel subsidy.